Wang Shucui | Scholar of Alibaba Season 5 Living Water Program/Alibaba Business School, Hangzhou Normal University The foundation of the existence of enterprises lies in creating value. According to the marketing concept, the game rules between enterprises and customers are win-win. Enterprises can create customer value and corporate profits by providing products and services that meet customer needs. To this end, we need to explore how enterprises can efficiently organize internal and external activities to produce and sell products and services to create profits. Therefore, Michael Porter, a famous strategist at Harvard Business School in the United States, proposed the "value chain analysis method", which divides the activities that increase the value of enterprises inside and outside the enterprise into basic activities and supporting activities. Basic activities involve enterprise production, sales, incoming logistics, shipping logistics, and after-sales service. Supporting activities involve personnel, finance, planning, research and development, procurement, etc. Basic activities and supporting activities constitute the value chain of the enterprise. Among all the activities of the enterprise, only certain specific links can truly create value. These business activities that truly create value are the "strategic links" on the value chain. In order to maintain a competitive advantage, enterprises must be able to maintain efficient operation at a certain strategic link in the value chain, save more costs or create more value. These strategic links either come from within the enterprise or from outside the enterprise. In the Internet+ era, all links of the enterprise value chain are being infiltrated and transformed, giving rise to various Internet business formats and innovative business models. Therefore, this article hopes to explore the organizational changes and business evolution of traditional industries through the Internet analysis of all links of the enterprise value chain.
According to Michael Porter's value chain, we can simplify the strategic links of the value chain of general enterprises into six links: raw material procurement-design and production-distribution channels-marketing and advertising-sales consumption-after-sales service. The value chain is dominated by enterprises, and each link drives the one-way operation of the entire chain layer by layer, reducing costs, optimizing output, creating value and distributing benefits through each link, thereby ensuring the stable and continuous operation of the value chain. However, due to the incomplete controllability of internal functional departments and external entities of enterprises, conflicts of interest and poor cooperation often occur, so this chain is still fragile in a fiercely competitive environment, which also leads to the inevitable Internetization of the subjects and activities of each link in the chain, thus deriving various Internet phenomena and business cases, triggering organizational changes and model innovation.
Gao Hongbing, director of the Alibaba Research Institute, believes that "Internet +" refers to the diffusion and application process of a set of information technologies (including mobile Internet, cloud computing, big data technology, etc.) based on the Internet in various sectors of economic and social life. As a general purpose technology and the lowest-cost infrastructure, the Internet will have a huge, far-reaching and extensive impact on human economic society, just like the power technology 100 years ago and the steam engine technology 200 years ago. The Internet's natural global openness, equality, and transparency have enabled the huge potential of information/data that has been suppressed in industrial society to burst out, transforming it into huge productivity and becoming a new source of social wealth growth. The essence of "Internet +" is the online and data-based transformation of traditional industries. In the past decade, from a micro perspective, at the enterprise value chain level, it has manifested itself as the Internetization of each link: starting from the online consumer, from customer service to sales consumption, marketing promotion, wholesale and retail, design and production, and raw material procurement, it has penetrated upstream from the C-end to the B-end, realizing the "reverse" Internetization of the enterprise value chain. See the figure below for details: Internet + traditional enterprise value chain. However, from a meso- and macro-perspective, this change in the value chain has led to the Internetization of industries to varying degrees. These industries are roughly in the following order from earliest to latest: marketing and advertising, wholesale and retail, cultural and entertainment, life services, finance, cross-border e-commerce, manufacturing, etc. In this regard, You Wuyang, a senior expert at Alibaba Research Institute, has made some elaborations. This article will analyze the onlineization and dataization of the six major links of the value chain in a more systematic and profound manner, discover the motivations for the transformation and subversion of each link, as well as the commercial phenomena and new formats that have been spawned, and hope to provide some inspiration for predicting new species of the Internet in the future.
Figure: Internet + Traditional Enterprise Value Chain
1. After-sales service
The after-sales service of traditional enterprises will lag behind consumer behavior for a long time. It may take a few days or even months for customers to actively report problems in product consumption, or for enterprises to actively inquire about customers through customer service telephones. Moreover, communication is often low-frequency, low-effective, and low-efficiency. However, after-sales services of online merchants or corporate websites based on the Internet can achieve 24-hour online customer service and consultation interaction through instant communication software. After purchase, customers can instantly contact customer service for online consultation, report problems, and exchange feedback. Today, enterprises that conduct cross-border trade through Alibaba can also provide 24-hour international online customer service. The speed and convenience of this after-sales service greatly improves the efficiency and effectiveness of communication, reduces the possibility of trivial matters becoming major ones and the spread of negative comments, and improves customer satisfaction and corporate reputation. With the refinement of social division of labor, third-party Internet companies specializing in Internet customer service have now emerged. They recruit and train social personnel to undertake the customer service work of enterprises, and employees are also free in their work location and time. This operation mode achieved with the help of big data and remote management is called cloud customer service. The company supports the remote online customer service work of online merchants through the work-from-home mode of social personnel scattered across the country, helping online merchants to focus more on core businesses such as products.
2. Sales and consumption
The first generation of the Internet was dominated by portals, games, search engines, and social networking. It originated from the technological revolution and mainly provided self-consumption of information and entertainment. The business model these websites relied on was traffic monetization and advertising revenue. A group of early Internet users cultivated during this period became the promoters of the second generation of the Internet economy. The second generation of Internet entrepreneurs emphasized market demand and profit models, so the online wholesale and retail business that focused on industry and individual needs became the focus, promoting the perfect transformation of Internet organizations from social portals to commercial companies. Today, Baidu, NetEase, etc. are also using the development and sales of various products and services to improve their profitability. Alibaba has put forward its slogan "making business easy" since its birth, and clearly positioned itself as an Internet business company serving business. It started with international and domestic online wholesale business, and quickly grew in Taobao retail business. Later, Tmall, which was differentiated, demonstrated its leading position in the domestic online retail market. The fundamental reason for its development is that it meets consumers' demand for convenient and affordable products. The key to success is to provide a wide range of product types and preferential prices with small profits but quick turnover, attracting consumers to gradually switch from offline consumption behavior to online shopping behavior. This type of Internet company that takes online wholesale and retail as its entry point not only relies on the huge production capacity of existing traditional industries, but also seizes the supply gap brought about by China's relatively weak offline retail industry. More importantly, it benefits from China's demographic dividend and consumer market potential. This low-risk, low-investment online wholesale and retail business provides the first pot of gold for the development of Internet companies. With the promotion of cross-border e-commerce by the national Belt and Road Initiative, it can be foreseen that the online wholesale and retail business will usher in the next blowout peak and development opportunities in the future.
Although the purchase and consumption of existing goods and services is already a very large market, in the future individuals will not only be satisfied with the consumption behavior of purchasing goods, because these only meet their low-level physiological, safety, communication and other needs. After the low-level needs are met, consumers will have higher-level needs, such as respect, self-realization, and self-transcendence. The satisfaction of these needs is not necessarily a commodity, but requires newer and more advanced services and experiences to express and satisfy them, such as demonstrating social status, community leadership, challenging extreme sports, health and wellness, frugality and environmental protection, sharing altruistic behaviors, etc. Correspondingly, it will give rise to new economic phenomena such as high-quality personalized brands, fan economy, experience economy, consumer value co-creation, and health and wellness, which provides unlimited imagination and possibilities for the development of supply for Internet business.
3. Marketing Advertising
The first generation of the Internet has built a 100 billion-scale Internet advertising market based on online. According to research by iResearch and Huatai Securities Research Institute, the scale of the Internet advertising market in 2014 was 154 billion, a year-on-year increase of 40%. Moreover, this market will continue to replace and subvert today's offline advertising media and a considerable proportion of the business scale. Alibaba recognized the potential scale and development trend of this business, so it established a professional online advertising platform - Alimama 8 years after its establishment, integrating various advertising media inside and outside the platform to provide various innovative online marketing tools for enterprises' online marketing. At present, Baidu's annual advertising revenue exceeds that of CCTV, and Alimama exceeds that of Baidu. Compared with traditional marketing promotion ideas and strategies, Internet marketing promotion reflects many unique features:
1. In terms of communication direction, Internet marketing is a combination of C2B and B2C. Traditional marketing is a B2C model, that is, manufacturers release advertisements and promotional information, and customers passively accept them. In the Internet, especially the mobile Internet era, consumers will use various online information search tools to choose to browse some products according to their personal wishes and interests. Consumers have become the absolute leaders of online information. Consumer attention, consumption willingness, browsing scenarios, etc. are all new topics worthy of research. Although companies can also use various technology-driven innovative online marketing tools to expose product and service information, their reach and impact depend on the accuracy of their research on consumer purchasing behavior.
2. In terms of communication costs, the price of traditional media resources is getting higher and higher due to the limited supply and strong demand. The Internet is free and low-cost. Online communities, forums, Weibo, WeChat, QQ, etc. all provide a lot of free communication opportunities and space. Many websites rely on the development and design of various online marketing tools that can accurately deliver information to charge fees, but this price is still low compared to traditional media prices. In addition, in terms of pricing methods, instant auctions, fixed prices, click-through billing and other methods are used for advertisers to choose.
3. In terms of the audience, there are two extremes: mass diffusion and niche focus. A lot of free information will remain in the Internet world and can be searched at any time. Paid promotional information is effective for a certain period of time, but the audience is accurate and the traffic conversion rate is high. The former has a long-term promoting effect on the company's reputation and corporate image, while the latter combines e-commerce and marketing promotion efficiently, with obvious output effects.
4. In terms of communication tools, we should keep innovating and enriching them. The development and application of these tools depend on Internet technology and big data applications on the one hand, and on the needs of advertisers and customer groups on the other hand. As the leading real-person big data marketing platform in China, Alimama has been building a data-driven full-link marketing solution platform, including search marketing (through train), precision targeted marketing (targeted and diamond booths), content marketing (Taobao customer), full network marketing (DSP), big data management platform (Damo disk MDP), wireless marketing, etc. These exclusive and original marketing tools and system solutions need to be analyzed and studied in combination with the business status and supply and demand characteristics on the Alibaba platform from development, pricing, and application objects, to ensure that each marketing tool has an application scenario with accurate positioning, reasonable cost, and obvious effect, so as to improve traffic conversion rate and input-output ratio. This innovative online marketing tool is in sharp contrast to the situation of offline media solidification.
4. Distribution Channels
Distribution channels are the most directly and seriously affected by the Internet. New business forms derived from them include online wholesale, online retail and online industrial clusters, such as Alibaba Group's 1688, Taobao, Tmall, industrial belts, local specialty pavilions, Juhuasuan, etc. There are two reasons for this. One is that the current traditional retail industry is relatively weak, and the other is that there is great potential in market demand. The proportion of e-commerce in China's retail reached 10.6% in 2014, exceeding the proportion of e-commerce in the United States. In Europe and the United States, e-commerce is basically icing on the cake, and is often just another marketing channel for mature offline giants. It should be said that in China, the development status of traditional offline retail has provided particularly good opportunities for the development of e-commerce. Professor Zeng Ming, Alibaba's chief strategy officer, pointed out that the coverage rate of shopping malls in China is very low. France has an average of 25 shopping malls per million people, Americans have nearly 10, and even South Korea has more than 5. However, China, the world's most populous country, can only visit one shopping mall per million people on average. China's retail integration rate (that is, the proportion of the top 20 retailers in total transaction volume) is only 13%, which is obviously in the early stages of development compared with Western European countries with more than 50%. The development of offline physical retail is insufficient to meet the needs of consumers. This is one of the important opportunities for the development of China's e-commerce.
In addition, for many years, China's retail industry has been facing high terminal retail prices and poor service due to the long supply chain and channels. In order to meet consumers' demand for lower-priced products and services, enterprises need to reduce various costs and expenses and reduce the intermediate distribution links of products and services. The most effective way is to adopt a direct sales model from manufacturers to consumers. The Internet provides this convenience, so online wholesale and retail business naturally becomes the basic and leading business for the development of the Internet platform economy. Whether it is for some highly competitive manufacturing industries (such as home appliances) or some life service industries (such as catering) with poor supply and demand information, the Internet provides a wide range of producers and consumers across the country with the opportunity to trade directly online. This model will undoubtedly subvert the offline distribution channel merchants that most manufacturing industries rely on, and has a certain degree of destructiveness to traditional retail, distributors and related industries, but at the same time it has also obviously stimulated and released market potential, promoted a substantial increase in final consumption and economic prosperity, and even achieved China's retail industry in the international market. According to the National Bureau of Statistics' 2014 economic operation data, the total social e-commerce transaction volume reached 16.39 trillion yuan in 2014, a year-on-year increase of 59.4%, becoming the main engine driving economic growth. Among them, online retail sales maintained a high growth rate, increasing by 49.7% year-on-year to 2.8 trillion yuan, which shows that the innovation of consumption patterns and the growth of consumption have become the new driving force of my country's economic growth. According to Alibaba's statistics in recent years, in 2006, Taobao's online retail transaction volume exceeded 10 billion, while Walmart's transaction volume in China that year was only about 200 million. In 2014, the transaction volume of the entire Taobao website was 2.27 trillion, which has exceeded the transaction volume of Walmart in the United States. It is expected that one day in 2016, the online retail transaction volume of the entire Taobao website will exceed that of Walmart worldwide. The latest data also shows that the current market value of the 16-year-old Alibaba (US$206.7 billion) is slightly lower than that of the 53-year-old global retail giant Walmart (US$230.5 billion).
5. Design and production
Professor Zeng Ming believes that B2C is only a transitional business model, and the real model of future e-commerce lies in C2B. The B2C standard model is the operating model of the traditional industrial economy era. With the development of the Internet in the future, the voice of consumers will become stronger and stronger. "Customization of business models in the future will be the mainstream. It requires personalized needs, multiple varieties, small batches, rapid response, and platform collaboration. This is the future we can see." At present, consumers' demand and enthusiasm for participating in production are becoming stronger and stronger. Xiaomi, which sells mobile phones directly through the e-commerce model, is a successful case. It develops rice noodles into potential consumers through word-of-mouth communication on social networks, and constantly absorbs consumers' opinions and suggestions on products to improve products. It not only saves market research costs and distribution costs of traditional channels, but also improves consumer satisfaction and loyalty through continuous product improvement. In this process, the full interaction between consumers and enterprises completes the product design work. In addition to consumers participating in design, there are also professional Internet companies that provide professional creative and product design services. For example, Zhubajie.com is the largest e-commerce trading platform for creative design services in China. Its service trading categories cover creative design, website construction, online marketing, copywriting planning, life services and other industries. It provides customized solutions for enterprises, public institutions and individuals, and transforms creativity, wisdom and skills into commercial value and social value. Creative design includes logo design, packaging design, product/industrial design, clothing design and so on.
During the production process, enterprises are also responding to the small batch, customized, diversified and personalized needs of Internet customers through flexible production. Therefore, enterprises collect information on customer customization and personalized needs through the user end, and then improve the original production process and appropriately outsource production to quickly meet customer needs. Taking Han Du Yi She in the clothing industry as an example, its operation mode is completely different from that of traditional clothing companies. It adopts the "single product full-process operation system with the group system as the core", referred to as the "group system". This model breaks up and reorganizes the traditional linear functional system, that is, one person is drawn from each of the three departments: the designer department, the product page team, and the department that connects production and manages orders. A group of three people is formed. Each group is fully responsible for the design, marketing and sales of a piece of clothing. The commission of each group will also be calculated based on the gross profit margin and capital turnover rate. This method of dividing the accounting unit into small units and unifying responsibilities, rights and interests is more conducive to activating the combat effectiveness of each small team. In 2014, Han Du Yi She had 267 groups and launched 30,000 new products, which is far more than the annual number of new products of ZARA, the leading brand in the fast fashion field, which is about 18,000. In addition to enterprises themselves proactively reforming their production processes and management mechanisms to respond quickly to the market, platform companies are also trying to provide supply chain optimization and coordination functions. For example, Alibaba has launched the Taobao Factory service project. Taobao Factory is a bridge built by Alibaba between e-commerce sellers in the clothing industry and high-quality factories. It aims to help factories realize their e-commerce transformation, open up the entire online clothing supply chain ecosystem, and help e-commerce sellers find multiple factories that can provide small batches, multiple categories, and have idle production capacity, helping e-commerce companies achieve flexible production and rapid response capabilities.
In short, the Internetization of design and production links reflects multiple subjects and multiple models, including consumers involved in design and production, outsourcing service companies for creative design, corporate production process transformation and organizational change, external platforms that provide supply chain optimization functions, etc. No matter which subject promotes which model, it is a deeper Internetization of the manufacturing industry, and will certainly greatly improve the production efficiency and benefits of the enterprise.
6. Raw material procurement
Traditional enterprises need to possess and purchase resources in their operations. The property rights of enterprises are clear, and the boundaries of resources and organizations are clear. Enterprises try to establish competitive advantages or maximize input-output through exclusive resource advantages. The characteristics of the Internet are resource sharing, information transparency, light assets, and zero marginal costs. Therefore, the Internetization of raw material procurement is manifested as resource integration rather than purchase. Resource integration includes traditional human, financial, and material resources. It adopts the method of leasing or free use, and jointly realizes value creation with resource providers, rather than the traditional method of resource procurement and possession. Clay Shirky of the United States pointed out in 2012 that cognitive surplus is one of the biggest dividends given to Internet practitioners by netizens in the new era, that is, the resource endowment that everyone can share. Cognitive surplus refers to people who are educated and have free time. They have a rich knowledge background and a strong desire to share. The time of these people is gathered together to produce a huge social effect. How to create a platform for more partners to co-create and for users to choose freely is a question that practitioners in the new era of the Internet need to think about. On this platform, users will be the content leaders and sharing providers. The Internet is becoming an organized, cheap and globally applicable sharing tool. Netizens use this medium to achieve consumption, creation and sharing. It can be said that the cognitive surplus of netizens can produce shared value through cooperation and exist in the form of non-profit social organizations or commercial companies. A typical case of value co-creation through resource sharing and cognitive surplus is Uber. This company does not have a single taxi for use, nor does it have many fixed assets. The number of employees worldwide is less than 100. It promotes the crazy growth of the company by integrating the idle car resources and leisure time of netizens and providing taxi services with private car owners. Although it is boycotted wherever it goes because it damages the interests of local taxis, it also receives support from more local private car owners because it provides private car owners with the opportunity to start their own businesses freely. The integration of idle resources is the core competitiveness of this Internet company. This case also reminds all manufacturing and service industries how to achieve the minimum investment and lightest assets of the company through the sharing and connection of idle resources and cognitive surplus. Airbnb, Waze, Youku and other Internet companies are also successful by integrating resources and cognitive surplus. In addition to integrating idle resources externally, Internet companies are also downplaying the internal management hierarchy and supervision, and trying their best to provide an internal environment that promotes employee entrepreneurship and stimulates employee consciousness and creativity. For example, giving employees shares and partner status is becoming a trend in employee management in Internet companies, which maximizes the release of employees' entrepreneurial and innovative potential and allows employees to work hard like bosses. These two practices show the same Internet trend: using resource integration rather than the concept of possession to build the human, financial and material operating resources of the enterprise.
VII. Summary
Today's Internet+ is unstoppable. As Alibaba Chairman Jack Ma said, if you don't do e-commerce today, you will have no business tomorrow. Under such circumstances, the value chain links of traditional enterprises are being penetrated, transformed and subverted one by one. In simple classification, the manufacturing industry shortens the chain and connects customers to participate in the design and production of products by going online directly. The life service industry alleviates the situation of poor supply and demand information by going online, and also achieves a better match between production and demand by adding intermediate links (intermediaries such as Ctrip and Dianping), accelerating the release of service industry production capacity, stimulating the demand for life services and driving the development of the domestic economy. The Internetization of the intermediate links of the value chain belongs to the transitional stage and partial Internetization. The most thorough Internetization comes from new discoveries and creations on the customer demand side and the enterprise resource side. Innovation on the demand side refers to how to discover the deep, hidden, and advanced unmet needs of customers, and create new enterprises or organizations through the development of new products and services. For example, the open source movement and Baidu Encyclopedia reflect the potential creative needs and altruistic spirit of netizens. This is a higher level of self-realization and self-transcendence needs of individuals that cannot be satisfied by existing goods and services. It is an individual experience and creative behavior inspired by the Internet world and community organizations. This behavior gathers and becomes a new service and organization on the Internet platform. Resource innovation from the enterprise side is the utilization of idle traditional resources and personal cognitive surplus. For example, the P2P Internet financial service platform integrates idle funds in the hands of individuals, Airbnb integrates idle housing sources for individuals, Didi integrates idle private cars and free time for individuals, and Alibaba Group integrates the entrepreneurial resources and personal energy of all entrepreneurs. This innovation from the customer side and the enterprise side is the ultimate embodiment of Internet + in the enterprise business model. This is a subversion and reconstruction of the traditional value chain, and it is also the direction of the efforts to Internetize traditional industries. Under the influence of Internet+, the industrial structure is no longer a one-way value chain distributed vertically offline, but a value network that is interconnected and intertwined online and offline. Internet platform companies have become the transportation hub and dispatching center of the Internet+ industrial structure, and through online consumer insights and big data analysis, they can better serve the design, production and resource integration of offline industries. In short, from a micro perspective, Internet+ is a C2B-driven upstream value chain penetration, transformation and subversion movement, which starts from the consumer end and penetrates deeply along the value chain, gradually transforming each link and subject in the value chain, thus generating industrial Internet+ phenomena and new business models with different degrees of innovation. The most extreme innovation is the new discovery and creation of the enterprise resource end and the consumer demand end.
