GROUP# 10

Syed Ashraful Kader

13‐160

Alibris was working to establish itself as a leading web based source of hard to find books hard-to-find books. Experiencing serious problems getting the basic IT infrastructure in place. Commercial software was not working properly. Poor prediction in early business plan, huge initial cash investment, not enough time to launch. Uncertainty: Whether Alibris could have e-Commerce website up and running quickly. When Alibris Wh Alib i could earn additional revenue. ld ddi i l

Alibris was founded in 1997 by Martin Manley and incorporated in 1998. It grew out of I t l an online company founded b antiquarian bookseller t f Interloc, li f d d by ti i b k ll Richard Weatherford in 1994. Alibris is an online store that sells new books,used books,out-of-print books, rare books, and other media through an online network of independent booksellers. Booksellers list their inventories on Alibris which in turn offers the books on its retail website and separate library services site so that it can be purchased by customers. It offers more than 70 million books from a network of over 10,000 booksellers in 65 countries.

Interloc: Establishment of an e-Marketplace. Business change from Interloc to Alibris. Why fulfillment. Holding or buying inventory. The cash crunch. IT woes. Possible solution. oss b e so u o .

Question 1 Interlock built an active e‐Marketplace even before the internet came along, and very few I t l k b ilt ti M k t l b f th i t t l d f firms have replicated this success. Why is this? Why is it so hard to get desired users to participate in an e‐Marketplace? because the market for both suppliers and buyers of used books was highly fragmented.

Dealers were geographically distant from each other

Most dealers had a strictly local customer base.

Interlock was so successful because they provided a radical opportunity to overcome such information asymmetry problems and secure premium prices of rare hard to find books. Once a considerable community of dealers became involved with them, it was very hard for others to replicate this success to replicate this success

It is vey hard to get desired users to participate in an e‐marketplace because: Unfamiliarity of users with e‐business who are more accustomed to the traditional methods of transacting High initial costs Lack of confidence in e‐marketplace success

Question 2 How did Interloc succeed when so many others have failed?

Effective Publicity Eff ti P bli it
• Weatherford marketed the business to book dealers at conferences and trade shows, and as word‐ of‐ mouth about the usefulness of the service spread. shows and as word of mouth about the usefulness of the service spread

Partnerships
• Amazon.com began to use Interloc to locate hard‐ to‐find books requested by the giant e‐tailer’s customers.

Question 3 Can an e‐marketplace grow big fast? If so, how? If not, why not? Can an e marketplace grow big fast? If so how? If not why not? a successful e‐marketplace will capture the created value by: p p y
• Establishing pricing mechanisms that reflect the value created, both actual and perceived. • Lower barriers to entry for marketplace participants • Erect effective exit barriers and switching costs for participants • Establish partnerships with industry leaders bl h h h d l d

an e‐ marketplace will face difficulty in surviving and growing if:
• It is easily replicated • Not earnings oriented d • Cannot monetize value • Cannot achieve differentiation

Question 1 So if Interloc is so successful, why does Manley want to change it as it becomes Alibris?

A venture capital firm wanted Manley to become CEO of the company. An underserved need existed here. People looking for out‐of‐print books had to order them from retailers and wait, or order them from Amazon.com which would use the service of Interloc anyway. By becoming Alibris, such intermediaries could easily be eliminated, and the new company could possibly enjoy a higher profit margin.

The change will, Allow customers to purchase books in addition to finding them. There were two important aspects to this change: There were two important aspects to this change: Modifying how dealers were charged and revenue was generated, and Becoming an active participant in the order fulfillment process

New revenue Model: New revenue Model: The revenue model was changed to eliminate the listing fees These fees were replaced with the standard dealer‐to dealer payment dealer s offering price was to be increased. dealer’s offering price was to be increased. Risks: y p g p Sales volume may drop down to low levels because of the high price The new revenue model does not provide a guaranteed source of revenue; if no sales is made, there is no revenue.

How to Encourage Dealers to list more Books‐ lib i illi l d l i h li bl d l h Alibris was willing to only deal with reliable dealers. To encourage the dealers to list more books, It was going to scrap its listing fee And allowed dealers to enter and It was going to scrap its listing fee And allowed dealers to enter and maintain as many books as they liked at no charge. These fees were replaced with the standard dealer‐to dealer payment

Incentive to Sell Book‐ i i ll l k did h i i ll b k Initially Interlock did not have any incentive to sell book. It was mainly an inventory listing service. Both customers & dealers could use interlock to check the inventory of all Both customers & dealers could use interlock to check the inventory of all other dealers whenever they are looking for a book. Interlock did not provide any e‐commerce capabilities & so it could not be used to purchase or reserve a book.

Fulfillment & Sparks Facility‐
Sparks facility allowed Alibris’s direct involvement to in the fulfillment process. For 2 reasons Manly decided to involve & establish Sparks. A customer could order a book from dealer & wouldn t come and nobody A customer could order a book from dealer & wouldn’t come and nobody in the process in anywhere knew that it never came. Another reason was order consolidation.

Touch less Profit‐ By setting up the Sparks facility Alibris can’t fulfill its dream of touch less profits. Touch less profits means some sort of i be T h l fi f intangible profits which can b ibl fi hi h realized by taking responsibility, title and providing quality assurance of the books. By providing quality assurance SAlibris can easily grab customer’s attention which will be better for Alibris in the long run.

Disintermediation‐ lib i i d di l i l i f lfill & di i di Alibris tried to directly involve in fulfillment process & disintermediate the process, that’s why they established Spark. Arranged to rent from ODC Integrated logistic warehouse space in spark, Arranged to rent from ODC Integrated logistic warehouse space in spark, Nevada to serve as a cross‐docking facility, Hired Mark Nason an experienced logistic manager to run it.

Holding & Buying inventory‐ Alibris should use Sparks facility like a warehouse though this would be lib i h ld k f ili lik h h h hi ld b shift in companies business model & it would entail new capabilities. Because this would increase companies profitability. If Alibris hold inventory on behalf of its dealers, then these book would available for shipment to customers.

Database consists of about 5 million record database. Transferring database from Interloc’s facilities to colocation facilities without disrupting operations. Changing Interloc database of simple listing of text fields to salable pieces of inventory or SKUs. p y Difficulties with T-1 communication link. Software dilemma dilemma.

Texis (by Thunderstone)
Designed for text based database. g Searches fast. No e-Commerce capabilities.

( y ) Internet Commerce Server (by Oracle)Supports e-commerce. Deals with large volume of database. Designed for reasonable number of SKUs and multiple quantities of each one. Developed by large, well established company. Oracle could easily overcome imperfections and develop this product according to market condition in future. Unusual to believe such product will not work properly rather act as a “safe bet” . safe bet

Internet Commerce Server (by Oracle)DrawbacksDifficult to install ICS on new server. The database of Alibris consists of 5 million SKUs and one of each. ICS was not designed for database with such nature nature. ICS functioned adversely. Result: Slow search engine engine.

The sources of cash drainage for Alibris:‐ Si ifi t t f IT l t d di hi h l th t d Significant amount of IT related spending which was larger than expected:
Huge amount of investment to purchase Oracle’s database and Oracle’s E‐commerce software which is known as Internet Commerce Server. Hiring software implementation consultants, technicians and additional employees.

A major development initiative which also required huge amount of cash outlays. For the above reasons it can be said that Alibris does not have sufficient amount of For the above reasons it can be said that Alibris does not have sufficient amount of cash for any further investment in order to upgrade its database and launch its Electronic commerce Website.

The devastating situation of Alibris: O l E d t it t ki l Oracle E‐commerce product suite was not working properly. The Value added retailer could not figure out how to install Internet Commerce Server. By this time Alibris had invested huge amount of time and effort and had run through much of the venture capital funding. There was no way Alibris could launch its E Commerce website on schedule. There was no way Alibris could launch its E‐Commerce website on schedule It was not clear when any additional revenue would come in. The cash burn rate of Alibris was very high which was a painful experience for the company.

Alibris’s best option to overcome this devastating situation would be to drop Oracle’s product and adopt Thunderstone’s offerings. p p g By adopting the products of a smaller software company such as Thunderstone, Alibris could overcome the losses that were incurred in order to launch Oracle’s Software. This solution might get the website up and running and make the current database searchable. Thunderstone also said that they had a “workaround” for the record locking u de sto e a so sa d t at t ey ad a o a ou d o t e eco d oc g problem which might also prove to be favorable for Alibris. In this way Alibris could implement an upgraded version of E‐Commerce system in the future and minimize the intense pressure imposed by Interlock’s founders. p p y