E-commerce Business Models and Concepts B2B E-Commerce Business Models Chapter 2 E-commerce Business Models and Concepts B2B E-Commerce Business Models Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall

Difference b/w b2b Business Models Purchase/Input Type Direct Inputs (raw) Indirect Inputs (support) Spot Purchasing Independent Exchanges eDistributors Contractual Purchasing Industry Consortia eProcurement Type of Market Vertical Markets Horizontal Markets A vertical market is a market in which vendors offer good and services specific to an industry, trade, profession, or other group of customers with specialized needs.  A horizontal market, in which vendors offer a broad range of goods and services to a large group of customers with wide range of needs, such as businesses as a whole, men, women, households, or, in the broadest horizontal market, everyone. 'Spot' buying/purchasing is purchase for immediate delivery, as opposed to delivery in three or six months' time (contractual buying). Simple definition: Purchasing is transactional (I will buy x for £y). Procurement encompasses Purchasing and everything else before and after the purchase Copyright © 2010 Pearson Education, Inc.

B2B Business Models Net marketplaces Private industrial network E-distributor | E-procurement Exchange Industry consortium Private industrial network Single firm Industry-wide Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall

B2B Models: E-distributor Version of retail and wholesale store, MRO goods, and indirect goods Owned by one company seeking to serve many customers (Businesses) Revenue model: Sales of goods Example: Grainger.com, Cisco, Dell.inc, BestBuy.com  www.Grainger.com, for example, is the largest distributor of maintenance, repair, and operations (MRO) supplies are thought of as indirect input to the production process – as opposed to direct inputs. In the past, Grainger relied on offline catalog sales and physical distribution centers in metropolitan areas. Its catalog of equipment went online in 1995 at Grainger.com, giving businesses access to more than 220,000 items. Other Company purchasing agents can search by type of product, such as motors, HVAC, or fluids, or by specific brand name. HVAC (heating, ventilation, and air conditioning)  Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall

B2B Models: E-procurement Procurement is the acquisition of goods, services or works from an outside external source. E-procurement is the b2b purchase and sale of supplies and services over the Internet.  E-Procurement base E-Commerce business creates digital markets (as Ariba.com) where participants transact for indirect goods (MRO) We can say that E-Procurement E-Commerce Businesses are B2B service providers or application service providers (ASPs) Implementation of E-Procurement System* allow your organization to reach and interact with global suppliers or providers. Typically, e-procurement Web sites allow qualified and registered users to look for buyers orsellers of goods and services Depending on the approach, buyers or sellers may specify prices or invite bids.  Revenue model: Service fees or Transaction fees, supply-chain management, fulfillment services Example: Ariba (* A business can contact Ariba.com for implementation) Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall

With Ariba and Ariba Network, trading partners (buyer and sellers) get real-time information to make faster, better decisions while collaborating to cut costs and risks. Ariba creates custom integrated online catalogs (where supplier firms can list their offerings) for purchasing firms. On the sell side, Ariba helps vendors sell to large purchasers by providing software to handle catalog creation shipping, insurance, and finance. Copyright © 2010 Pearson Education, Inc.

For example e-Procurement type: Web-based ERP (Electronic Resource Planning) Creating and approving purchasing requisitions, placing purchase orders and receiving goods and services by using a software system based on Internet technology. Copyright © 2010 Pearson Education, Inc.

VOCABULARY OF E-PROCUREMENT (Example) RFI: request for Information. RFP: request for Proposal RFQ: request for Quotation RFx: the above three together. BENEFITS OF E-PROCUREMENT Better Products One Stop Shop More product choices Faster Product Find Reduces Paper Cost Purchases can be tracked and made to comply with company guidelines.  Copyright © 2010 Pearson Education, Inc.

B2B Models: Exchanges Revenue model: Transaction, commission fees Digital exchanges are independently-owned vertical marketplaces for direct inputs and spot purchasing that allow multiple suppliers and purchasers to trade in real time Internet has the capacity of changing the conventional way of doing business. Today, you can not only buy and sell your products and services on the Internet, you can, virtually, shift all your business processes to online solutions as well. If you take advantages of new Internet based technologies, the outcome would be tremendously beneficial to your business. How to do this without spending a fortune and not putting a huge pressure on scarce corporate resources? The possible answer could be B2B exchanges! A B2B exchange is an online marketplace, where buyers, sellers and intermediaries form communities, exchange views, offer products and services, and conduct business transactions. perfect.com, rusbiz.com Revenue model: Transaction, commission fees Fact: Create powerful competition between suppliers Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall

Benefits of Exchanges New sales channel By becoming a member of a B2B exchange, you open a low cost, highly functional and easy-to-use sales channel for your company. You expose your company to a new targeted audience that otherwise would have been untapped. Prospective customers can buy products and services from you, using various venues and features of the B2B exchange, where you are a member. Marketplace: All B2B exchanges include a marketplace, where suppliers can post sales offer of their products and services. Buyers, looking for specific products, can easily find best suppliers that suit them from the marketplace. A populated marketplace can easily become a good sales channel for a supplier. Electronic catalog: As a member of the B2B exchange, you are allowed to add all your products or services to the consolidated online catalog of the exchange. Adding your products to the catalog helps to create online standardize electronic version of your product specification. You can publish sales offer of your entire catalog to the marketplace, eliminating a need for other web presence. Web Store: Some B2B exchanges allow you to convert or integrate your website to their exchange. This helps you to handle sales conveniently from your website and the marketplace of the exchange seamlessly. You can make a web store from scratch with the help of integrated website builder of the B2B exchange as well. Auctions: One of the great features of many B2B exchange is their auction systems. As we all know from the immense success of Ebay, auctioning is a great way of selling products online. Some exchanges boast reverse auction system, where suppliers bid for a deal posted by a buyer. Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall

Exchanges Other Benefits Include No Extra Cost: As a supplier, you can participate in those tenders without any extra cost involved. Low customer acquisition cost: Your mere presence in the B2B exchange might bring you new customers! Since the buyers come to the exchange themselves; your cost of getting customers through this channel is relatively low in comparison to other traditional channels.  Improve customer service: You can track the whole ordering process from payment to delivery and bring greater efficiency in customer service. Efficient information sharing method: Whether you are launching a new product through the B2B exchange you can share the information more efficiently. Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall

B2B Models: Industry Consortia Consortia are typically formed by a group of leading vendors (Industry) in a particular industry that serve specific industries (e.g., food, automobile, chemical) More successful than exchanges Sponsored by powerful industry players Strengthen traditional purchasing behavior Revenue model: Transaction, commission fees Example: Exostar Exostar's founding partners included BAE Systems, Rolls Royce, Boeing, Lockheed Martin and Raytheon. In July 2010, Exostar was fulfilling the needs of over 70,000 companies in 95 countries with transactions totaling $35 billion annually. Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall

Industry Consortia examples Industrial Consortia Industry Exostar Aerospace SupplyOn Automotive, Aerospace and Manufacturing Elemica Chemical Dairy.Com Dairy Products Global Healthcare Exchange Medical Services and Supplies Quadrem Metals, Minerals and Mining OceanConnect Risk Risk Management for Ship Owners, Traders, Refiners,and Financial Institutions TheSeam Food and Beverage Transplace Freight and Carrier Services Exostar connects with over 300 procurement systems in 20 different countries and has registered more than 24, 000 trading partners worldwide. Most Fortune 500 and other large companies belong to industrial consortia, sometimes to several. Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall

Private Industrial Networks (Continue) As the name suggests, private industrial networks are web-enabled networks that coordinate transactions between specific companies — in all aspects and all divisions: suppliers, distributors, retail, procurement, delivery and so on. Such systems are also called collaborative, as they facilitate efficiencies throughout the network. Many large companies (Wal-mart, Agentrics, Coca-Cola, Nike, Hewlett-Packard, IBM, Microsoft, Cisco Systems, Dell and General Electric) operate private industrial networks, which indeed form the largest part of B2B ecommerce today. Copyright © 2010 Pearson Education, Inc.

Private Industrial Networks Unlike industrial consortia, which are collectively owned by several major companies, private industrial networks generally have a single, sponsoring company that sets and enforces the rules, only inviting other companies to participate at its own discretion (will). Copyright © 2010 Pearson Education, Inc.

Private Industrial Networks (Continue) Designed to coordinate flow of communication among firms engaged in business together Electronic data interchange (EDI) Single firm networks Most common form Example: Wal-Mart’s network for suppliers Industry-wide networks Often evolve out of industry associations Example: Agentrics (initiate by Sears) Copyright © 2010 Pearson Education, Inc.

Why Industry Wide Private Industrial Network Why Industry Wide Private Industrial Network ? (A response to Single Firm Industrial Network like wall- mart) wal-mart has refused to open its very successful network to other members of the retail industry, in effect to become an industry standard, for fear it will be sharing technology secrets with other retailers like Sears. Sears and other retailers around the world have created their own set of organizations and networks that are open to all in the industry. Agentrics is now neogrid.com is an industry-wide private industrial network for retailers and suppliers designed to facilitate and simplify trading among retailers, suppliers, partners and distributors. Copyright © 2010 Pearson Education, Inc.

Business Models in Emerging E-commerce Areas Consumer-to-consumer (C2C) Examples: eBay, Half.com Peer-to-peer (P2P) Examples: The Pirate Bay, Cloudmark, Bit Torrent , Kazza M-commerce: E-commerce models using wireless technologies Technology platform continues to evolve In the United States, demand still highest for digital content like ring tones Copyright © 2010 Pearson Education, Inc.