Business Models & e-Business WHCI Business Studies E-Business: Part 1

What is a Business Model ? A business model is the method of doing business by which a company can sustain itself -- that is, makes money! The business model spells-out how a company generates revenue by specifying where it is positioned in the market place. Some models are quite simple- A company produces a good or service and sells it to customers. If all goes well, the revenues from sales exceed the cost of operation and the company realizes a profit.

What is a Business Model ? Continued… Other models can be more complicated: Broadcasting is a good example. Radio and later TV programming has been broadcasted over the airwaves “free” to anyone with a receiver for much of the past century. The broadcaster is part of a complex network of distributors, content creators, advertisers and listeners or viewers. Who makes money and how much is not always clear at the outset. The bottom line depends on many factors – - Name 4 different Businesses connected to Broadcasting? - How do they make a profit?

New vs tried-and-true models Internet commerce will give rise to new kinds of business models. It is a new frontier with many possibilities. The web also uses tried-and-true models. Auctions are a perfect example. They have been widely used throughout the world to set prices for common commodities and unique items like fine art and antiquities. Can you name an auction based e-business?

B2B -- Business-to-business is a marketing strategy which involves the transaction of goods or services between businesses B2C -- Business-to-consumer (also business-to-customer) describes activities of commercial organizations serving the end consumer with products and/or services. C2C -- Consumer-to-consumer involves electronically facilitated transactions between consumers through some third party. The sites are only intermediaries, just there to match consumers, they have do not check quality of product being offered. There are others, can you guess the acronymns: C2B, B2G, G2C Marketing 101 Basic e-business Types

Things to Review What is a “business model”? Identify 3 different businesses that follow three different revenue models. Explain HOW they make money. Identify two different web businesses with different revenue models. Explain how they make money. What are the three “Basic” types of business? Define their acronymns in each case. Define C2B, B2G, G2C.

Web Business Models WHCI Business Studies E-Business: Part 2

Specific e-business models Merchant Advertising-supported Subscription Fee Brokerage Informediary Manufacturer Affiliate Community Utility

Merchant Model - Overview Businesses that use this model are known as “etailers”: Selling physical goods - order fulfillment + outbound logistics - examples: dealextreme.com, indigo.cadealextreme.comindigo.ca Selling digital goods - transactional commerce - sell "content" - magazines, music, software, virtual real estate, etc.

Merchant Model - Types There are a few specific variations: Virtual Merchant a retail merchant that operates solely over the web. [Amazon.com]Amazon.com Catalog Merchant mail-order business with a web-based catalog. Combines mail, telephone and online ordering. [Lands' End, TigerDirect]Lands' End

Click and Mortar traditional brick-and-mortar retail establishment with web storefront. [Future Shop, Staples]Future Shop Bit Vendor a merchant that deals strictly in digital products and services and, in its purest form, conducts both sales and distribution over the web. [Apple iTunes Music Store, Second Life.com ]Apple iTunes Music StoreSecond Life.com Merchant Model – Types continued

Merchant Model – Types continued Questions to Answer: 1.Find additional examples of a Virtual Merchant, Click and Mortor and Bit Vendor. Explain why each example fits the model and include the web address. Read Virtual Goods: the next big business model and then answer the following questions:Virtual Goods: the next big business model 2. What is a “virtual good”? Give some examples. 3. What is a “gold farmer”? (hint: read the “plight link” or this)this 4. Why do people spend real money on virtual objects? Be specific.

Bit Vendor Case Study Using Microsoft Power Point, create a slide Comparison of two BIT VENDORS (not previously mentioned) that sell different types of Digital Goods. Slide 1: Title page / Credits / Suitable graphic(s) Slide 2: Identify two companies / give overview of Businesses Slide 3/4: Details about Business plan* of company one Slide 4/5: Details about Business plan* of company two Slide 5-7: Comparisons between two companies, future prospects / growth profile, your comments and conclusions Slide 8: References (use hyperlinks where appropriate) Required: Consistent slide transitions, text animations, colour scheme, backgrounds and graphic elements. Evaluation Guide * A Business plan identifies products sold, target market (age group / demographics), marketing strategies, competitive advantages, etc

The Advertising Model Overview

The web advertising model is an extension of the traditional media broadcast model. The broadcaster, in this case, a web site, provides content (usually, but not necessarily, for free) and services (like , IM, blogs) mixed with advertising messages in the form of banner ads. The banner ads may be the major or sole source of revenue for the broadcaster. The broadcaster may be a content creator or a distributor of content created elsewhere The Advertising Model Overview

The Advertising Model Variations The advertising model works best when the volume of viewer traffic is large or highly specialized. Portal -- usually a search engine that may include varied content or services. A high volume of user traffic makes advertising profitable and permits further diversification of site services. A personalized portal allows customization of the interface and content to the user. A niche portal cultivates a defined user demographic. [Yahoo!, Sympatico]Yahoo!Sympatico Classifieds -- list items for sale or wanted for purchase. Listing fees are common, but there also may be a membership fee. [Monster.ca, Lavalife.ca]Monster.ca Lavalife.ca

The Advertising Model Variations (Cont’d 1) User Registration -- content-based sites that are free, or partly free, to access but require users to register and provide demographic data. Registration allows tracking of user surfing habits and generates data of potential value in targeted advertising campaigns. Registration may also be required for “premium” levels of access – see “Subscription Fee Model”. [Globe and Mail]Globe and Mail Query-based Paid Placement -- sells favorable link positioning (i.e., sponsored links) or advertising keyed to particular search terms in a user query, such as Overture's trademark "pay-for-performance" model. [Google]Google Contextual Advertising / Behavioral Marketing -- freeware developers who bundle adware with their product. For example, a browser extension that automates emoticon selection, also delivers advertising links or pop-ups as the user surfs the web. Contextual advertisers can sell targeted advertising based on an individual user's surfing activity. [Claria]Claria

The Advertising Model Variations (Cont’d 2) Content-Targeted Advertising -- pioneered by Google, it extends the precision of search advertising to the rest of the web. Google identifies the meaning of a web page and then automatically delivers relevant ads when a user visits that page. [Google] (check side panel on a search like “car”)Google Intromercials -- animated full-screen ads placed at the entry of a site before a user reaches the intended content. [Apple]Apple

Things to Review 1. What is the Advertising Model an extension of? 2. What is the major source of revenue for sites that use the advertising? 3. When does the Advertising Model work best? 4. Explain what a “Portal” is – give some examples. 5. Why do some site require users to register? 6. What is Contextual Advertising? Explain how Facebook uses this type of advertising. 7. What is content targeted advertising? Experiment with Google and explain what you discover (make at least 3 clear points / conclusions) 8. What is an “Intromercial”? Explain and find links to at least two examples. Read the following article: How Web Advertising Works and identify at least two main points about each of the following: Banner Ad Prices, Sidebar Ads, Pop-Up and Pop-Under, Floating Ads, Unicast Ads.How Web Advertising Works

The Subscription Fee Model Users are charged a periodic -- daily, monthly or annual -- fee to subscribe to a service. It is not uncommon for sites to combine free content with "premium" (i.e., subscriber- or member-only) content. Subscription and advertising models are frequently combined. Content Services -- provide text, audio, or video content to users who subscribe for a fee to gain access to the service. [Listen.com, Zip.ca]Listen.comZip.ca Person-to-Person Networking Services -- are conduits for the distribution of user-submitted information, such as individuals searching for former schoolmates. [Classmates]Classmates Trust Services -- come in the form of membership associations that abide by an explicit code of conduct, and in which members pay a subscription fee. [Truste]Truste Internet Services Providers -- offer network connectivity and related services on a monthly subscription. [Sympatico.ca]Sympatico.ca

Brokerage Model Brokers are market-makers: they bring buyers and sellers together and facilitate transactions. Brokers play a frequent role in business-to- business (B2B), business-to-consumer (B2C), or consumer-to- consumer (C2C) markets. Usually a broker charges a fee or commission for each transaction it enables. The formula for fees can vary. Brokerage models include: Marketplace Exchange -- offers a full range of services covering the transaction process, from market assessment to negotiation and fulfillment. Exchanges operate independently or are backed by an industry consortium. [SellOffVacations, ChemConnect]SellOffVacationsChemConnect Buy/Sell Fulfillment -- takes customer orders to buy or sell a product or service, including terms like price and delivery. [CarsDirect]CarsDirect

Brokerage Model Variations (cont’d 1) Auction Broker -- conducts auctions for sellers (individuals or merchants). Broker charges the seller a listing fee and commission scaled with the value of the transaction. Auctions vary widely in terms of the offering and bidding rules. [eBay]eBay Transaction Broker -- provides a third-party payment mechanism for buyers and sellers to settle a transaction. [PayPal, CCNow.com]PayPalCCNow.com Distributor -- is a catalog operation that connects a large number of product manufacturers with volume and retail buyers. Broker facilitates business transactions between franchised distributors and their trading partners. (a traditional model)

Brokerage Model Variations (cont’d 2) Search Agent -- a software agent or "robot" used to search-out the price and availability for a good or service specified by the buyer, or to locate hard to find information.[Pricegrabber, BestBuyFinder ]PricegrabberBestBuyFinder Virtual Marketplace -- or virtual mall, a hosting service for online merchants that charges setup, monthly listing, and/or transaction fees. May also provide automated transaction and relationship marketing services. [eBayStores]eBayStores

TO BE CONTINUED…

Evaluation Guides Bit Vendor Case Study: In Power Point ___ / 3 Title page / Credits / Suitable graphic(s) ___ / 4 Identify two companies / give overview of Businesses ___ / 4 Details about Business plan of company 1 and 2 ___ / 5 Company comparisons, future prospects, comments & conclusions ___ / 2 References (use hyperlinks where appropriate) ___ / 4 Design: Consistent transitions, text animations, colour scheme, backgrounds, graphic elements, etc ___ / 2 2 < TOTAL GO BACK

TO BE CONTINUED…