Lecture 07 Electronic Business (MGT-485)

Recap – Lecture 06 E-Business Models –Brokerages E-shops E-Malls E-Auctions Trading communities Virtual communities Buyer aggregators Classifieds –Infomediaries

Today’s Contents E-Procurement Distribution Model Portaling Collaboration Platforms Third Party Marketplaces Value Chain Integrators Manufacturer Model Affiliate Model Subscription Model Dynamic Pricing Models

E-Procurement The internet provides the mechanism for businesses to procure the raw materials they need to create outputs and to help run their businesses efficiently. E-procurement is the management of all procurement activities via electronic means. Business models based on e-procurement seek efficiency in accessing information on suppliers, availability, price, quality and delivery times as well as cost savings by collaborating with partners to pool their buying power and secure best value deals. E-procurement infomediaries specialize in providing up-to-date and real-time information on all aspects of the supply of materials to businesses.

E-Procurement Car manufacturer Ford developed an online B2B exchange that specialises in e-procurement of supplies for a consortium of US car manufacturers that includes Ford, Daimler-Chrysler and GM. This e-procurement infomediary, called ‘Covisint’, provides information on the many thousands of potential suppliers of component parts for the car industry and uses the huge purchasing power of the consortium to gain best value deals. The supply costs to the members of the consortium are significantly lower compared to the fragmented and competitive arrangements that existed under traditional procurement systems.

Distribution Model The distributor model brings together product manufacturers with high volume (e.g. wholesalers) and retail buyers. Buyers benefit from gaining access to catalogues of manufactured goods and the broker acts as intermediary between distributors and their trading partners. The buyer can reduce transaction costs by comparing prices between distributors and finding the best deals available.

Distribution Model An example of a firm specialising in e- distribution is wipro.com ( wirpo.com uses the internet to provide fully integrated e-business-enabled solutions that help to unify the information flows across all the major distribution processes including sales and marketing automation, customer service, warehouse logistics, purchasing and inventory management, and finance.

Portaling A portal is the internet equivalent of a broadcaster. Portals are the channels through which websites are offered as content. The control of content can be a source of revenue for firms through charging firms for advertising or charging consumers a subscription for access. There are different types of portal models and they include: general portals, personalized portals and Vortals.

Portaling General Portal General portals carry high volume traffic with millions of website visitor hits per month. Examples include search engines such as Google and Lycos or content-driven sites such as AOL. The high volume of traffic makes it attractive to advertisers and generates income streams for the portal owners. There is great competition for website traffic and consumers are invariably offered a number of incentives to choose a particular portal and remain with it for future use.

Portaling Personalized Portals To encourage user loyalty beyond offers of free access to content or free software, some portal owners develop a customized interface that allows users to personalize the website. The content and website design is geared towards the tastes and interests of the users. The information derived from users is a source of value to the portal owner as is the volume of traffic that such personalized portals can generate. Examples of personalized portals include My.Yahoo! And My.Netscape.

Portaling Vortals A vertical portal, or vortal, is a specialized portal that is designed to attract a particular market segment. Vortals may be set up to attract traffic from users with similar interests, experiences or have similar buying habits. Owners of vortals can charge advertisers a premium for access to a target audience.

Collaboration Platforms Collaboration platforms provide the technological tools for information to pass quickly and efficiently between organizations. These tools can be designed for specific functions such as sharing customer information for joint marketing ventures, logistics for the tracking of supplies and inventory between partners or creating an information environment for the exchange of ideas among design consultants. Businesses that create collaboration platforms charge users for access and for the tools they use for underpinning their relationship with partners.

Collaboration Platforms Examples of collaboration platforms include – Account4.com ( an e-business set up to help automate the business process of firms in the professional services and IT sectors. – MatrixOne ( sells software tools that facilitate the sharing of product ideas and designs among employees, customers and suppliers for global businesses. – CoVia ( offers a collaboration platform for document management, project planning and personalised interactions solutions for partners, clients and colleagues in a range of consultancy businesses.

Third Party Marketplaces A third-party marketplace is a channel through which firms can extend their sales pitch to customers by making available their product catalogue on the website. The entire transaction process can be undertaken through the third-party marketplace since most include applications for ordering, distribution and payment. Some third-party marketplaces are industry-specific and cater for the needs of clients involved in specific industry activities or processes. For example, spec2000 ( is a third- party marketplace that facilitates the electronic exchange of technical and business information related to the purchase and repair of aircraft.

Value Chain Integrators Value chain integrators improve the efficiency and quality of information flows between the elements that comprise a value chain. Microsoft ( is a value chain integrator through its initiative Microsoft Insurance Value Chain. This value chain integrator service is aimed at the insurance industry and comprises many partners including hardware firms such as EDS and HP as well as independent solutions vendors. These companies use Microsoft products and services to develop and deliver integrated solutions for the insurance industry that can increase efficiency and quality of service.

Manufacturer Model The manufacturing model brings about the process of disintermediation in the supply chain by creating a direct line of communication between manufacturers and consumers. Wholesalers and retailers are eliminated from the distribution process. The resulting savings on transaction costs can then be passed on to consumers in the form of lower prices. The manufacturing model is particularly effective when dealing with perishable goods that could diminish in quality and value if transported through the entire supply chain. Food items such as fish, fruit and vegetables retain their value over a short timeframe and, therefore, benefit from compressing the supply chain to reach the consumer quicker.

Affiliate Model The affiliate model offers buying opportunities for internet users across many different websites. The firm organizing the affiliate model offers financial incentives to affiliate partner sites to participate in the venture. An American website befree.com ( is an example of a firm specializing in organizing affiliates.

Affiliate Model The affiliates provide the purchase-point click through to the sellers of products. The economic viability of an affiliate model depends on the level of sales that an affiliate generates. The more products sold the greater the returns to all parties concerned. However, if no sales are generated there is no cost to the seller. The affiliate gets a small percentage of revenue if customers who browse the affiliate’s site actually buy something from the seller. In essence, the affiliate model helps many other websites to share revenue with firms who gain sales as a result of other website’s traffic.

Subscription Model Revenue is generated through subscription to access particular websites. To generate subscriptions firms have to offer high value content to users. The majority of websites do not run on a subscription basis because of the ubiquity of information available and the low switching costs for consumers. If one firm offered content by subscription only, a rival firm could easily offer free access to the same information and operate a different pricing model. Subscription sites are used where operators own exclusive rights to valuable content or where there is added service such as up-to-the-second financial information.

20 Dynamic Pricing Models The Web has changed the way products are priced and purchased Comparison pricing model – Web sites using shopping but technology to find the lowest price for a given item Demand-sensitive pricing model – Group buying reduces price as volume of sales increase Name-your-price model – Name-your-price for products and services

21 Dynamic Pricing Models Bartering Model – Individuals and business trade unneeded items for items they desire –Ubarter.com, isolve.comUbarter.com isolve.com Rebate Model – Sites offer rebates on product at leading online retailers in return for commission or advertising revenues – eBates eBates Free offering model – Free products and services generate high traffic – Freemerchant, Start Sampling, FreeSamples.com FreemerchantStart Sampling FreeSamples.com

Summary E-Procurement Distribution Model Portaling – General – Personalized – Vortals Collaboration Platforms Third Party Marketplaces Value Chain Integrators Manufacturer Model Affiliate Model Subscription Model Dynamic Pricing Models – Comparison Pricing Model – Demand Sensitive Pricing Model – Name Your Price Model – Bartering Model – Rebate Model – Free Offering Model