Lecture 08 Electronic Business (MGT-485)

Recap – Lecture 07 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

Contents to Cover Today Models for mobile wireless technology Framework for analyzing e-business models E-marketspace Characteristics Adding Value to Customers Achieving Economic Viability Achieving a critical mass of customers Continuing to innovate and add value Design for flexibility

Models for mobile wireless technology The development of mobile wireless technology is driving the emergence of new business models. The most important advantage that mobile wireless technology offers is its portability. It provides a channel of communication anywhere at any given time. Two main players that dominate in the mobile wireless environment are – mobile service providers (MSPs) – primary service providers (PSPs)

Models for mobile wireless technology MSPs are the owners of the network that provides a range of services to users. PSPs are firms who already use the internet to provide services, sell products to consumers or match buyers and sellers. MSPs can create business models to fully exploit the added flexibility of mobile devices. Mobile wireless devices have a number of attributes that add value to businesses and customers including – Portability – Multichannel – Security etc.

Models for mobile wireless technology Portability – frees users from the constraints of fixed line computers. – New technology, such as Wimax, is extending the reach of mobile wireless devices – ‘anytime, anyplace’ goal; Multichannel – the flexibility of mobile wireless devices to communicate with other devices, such as PDAs, interactive television, etc. – Users can access different devices in different locations because they all have equal access channels for electronic services

Models for mobile wireless technology Security – enhanced security of mobile devices because subscribers to the network can be located and identified at any given time. – Network operators can link a device directly to a subscriber’s identity that is already being used for transactions and thereby authenticate that user; Additional services – complementary services including message alerts, account management and browsing facilities for accessing information along with voice calls.

Framework for analyzing e-business models Developing and implementing business models help firms to compete in a marketplace. Analyzing the business model helps firms identify what activities in the value chain contribute to profit and help create a competitive advantage. The effectiveness of a business model is determined by the ability of firms to exploit market opportunities, match or exceed customer expectations and achieve stated aims and objectives.

Framework for analyzing e-business models

Firms must: – Design programs that take advantage of the internet network effects and other disruptive attributes to achieve a critical mass of installed customer base; – Leverage on a single set of digital assets to provide value across many different and disparate markets; – Build trust relationships with customers through e- business communities to increase their costs of switching to other vendors; – Transform value propositions and organizational structures for enhanced value creation; and – Generate synergy effects on e-commerce product and service offerings.

Framework for analyzing e-business models In developing and implementing an e-business model firms must meet three critical success factors. They must: – Understand and exploit the e-marketspace characteristics; – Add value to customers; and – Achieve economic viability.

E-marketspace Characteristics The e-marketspace comprises supply and demand characteristics. The supply of products and services into the e- marketspace depends on the competitive structure of each industry sector. There are some B2C markets that are characterized by many hundreds or even thousands of firms all competing for the attention of customers. This competitive structure features a high level of differentiation as firms seek to gain customers through offering discounts, free software, repeat business rewards, free internet access and a host of other incentives to build brand loyalty.

E-marketspace Characteristics In other B2C markets the competitive structure may be more restricted because of the ability of firms to erect entry barriers through specialist services, such as having access to highly-valued financial information or offering access to specialist advice and consultancy. Entry barriers may also be achieved through first- mover advantages whereby the firms who are first to market have been able to build a critical mass of customers and a global brand name. Entry barriers can be used to build a dominant position in the industry sector by offering lower prices to customers that potential rivals cannot match.

E-marketspace Characteristics The structure of demand is determined by the number and characteristics of customers for each product or service available on websites. Both new and existing customers make up the demand function for products and services sold over the internet. The e-business model must tap into the key influencing factor or factors that attract customers to, firstly, the website, and secondly, to the products or services being offered. Market research reveals the nature of demand according to a range of different characteristics that create market segments including income, gender, age, socio-economic groups, geographical location of customers or groups of customers, tastes and fashions, etc.

E-marketspace Characteristics The B2B market e-business models are built around relationships with partners along the supply chain. Businesses that sell products or services to other businesses must be able to offer added value to their business customers beyond that gained from traditional forms of business transactions. The business models that B2B firms adopt can be built around value-added characteristics such as: – Increasing efficiency of procuring raw materials; – Reductions in product costs; – Better communications with supply chain partners; – Increased efficiency from streamlining the supply chain process; – Better quality service provision and delivery; – Better information on product availability, quality and price.

Adding value to customers The drivers of added value determine how firms meet or exceed expectations of customers. The key drivers include the value proposition based on the types of products or services offered, the price of those products and services, and the level of differentiation that supports the unique selling proposition. The added value to customers may be in the design or application of the products or services themselves, or it may derive from the distinct advantages that the internet offers as a means of communication and transacting.

Adding value to customers The internet has a number of value-adding characteristics for consumers. For example – Convenience; – Continuous availability; – Price transparency; – Interactivity; – Wider choice; – Quicker fulfillment; – Personalization; – Customization; – Access to a huge amount of information.

Achieving economic viability The e-business has to be economically viable. A good e-business model can gain a firm the goodwill of financial backers but all investors or venture capitalists will seek a return on their investment sooner or later. Amazon.com took many years to register a profit but retained the confidence of financial backers because of the potential for profit that the e- business model could generate. Not all firms benefit from such goodwill and most have to show returns on investment quickly.

Achieving economic viability To determine economic viability, a number of indicators from the profit model and the financial model can be used. The profit model comprises the profit and loss results, the cost structure and the revenue generated through the application of the e-business model. The financial model centers on the cash flow of the firm, the value of assets owned by the firm and the financial structure of the business. Close inspection of the data generated by the profit and financial models reveals the performance of the e- business model.

Achieving a critical mass of customers The most important factor that determines the viability of an e-business model is the number of customers that the value proposition attracts and who return for repeat business. Successful e-business models exploit network effects and combine various value-adding characteristics of the internet. Many online customers prefer to have a one- stop-shop for their buying needs. Online customers also perceive value in shopping with a well-known and trusted vendor.

Continuing to innovate and add value The e-business model must be able to continue to add value to customers by innovation and creativity. This may involve – the marketing and promotion of the products or services, – the types of discounts and incentives that can be offered, – tie-ins with other products and services, – access to further sources of information, – access to virtual communities of buyers, – interactivity, customization etc.

Design for flexibility The e-business model must be able to be adapted to suit related and unrelated business opportunities. The e-business must be able to gain revenue from providing value across many different and disparate markets. For some firms it is important to design an e-business model that can be integrated with other business models so that alignment of all business components can be achieved. Economies of scope can be gained through the synergy of product and service offerings.

Design for flexibility Where customers seek value from one-stop- shopping online then firms can integrate business models to take advantage of cross-selling opportunities. The viability of the e-business model would depend on where the greater revenue could be derived; that is, if the revenue generated from a single general website was greater or less than the revenue generated from some combinations of two or more specialist single-product providers.

Summary Models for mobile wireless technology Framework for analyzing e-business models E-marketspace Characteristics Adding Value to Customers Achieving Economic Viability Achieving a critical mass of customers Continuing to innovate and add value Design for flexibility