1. Electronic Commerce Week 2 Classification of EC EC Revenue Models 1

2. What Drives E-Commerce Three Factors in Business Environment Framework and the Role of EC 2 SOURCE: EC 2006

3. What drives EC Digital economy An economy that is based on electronic goods and services produced by an e-business and traded through e-commerce Also called the Internet economy or new economy

4. What drives EC (cont…) Digital revolution –Communication –Market segmentation –Distribution costs –Price Digital revolution accelerates EC by; –Providing competitive advantage to organizations –Enabling innovations

5. How EC can Respond… –Reductions in Cycle Time and Time-to-Market By means of automation. Cycle time reduction: Shortening the time it takes for a business to complete a productive activity from its beginning to end –Supply Chain Improvements Reduce supply chain delays, reduce inventories, and eliminate other inefficiencies 5

6. –Empowerment of Employees Decentralization of decision making and authority via empowerment and distributed systems. –Reduction in number of workforce By means of workforce automation. –Better relations with customers Gather customer data more effectively and accurately and enable 1to1 marketing. 6

7. - Product and service customization EC can help the creation of a product or service according to the buyer’s specifications Customization: Creation of a tailored product or service according to the customers needs and wants 7

8. Limitations of EC (cont…) Non Technological Limitations Security and privacy concerns Lack of trust in EC and in unknown sellers National and international government regulations Many unsolved legal and public policy issues Difficulty in measuring some benefits of EC

9. Limitations of EC (cont…) Non Technological Limitations (cont…) Customers like to feel and touch the products Insufficiency in trusting paperless, faceless transactions Increasing amount of fraud Failure of many dot com in March 10, 2000

10. Classification of EC

11. Where EC is conducted Electronic market (e-marketplace) Interorganizational information systems (IOSs) Intraorganizational information systems 11

12. Where EC is conducted Electronic market (e-marketplace) - Exchange of goods, services, money or information - Buyers and sellers could be either businesses or individual consumers 12

13. Where EC is conducted Interorganizational information systems (IOSs) - A communications system that allows routine transaction processing and information flow between two or more organizations. - Kind of the network? - Buyers and sellers ? 13 Internet Intranet Extranet

14. Where EC is conducted Intraorganizational information systems - Communication systems that enable e-commerce activities to go on within individual organizations. - Kind of the network? - Buyers and sellers? 14 Extranet Internet Intranet

15. EC CLASSIFICATION Classification by; –Buyer/seller: the markets in which the firm operates –Revenue sources: underlying revenue model –The analysis of categories helps in profiling the business. 15

16. Classification by Buyer/Seller 16 Business to Consumer (B2C) Business to Business (B2B) Consumer to Consumer (C2C) Consumer to Business (C2B) Consumer Business Consumer From: Consumer of product/service To: Consumer of product/service

17. By Buyer/Seller (cont…) Business-to-business (B2B) E-commerce model in which all of the participants are businesses or other organizations 17

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20. B2B Characteristics The companies are manufacturers, wholesalers rather than retailers only High customer competence Often relationship driven (little search) Mostly commodities and standardized goods are traded Pricing is based on quantity of orders and is often negotiable 20

21. 21 Business-to-consumer (B2C) E-commerce model in which businesses sell to individual shoppers By Buyer/Seller (cont…)

23. B2C Characteristics Consumers, besides businesses are involved Highly search-driven (Relationships hard to come by) Customer competence vary widely Many non-standardized are sold Depends on attractive electronic market places to entice and sell products and services 23

24. 3 Major challenges for eB2C Getting browsers to buy things Building customer loyalty Fulfillment 24

25. Getting browsers to buy things Getting visitors to the site is only half the battle Whether they buy something is what determines if you win Discussion question: How do you turn visitors into customers? 25

26. Building customer loyalty With so many sites out there, it is difficult to build a strong relationship with customers Discussion question: How do you build loyal customers? 26

27. Fulfillment Focus on customer satisfaction and delivery fulfillment Discussion question: How can you satisfy customers through delivery fulfillment? 27

28. B2B and B2C - Similarities They both require a sales process They both require alignment with marketing. They both require excellent customer service. 28

29. B2B and B2C - Differences Emotional vs rational –B2B - decision based on business value –B2C - decision based on status, desire, or price One-off vs relationship –Product vs. relationship driven Brand identity –B2B - Brand identity created on personal relationship –B2C - Brand identity created through repetition and imagery 29

30. Consumer-to-business (C2B) Individuals use the Internet to sell products or services to organizations or individuals seek sellers to bid on products or services they need Example: http://www.priceline.com/ 30 By Buyer/Seller (cont…)

31. 31 Consumer-to-consumer (C2C) E-commerce model in which consumers sell directly to other consumers Examples: ??? By Buyer/Seller (cont…)

32. B2B? B2C? C2C? What composes 43%-70%of all Internet traffic worldwide? 32

33. P2P P2P network programs account for 43%-70%. P2P e-commerce is often unusual. P2P technology can be used in many ways, such as to; –Play games –Make online telephone calls –Share music, video and documents 33

34. By Buyer/Seller (cont…) Peer-to-peer (P2P) Technology that enables networked peer computers to share data and processing with each other directly; can be used in C2C, B2B, and B2C e-commerce. 34

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36. EC Revenue Models

37. What is a Revenue Model? The method of doing business by which a company can sustain itself – that is generate revenue-, identifying its product offerings, value-added services, revenue sources and target customers. 37

38. 38 The revenue model spells-out how a company makes money by specifying where it is positioned in the value chain. Value chain. A chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market Classification by Revenue Source

39. 39 Classification by Revenue Source (c…) Revenues can be generated through: –Traditional sales http://www.amazon.com –Commissions http://www.priceline.com –Per-transaction fees http://www.nytimes.com –A dvertising revenues http://www. google.com –S ubscription fees (online libraries of universities) –R eferral fees http://www.books.google.com –Market creation fees http://www.ebay.com

40. Exhibit. Common Revenue Models 40

41. EC Revenue Models Broker / Brokerage Model Advertising Model Infomediary Model Merchant Model Manufacturer (Direct) Model Affiliate Model Subscription Model Utility Model (Community Model)* 41 http://digitalenterprise.org/models/models.html

42. Brokerage Model Definition Brokers are market-makers. They bring buyers and sellers together and facilitate transactions. Usually a broker charges a fee or commission for each transaction it enables. 42

43. Brokerage Model (cont…) Main types and examples –Demand Collection System Prospective buyer makes a final (binding) bid for a specified good or service, and the broker arranges fulfillment. Priceline.com –Auction Broker Conducts auctions for sellers. Broker charges the seller a listing fee and commission scaled with the value of the transaction. Ebay.com 43

44. Brokerage Model (cont…) Main types and examples –Transaction Broker Provides a third-party payment mechanism Paypal –Virtual mall A hosting service for online merchants that charges setup, monthly listing, and/or transaction fees. Yahoo!Shopping 44

45. www.priceline.com

47. 47 Brokerage Model – B2C & C2C ClassificationExampleRevenue Stream E-taileramazon.com2nd hand sales + ….. Transaction brokertravelocity.comTransaction fee Market creatorpriceline.comTransaction fee Market creatorebay.comTransaction fee Online mallgarantialisveris.comTransaction fee

48. Advertising Model Definition –Free content or services supplied to users. Content (service) providers get advertising revenues. –Need very high volume of traffic or; very specialized audience. 48

49. Advertising Model (cont…) Main types and examples –Portals Usually a search engine that may include varied content or services Yahoo! –User registration Content-based sites that are free to access but require users to register and provide demographic data NYTimes 49

50. Advertising Model (cont…) Main types and examples –Query-based paid placement Sells favorable link positioning (i.e., sponsored links) or advertising keyed to particular search terms in a user query Google –Content-targeted advertising Freeware developers who bundle adware with their product Cnet, download.com –Intromercials –Ultramercials CBS Marketwatch 50

53. www.isikun.edu.tr

54. http://www.marketwatch.com/

55. Definiton –Some firms function as infomediaries (information intermediaries) assisting buyers and/or sellers understand a given market –Collecting and selling data about consumers, interests and buying habits 55 Infomediary Model

56. Infomediary Model (cont…) Main types and examples –Advertising networks Feed banner ads to a network of member sites, thereby enabling advertisers to deploy large marketing campaigns Doubleclick –Audience measurement services Online audience market research agencies Nielsen / Netratings –Incentive Marketing Data collected about users is sold for targeted advertising Coolsavings 56

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59. Definition –Wholesalers and retailers of goods and services. Sales may be made based on list prices or through auction. 59 Merchant Model

60. Merchant Model (cont…) Main types and examples –Virtual merchant A retail merchant that operates solely over the web Amazon.com –Click and mortar Traditional brick-and-mortar retail establishment with web storefront. Barnes & Noble, Walmart, Vatan, TeknoSa –Bit Vendor A merchant that deals strictly in digital products and services Apple iTunes Music Store 60

62. Definition –It is predicated on the power of the web to allow a manufacturer to reach buyers directly and thereby compress the distribution channel –Can be based on efficiency, improved customer service, and a better understanding of customer preferences 62 Manufacturer Model (cont…)

63. Main types and examples –Purchase The sale of a product in which the right of ownership is transferred to the buyer Dell.com –Lease In exchange for a rental fee, the buyer receives the right to use the product under a “terms of use” agreement –Licence The sale of a product that involves only the transfer of usage rights to the buyer, in accordance with a “terms of use” agreement Software licencing 63

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66. Definition –Provides purchase opportunities wherever people may be surfing. It does this by offering financial incentives (in the form of a percentage of revenue) to affiliated partner sites. –The affiliates provide purchase-point click-through to the merchant. 66 Affiliate Model

67. Affiliate Model (cont…) Main types and examples –Banner exchange Trades banner placement among a network of affiliated sites –Pay-per-click Site that pays affiliates for a user click-through –Revenue sharing Offers a percent-of-sale commission based on a user click-through in which the user subsequently purchases a product Examples: Amazon.com with Google books Ciceksepeti.com with frutation.com 67

68. 68 Affiliate Model (cont…)

70. Subscription Model Definition –Users are charged a periodic fee to subscribe to a service. Free content is combined with "premium" content. Subscription and advertising models are frequently combined. 70

71. Subscription Model (cont…) Main types and examples –Content services Provide text, audio, or video content to users who subscribe for a fee to gain access to the service Netflix –Internet service providers Offer network connectivity and related services on a monthly subscription Superonline, AOL 71

73. Subscription Model (cont…) Limitation –General reluctance to pay for content on the Web. –Exceptions: Wall Street Journal Premium content (detailed stock research reports) Archived information Academic journals 73

74. Utility Model Definition –Also called ‘on-demand’ model –It is based on metering usage, or a "pay as you go" approach. –Metered services are based on actual usage rates (unlike subscriber services). 74

75. Utility Model (cont…) Types and examples –Metered usage Measures and bills users based on actual usage of a service –Metered subscriptions Allows subscribers to purchase access to content in metered portions (e.g., numbers of pages viewed) Examples of payment per data extracted: –Credit reports –Retrieving old publications 75

76. Definition –Usually not aimed to generate revenue by itself. –Creating a community of similar users. –The viability of the model is based on user loyalty. Users have a high investment in both time and emotion. –Revenue can be based on the sale of ancillary products and services, voluntary contributions, contextual advertising and subscriptions for premium services. 76 Community Model

77. Community Model (cont…) Main types and examples –Open Source Software developed collaboratively by a global community of programmers who share code openly. It relies on revenue generated from related services like systems integration, product support, tutorials and user documentation Red Hat –Open Content Openly accessible content developed collaboratively by a global community of contributors who work voluntarily Wikipedia 77

78. Community Model (cont…) Main types and examples –Social Networking Services Sites that provide individuals with the ability to connect to other individuals along a defined common interest. Social networking services can provide opportunities for contextual advertising and subscriptions for premium services Facebook, LinkedIn, Friendster 78

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80. Mixture of Revenue Models Most E-Commerce firms have a mixture of Revenue Models –Community and Advertising –Merchant and Affiliate –Advertising and Subscription –Merchant and Advertising 80

81. LET’S EXERCISE

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