1. E-Commerce Business Models and Concepts
Chapter 2

2. Learning Objectives
Identify the key components of e-commerce business models
Describe the major B2C business models
Use an industry competition analysis framework to describe how e-commerce has impacted the level of competition in online industries
Understand key business concepts and strategies applicable to e-commerce

3. E-Commerce Business Models
A business model is a set of planned activities designed to result in a profit in a marketplace
An e-commerce business model aims to use and leverage the unique qualities of the Internet, the Web, and the mobile platform
There are eight key elements of a business model

4. Key Elements of a Business Model (Table 2.2)
Components
Key Questions
Value proposition
Why should the customer buy from you?
Revenue model
How will you earn money?
Market opportunity
What marketspace do you intend to serve, and what is its size?
Competitive environment
Who else occupies your intended marketspace?
Competitive advantage
What special advantages does your firm bring to the marketspace?
Market strategy
How do you plan to promote your products or services to attract your target audience?
Organizational development
What types of organizational structures within the firm are necessary to carry out the business plan?
Management team
What kinds of experiences and background are important for the company’s leaders to have?

5. Revenue Model (Table 2.1)
A firm’s revenue model describes how the firm will earn revenue, generate profits, and produce a superior return on invested capital
Most companies rely on one, or some combination, of the following major revenue models:
Advertising (Yahoo)
Subscription (WSJ)
Transaction fee (eBay)
Sales (Amazon)
Affiliate (MyPoints)
Why may a company want more than one revenue model?

6. Competitive Advantage
Firms achieve a competitive advantage when they can produce a superior product and/or bring a product to market at a lower price than most, or all, of their competitors
Two of the most common forms of competitive advantage are lower costs (fixed and/or variable), or better (differentiated) products or services
What are some other sources of competitive advantage?

7. Raising Capital
Raising capital is one of the most important functions for a founder of a start-up business
Many entrepreneurs initially use personal funds (seed capital) to start their business
Once such funds are exhausted, if the company is not generating enough revenue to cover operating costs, additional capital will be needed
Sources of capital include:
Incubators
Angel investors
Venture capital investors
Crowdfunding

8. B2C E-Commerce Business Models (Table 2.3)
E-tailer
Virtual merchant, bricks-and-clicks, catalog merchant, and manufacturer-direct
Community provider
Content provider
Portal
General portals, specialized portals, or search services
Transaction broker
Market creator
Service provider

9. Other E-Commerce Business Models
B2B e-commerce business models will be discussed later in Chapter 12
Consumer-to-consumer (C2C)
E-Commerce Enablers (infrastructure and support service providers, summarized in Table 2.5)
Server hardware and software, cloud providers, hosting services, domain name registration, content delivery, site design, mobile commerce hardware and software, multimedia, security, payment, performance management, CRM systems, fulfillment, online marketing services, customer reviews and forums, live customer service, and Web analytics

10. Industry Structure
Industry structure refers to the nature of the players in an industry and their relative bargaining power
When you describe an industry’s structure, you are describing the general business environment in an industry and the overall profitability of doing business in that environment
It is important for firms to assess the level of competition in their current and/or potential industries (industry structural analysis)
The best known framework for assessing the level of competition in an industry is Michael Porter’s competitive forces model

11. Assessing Industry Competition
Porter’s five forces include:
The threat of entry of new competitors
The bargaining power of suppliers
The bargaining power of customers (buyers)
The threat of substitute products or services
The rivalry among existing competitors
What impact has e-commerce had on industry competition (based on each of the five forces and overall) when compared with competition in traditional industries?