1. E-Commerce Business Models

2. Topic Objectives
At the end of this topic, you should be able to do the following:
List and describe the key components of e-commerce business models
Describe the major B-2-C business models
Describe the major B-2-B business models
Describe the key business concepts and strategies applicable to e-commerce

3. Business Models Business Model Business plan
A set of planned activities (business processes) designed to result in a profit in a marketplace
Business plan
A document that describes a firm’s business model
An e-commerce business model
aims to use and leverage the unique qualities of the Internet and WWW into a firm’s business model (Timmers, 1998)

4. Business Models
To develop a successful business model, we must address the 8 key ingredients below:
Value proposition
Revenue model
Market opportunity
Competitive environment
Competitive advantage
Market strategy
Organizational development
Management team

5. Business Models Key Ingredients
Value Proposition
Defines how a firm’s product or service fulfills the needs of customers
Answer the following questions
Why will customers buy our product instead from our competitors?
What will we provide that others will not?
E-commerce can offer
Personalization and customization
Reduction in product search cost
Reduction in price discovery cost
Facilitation of transaction by managing product delivery

6. Business Models Key Ingredients
Revenue Model
Describes how the firm will earn revenue, produce profits, and produce a superior return on invested capital
Examples of e-commerce revenue models
Advertising model
Subscription model
Transaction model
Sales model
Affiliate model

7. Business Models Key Ingredients
Revenue Model
Description
Examples
Advertising
Fees from advertisers in exchange for advertisements
Yahoo.com
Subscription
Fees from subscribers in exchange for access to content or service
WSJ.com
Transaction fee
Fees (commissions) for enabling or executing a transaction
eBay.com
Sales
Sales of goods, information, or services
Amazon.com
Affiliate
Fees for business referrals, customers redeem loyalty points
MyPoints.com

8. Business Models Key Ingredients
Market Opportunity
Refers to the firm’s intended marketspace and the overall potential financial opportunities available to the firm in that marketplace
Usually divided into smaller market segment, and within each market segment, there are market niche
Example
Motor industry
Market segment: Commercial vehicles and consumer vehicles
Market niche for consumer vehicles: luxury cars, MPV, four-wheel drives, saloons

9. Business Models Key Ingredients
Competitive environment
Refers to the other firms operating in the same marketspace selling similar products
Factors influencing the environment
How many competitors are active
How large their operations are
What the market share of each competitor is
How profitable these firms are
How they price their products

10. Business Models Key Ingredients
Competitive environment
Direct competition
Firms that sell products and services that are very similar and into the same market segment
Indirect competition
Firms that may be in different industries but still compete indirectly
The existence of large number of competitors in any one segment
may be a sign that the market is saturated
it may be difficult to be profitable

11. Business Models Key Ingredients
Competitive Advantage
Achieved by a firm when it can produce a superior product and/or bring the product to market at a lower price than most, or all, of its competitors
Achieved competitive advantage from
Obtain differential access to factors of production denied to competitors
Has more experience, knowledge others cannot imitate
Has patent on products competitors cannot imitate
Loyal customers that competitors do not have
Brand name and popular image others cannot duplicate

12. Business Models Key Ingredients
Competitive Advantage
Unique forms of competitive advantage
First mover advantage
being first in the market
Unfair competitive advantage
Develop an advantage others cannot purchase (example brand name, patent to invention)

13. Business Models Key Ingredients
Competitive Advantage
Firms can leverage (use) their competitive advantage to perform better than their rivals, thus make more profits

14. Business Models Key Ingredients
Market Strategy
The plan put together that details exactly how a firm intends to enter a new market and attract new customers
Example
Smart partnership with other firms to joint promote products
Distribute free samples, free gifts
Advertising blitz (heavily)

15. Business Models Key Ingredients
Organizational Development
Describes how the company will organize the work that needs to be accomplished
Organizations need changes to organizational structures and cultural values to support e-commerce
Work rules, procedures
Reporting structure
Information flow between departments

16. Business Models Key Ingredients
Management Team
Employees of the company responsible for making the business model work
The skills and knowledge of management can make or break the business model
Finding the right management team
What kinds of experience and skill sets required for the business model
Technical skills
Experience in a given field

17. Categorizing E-Commerce Models
Business-to-Consumer
Portal
E-Tailer
Content Provider
Transaction Broker
Market Creator
Service Provider
Community Provider

18. Business-to-Consumer Business Models
Description
Revenue Model
Examples
Portal
Offers an integrated package of services and content such as search, news, , chat, music downloads, video streaming, and calendars
Advertising, subscription fees, transaction fees
Yahoo.com, AOL.com, MSN.com,
E-tailer
Online version of retail store, where customers can shop at any hour of the day or night without leaving home or office
Sales of goods, transaction fees
Amazon.com
Walmart.com
Dell.com
Pasarborong.com

19. Business-to-Consumer Business Models
Description
Revenue Model
Examples
Content Provider
Information and entertainment providers such as newspapers, sports sites, and sites offering news, special interest, how-to-guide
Advertising, subscription fees, affiliate referral fees
WSJ.com, Sportsline.com, CNN.com
Transaction Broker
Processors of online sales transactions helping customers get things done faster and more cheaply
Transaction fees
E-Trade.com, Expedia.com, Monster.com

20. Business-to-Consumer Business Models
Description
Revenue Model
Examples
Market Creator
Web-based businesses that use Internet technology to create markets that bring buyers and sellers together
Transaction fees
eBay.com, Priceline.com
Service Provider
Companies that make money by selling users a service, rather than a product
Sales of service
xDrive.com, myCFO.com

21. Business-to-Consumer Business Models
Description
Revenue Model
Examples
Community Provider
Sites where individuals with particular interests, hobbies, and common experiences can come together and compare notes
Advertising, subscription fees, affiliate referral fees
About.com, iVillage.com, BlackPlanet.com

22. Categorizing E-Commerce Models
Business-to-Business
Marketplace/exchanges (B2B hubs)
E-Distributor
B2B Service Provider
Matchmaker
Informediary

23. Business-to-Business Business Models
Description
Revenue Model
Examples
Marketplace/
Exchange (B2B Hubs)
Helps bring buyers and sellers together to reduce procurement costs for a specific industry
Transaction fees
DirectAg.com,
e-steel.com,
TradeOut.com
E-Distributor
Connecting businesses directly with other businesses, reducing sales cycles and mark-up
Sales of goods
Grainger.com

24. Business-to-Business Business Models
Description
Revenue Model
Examples
B2B Service Provider
Supports companies through online business services
Sales of services, Rental fees
Employeematters.com
Salesforce.com
Corio.com
Matchmaker
Helps businesses find what they want and need on the Web
Transaction fees
iShip.com

25. Business-to-Business Business Models
Description
Revenue Model
Examples
Informediary
Gathers information about consumers and uses it to help advertisers find the most appropriate audience
Gathers customer data, and uses it to direct vendors to customers
Sales of information
Referral fees
DoubleClick.com
AutoByTel.com

26. Business Models in Emerging E-Commerce Areas
Consumer-to-consumer
Market creator
Peer-to-peer
Content provider
M-Commerce
Various