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E-Business ModelsE-Business Models
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Learning ObjectivesLearning Objectives
Identify the key components of e-commerce Identify the key components of e-commerce business models.business models.
Describe the major B2C business models.Describe the major B2C business models. Describe the major B2B business models.Describe the major B2B business models. Recognize business models in other Recognize business models in other
emerging areas of e-commerce.emerging areas of e-commerce. Understand key business concepts and Understand key business concepts and
strategies applicable to e-commerce.strategies applicable to e-commerce.
Components of e-Business Components of e-Business ModelsModels
Business Model-Customer value- Scope- Price- Resources- Capabilities- Implementations
Business Model-Customer value- Scope- Price- Resources- Capabilities- Implementations
EnvironmentEnvironment
InternetInternet PerformancePerformance
Price CompetitionPrice Competition
Price for books and CDs sold on the Internet less Price for books and CDs sold on the Internet less than conventional channelthan conventional channel– Average 9-16%Average 9-16%
Price incrementsPrice increments– Price change on the Internet is smaller than Price change on the Internet is smaller than
conventional channelconventional channel Price dispersionPrice dispersion
– Substantial differences in price across retailers on the Substantial differences in price across retailers on the InternetInternet
– Heterogeneity in consumer awarenessHeterogeneity in consumer awareness– Heterogeneity in retailer branding and trustHeterogeneity in retailer branding and trust
Driving FactorsDriving Factors
Lower buyer search costsLower buyer search costs– Promote price competitionPromote price competition
Low entry costs or low operational costsLow entry costs or low operational costs Other factorsOther factors
– TaxTax– Shipping and handling feesShipping and handling fees
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E-Commerce Business ModelsE-Commerce Business Models
Business modelBusiness model– a set of planned activities designed to a set of planned activities designed to
result in a profit in a marketplaceresult in a profit in a marketplace E-commerce business modelE-commerce business model
– a business model that aims to use and a business model that aims to use and leverage the unique qualities of the leverage the unique qualities of the Internet and the World Wide Web.Internet and the World Wide Web.
Eight Key Ingredients of a Business ModelEight Key Ingredients of a Business Model
Key QuestionsBusiness Model Components
Value Proposition Why should the customer buy from you?
Revenue model How will you earn money?
Market opportunity What marketspace do you intent 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 to attract customer?
Organizationaldevelopment
What types of organizational structures within the firm arenecessary to carry out the business plan?
Management teamWhat kinds of experiences and background are important for the company’s leaders to have?
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Value PositionValue Position Defines how a company’s product or Defines how a company’s product or
service fulfills the needs of customers.service fulfills the needs of customers. QuestionsQuestions
Why will customers choose to do business with Why will customers choose to do business with your firm instead of another company?your firm instead of another company?
What will your firm provide that other firms do What will your firm provide that other firms do not and cannot?not and cannot?
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Revenue ModelRevenue Model Describes how the firm will earn revenue, Describes how the firm will earn revenue,
produce profits, and produce a superior produce profits, and produce a superior return on invested capital.return on invested capital.
E-commerce revenue models include:E-commerce revenue models include: advertising modeladvertising model subscription modelsubscription model transaction fee modeltransaction fee model sales modelsales model affiliate modelaffiliate model
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Revenue ModelRevenue Model Advertising revenue modelAdvertising revenue model
a company provides a forum for advertisements a company provides a forum for advertisements and receives fees from advertisers (and receives fees from advertisers (Yahoo))
Subscription revenue modelSubscription revenue model a company offers it users content or services a company offers it users content or services
and charges a subscription fee for access to and charges a subscription fee for access to some or all of it offerings (some or all of it offerings (Consumer Reports or or Wall Street Journal))
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Revenue ModelRevenue Model Transaction fee revenue modelTransaction fee revenue model
a company receives a fee for enabling or a company receives a fee for enabling or executing a transaction (executing a transaction (eBay or or E-Trade))
Sales revenue modelSales revenue model a company derives revenue by selling goods, a company derives revenue by selling goods,
information, or services (information, or services (Amazon or or DoubleClick)
Affiliate revenue modelAffiliate revenue model a company steers business to an affiliate and a company steers business to an affiliate and
receives a referral fee or percentage of the receives a referral fee or percentage of the revenue from any resulting sales (revenue from any resulting sales (MyPoints))
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Market OpportunityMarket Opportunity Market opportunityMarket opportunity
refers to the company’s intended marketspace refers to the company’s intended marketspace and the overall potential financial opportunities and the overall potential financial opportunities available to the firm in that market spaceavailable to the firm in that market space
defined by the revenue potential in each of the defined by the revenue potential in each of the market niches where you hope to competemarket niches where you hope to compete
MarketspaceMarketspace the area of actual or potential commercial value the area of actual or potential commercial value
in which a company intends to operatein which a company intends to operate
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Competitive EnvironmentCompetitive Environment Refers to the other companies operating in Refers to the other companies operating in
the same marketplace selling similar the same marketplace selling similar productsproducts
Influenced by:Influenced by: how many competitors are activehow many competitors are active how large are their operationshow large are their operations the market share of each competitorthe market share of each competitor how profitable these firms arehow profitable these firms are how they price their productshow they price their products
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Competitive AdvantageCompetitive Advantage Achieved by a firm when it can produce a Achieved by a firm when it can produce a
superior product and/or bring the product to superior product and/or bring the product to market at a lower price than most, or all, of market at a lower price than most, or all, of its competitorsits competitors
Achieved because a firm has been able to Achieved because a firm has been able to obtain differential access to the factors of obtain differential access to the factors of production that are denied their competitors production that are denied their competitors -- at least in the short term-- at least in the short term
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Competitive AdvantageCompetitive Advantage AsymmetryAsymmetry
exists whenever one participant in a market has exists whenever one participant in a market has more resources than other participantsmore resources than other participants
First mover advantageFirst mover advantage a competitive market advantage for a firm that a competitive market advantage for a firm that
results from being the first into a marketplace results from being the first into a marketplace with a serviceable product or servicewith a serviceable product or service
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Competitive AdvantageCompetitive Advantage
Unfair competitive advantageUnfair competitive advantage occurs when one firm develops an advantage occurs when one firm develops an advantage
based on a factor that other firms cannot based on a factor that other firms cannot purchasepurchase
Perfect MarketPerfect Market a market in which there are no competitive a market in which there are no competitive
advantages or asymmetries because all firms advantages or asymmetries because all firms have equal access to all the factors of have equal access to all the factors of productionproduction
when a company uses its competitive advantage when a company uses its competitive advantage to achieve more advantage in surrounding to achieve more advantage in surrounding marketsmarkets
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Market StrategyMarket Strategy The plan you put together that details The plan you put together that details
exactly how you intend to enter a new exactly how you intend to enter a new market and attract new customersmarket and attract new customers
Best business concepts will fail if not Best business concepts will fail if not properly marketed to potential customersproperly marketed to potential customers
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Organizational DevelopmentOrganizational Development Describes how the company will organize Describes how the company will organize
the work that needs to be accomplishedthe work that needs to be accomplished Work is typically divided into functional Work is typically divided into functional
departmentsdepartments Move from generalists to specialists as the Move from generalists to specialists as the
company growscompany grows
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Management TeamManagement Team Employees of the company responsible for Employees of the company responsible for
making the business model workmaking the business model work Strong management team gives instant Strong management team gives instant
credibility to outside investorscredibility to outside investors A strong management team may not be able A strong management team may not be able
to salvage a weak business modelto salvage a weak business model Should be able to change the model and Should be able to change the model and
redefine the business as it becomes redefine the business as it becomes necessarynecessary
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Major Business-to-Consumer Major Business-to-Consumer (B2C) Business Models(B2C) Business Models
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Major Business-to-Consumer Major Business-to-Consumer (B2C) Business Models(B2C) Business Models
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Major Business-to-Consumer Major Business-to-Consumer (B2C) Business Models(B2C) Business Models
PortalPortal offers powerful search tools plus an integrated offers powerful search tools plus an integrated
package of content and servicespackage of content and services typically utilizes a combines typically utilizes a combines
subscription/advertising revenues/transaction subscription/advertising revenues/transaction fee modelfee model
may be general or specialize (vortal)may be general or specialize (vortal)
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Major Business-to-Consumer Major Business-to-Consumer (B2C) Business Models(B2C) Business Models
E-tailerE-tailer online version of traditional retaileronline version of traditional retailer includes includes
virtual merchants (online retail store only)virtual merchants (online retail store only) clicks and mortar e-tailers (online distribution clicks and mortar e-tailers (online distribution
channel for a company that also has physical stores)channel for a company that also has physical stores) catalog merchants (online version of direct mail catalog merchants (online version of direct mail
catalog)catalog) online malls (online version of mall)online malls (online version of mall) Manufacturers selling directly over the WebManufacturers selling directly over the Web
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Major Business-to-Consumer Major Business-to-Consumer (B2C) Business Models(B2C) Business Models
Content ProviderContent Provider information and entertainment companies that information and entertainment companies that
provide digital content over the Webprovide digital content over the Web typically utilizes an advertising, subscription, or typically utilizes an advertising, subscription, or
affiliate referral fee revenue modelaffiliate referral fee revenue model Transaction BrokerTransaction Broker
processes online sales transactionsprocesses online sales transactions typically utilizes a transactions feel revenue typically utilizes a transactions feel revenue
modelmodel
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Major Business-to-Consumer Major Business-to-Consumer (B2C) Business Models(B2C) Business Models
Market CreatorMarket Creator uses Internet technology to create markets that uses Internet technology to create markets that
bring buyers and sellers togetherbring buyers and sellers together typically utilizes a transaction fee revenue typically utilizes a transaction fee revenue
modelmodel E.g. AuctionE.g. Auction
English auctionEnglish auction Dutch auctionDutch auction Sealed-bid auctionSealed-bid auction Double auctionDouble auction
English AuctionsEnglish Auctions
The bidders announce their bids until no The bidders announce their bids until no higher bid is forthcominghigher bid is forthcoming– ‘‘going . . . going . . . gone!’going . . . going . . . gone!’– Ascending-price auctionsAscending-price auctions– Typically set a closing time in advanceTypically set a closing time in advance
Minimum bid plus a reserve priceMinimum bid plus a reserve price Early buyout priceEarly buyout price
Dutch AuctionsDutch Auctions
Bidding starts at a high price and drops Bidding starts at a high price and drops until a bidder accepts the priceuntil a bidder accepts the price– Descending price auctionsDescending price auctions
Sealed-Bid AuctionsSealed-Bid Auctions
Bidders submit their bids independently and Bidders submit their bids independently and are usually prohibited from sharing are usually prohibited from sharing information with each otherinformation with each other
First-price sealed-bid auctionFirst-price sealed-bid auction– The winner pays his amountThe winner pays his amount
Second-price sealed-bid auctionSecond-price sealed-bid auction– The winner pays one increment over the The winner pays one increment over the
second-highest bid receivedsecond-highest bid received
Double AuctionsDouble Auctions
Buyers and sellers submit bids to an Buyers and sellers submit bids to an auctioneerauctioneer
The auctioneer matches the seller’s offers to The auctioneer matches the seller’s offers to the buyer’s offerthe buyer’s offer– E.g. New York Stock ExchangeE.g. New York Stock Exchange
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Major Business-to-Consumer Major Business-to-Consumer (B2C) Business Models(B2C) Business Models
Service ProviderService Provider offers services onlineoffers services online
Community ProviderCommunity Provider provides an online community of like-minded provides an online community of like-minded
individuals for networking and information individuals for networking and information sharingsharing
revenue is generated by referral fee, revenue is generated by referral fee, advertising, and subscription advertising, and subscription
e-Business Modelse-Business Models
Dynamic Pricing ModelsDynamic Pricing Models– Name-Your-Price ModelName-Your-Price Model– Comparison-Pricing ModelComparison-Pricing Model– Demand-Sensitive Pricing ModelDemand-Sensitive Pricing Model
Name-Your-Price ModelName-Your-Price Model
Allows customers to state the price they are Allows customers to state the price they are willing to paywilling to pay
Priceline.comPriceline.com– Demand collect systemsDemand collect systems
» Use shopping bot that takes customer’s bid to the Use shopping bot that takes customer’s bid to the Priceline partners to see whether they will accept the Priceline partners to see whether they will accept the prices for the requested products/servicesprices for the requested products/services
– Intelligent agentsIntelligent agents
Comparison-Pricing ModelComparison-Pricing Model
Allows customers to poll a variety of Allows customers to poll a variety of merchants and find a desired merchants and find a desired product/service at the lowest priceproduct/service at the lowest price
Mysimon.comMysimon.com– Uses intelligent-agent technology Uses intelligent-agent technology – Offers discussion groups, customer ratings, and Offers discussion groups, customer ratings, and
comparison shoppingcomparison shopping
Demand-Sensitive Pricing ModelDemand-Sensitive Pricing Model
Group purchasingGroup purchasing– Individual buyers to shop in large groups to obtain Individual buyers to shop in large groups to obtain
group discountgroup discount» The more people who buy a product in a single purchase, the The more people who buy a product in a single purchase, the
lower the cost per person becomeslower the cost per person becomes
– Mercata.com, mobshop.com, demandline.comMercata.com, mobshop.com, demandline.com
How it worksHow it works– Buyers create requests for quotes (RFQs)Buyers create requests for quotes (RFQs)
– Purchasing manager monitors all aggregated RFQsPurchasing manager monitors all aggregated RFQs
– Manager negotiates through suppliers.Manager negotiates through suppliers.
Demand-Sensitive Pricing ModelDemand-Sensitive Pricing Model
Price DiscriminationPrice Discrimination
Output
Price
D1R1
Q1
P1
D2R2
Q2 Q
P2
Marginalcost
Demand-Sensitive Pricing ModelDemand-Sensitive Pricing Model
Benefits to BuyersBenefits to Buyers– Reduce product costsReduce product costs– Reduce transaction costsReduce transaction costs
Benefits to SuppliersBenefits to Suppliers– Enhance revenue with a high-volume salesEnhance revenue with a high-volume sales– Reduce sales costsReduce sales costs– Improve manufacturing efficiencyImprove manufacturing efficiency
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Major Business-to-Business Major Business-to-Business (B2B) Business Models(B2B) Business Models
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Major Business-to-Business Major Business-to-Business (B2B) Business Models(B2B) Business Models
B2B HubB2B Hub also known as also known as marketplace/exchangemarketplace/exchange electronic marketplace where suppliers and electronic marketplace where suppliers and
commercial purchasers can conduct commercial purchasers can conduct transactionstransactions
may be a general (horizontal marketplace) or may be a general (horizontal marketplace) or specialized (vertical marketplace)specialized (vertical marketplace)
E-distributorE-distributor supplies products directly to individual supplies products directly to individual
businessesbusinesses
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Major Business-to-Business Major Business-to-Business (B2B) Business Models(B2B) Business Models
B2B Service ProviderB2B Service Provider sells business services to other firmssells business services to other firms
MatchmakerMatchmaker links businesses togetherlinks businesses together charges transaction or usage feescharges transaction or usage fees
InfomediaryInfomediary gather information and sells it to businessesgather information and sells it to businesses
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Seven Unique Feature of E-Seven Unique Feature of E-Commerce TechnologyCommerce Technology
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Seven Unique Feature of E-Seven Unique Feature of E-Commerce TechnologyCommerce Technology
UbiquityUbiquity Alters industry structure by creating new marketing Alters industry structure by creating new marketing
channels and expanding size of overall marketchannels and expanding size of overall market Creates new efficiencies in industry operations and Creates new efficiencies in industry operations and
lowers cost of firms’ sales operationslowers cost of firms’ sales operations Enables new differentiation strategiesEnables new differentiation strategies
Global ReachGlobal Reach Changes industry structure by lowering barriers to Changes industry structure by lowering barriers to
entry, but greatly expands market at the same timeentry, but greatly expands market at the same time Lowers cost of industry and firm operations through Lowers cost of industry and firm operations through
production and sales efficienciesproduction and sales efficiencies Enables competition on global scaleEnables competition on global scale
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Seven Unique Features of E-Seven Unique Features of E-Commerce TechnologyCommerce Technology
Universal StandardsUniversal Standards Changes industry structure by lowering barriers to entry Changes industry structure by lowering barriers to entry
and intensifying competition within an industryand intensifying competition within an industry Lowers costs of industry and firm operations by Lowers costs of industry and firm operations by
lowering computing and communications costslowering computing and communications costs Enables broad-scope strategiesEnables broad-scope strategies
RichnessRichness Alters industry structure by reducing strength of Alters industry structure by reducing strength of
powerful distribution channelspowerful distribution channels Change industry and firm operations costs by lessening Change industry and firm operations costs by lessening
reliance on sales forcereliance on sales force Enhances post-sale support strategiesEnhances post-sale support strategies
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Seven Unique Features of E-Seven Unique Features of E-Commerce TechnologyCommerce Technology
InteractivityInteractivity Alters industry structure by reducing threat of Alters industry structure by reducing threat of
substitutes through enhanced customizationsubstitutes through enhanced customization Reduces industry and firm costs by lessening reliance Reduces industry and firm costs by lessening reliance
on sales forceon sales force Enable differentiation strategiesEnable differentiation strategies
Personalization/CustomizationPersonalization/Customization Alters industry structure by reducing threats of Alters industry structure by reducing threats of
substitutes, raising barriers to entrysubstitutes, raising barriers to entry Reduces value chain costs in industry and firm by Reduces value chain costs in industry and firm by
lessening reliance on sales forceslessening reliance on sales forces
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Seven Unique Features of E-Seven Unique Features of E-Commerce TechnologyCommerce Technology
Information DensityInformation Density Changes industry structure by weakening Changes industry structure by weakening
powerful sales channels, shifting bargaining powerful sales channels, shifting bargaining power to consumerpower to consumer
Reduces industry and firm operations costs by Reduces industry and firm operations costs by lowering costs of obtaining, processing, and lowering costs of obtaining, processing, and distributing information about suppliers and distributing information about suppliers and consumersconsumers
Case StudiesCase Studies
Should we integrate our Internet business Should we integrate our Internet business with our traditional business or should we with our traditional business or should we keep the two separate?keep the two separate?
Seamless Model: Office DepotSeamless Model: Office Depot
Two reasonsTwo reasons– Existing catalog-sales support an Internet storeExisting catalog-sales support an Internet store– Existing information systems made it easy to Existing information systems made it easy to
coordinate online stores and physical storescoordinate online stores and physical stores Customers’ BenefitCustomers’ Benefit
– Make shopping simple and convenientMake shopping simple and convenient Company’s BenefitCompany’s Benefit
– Cheaper to reach customers Cheaper to reach customers
Seamless Model: Office DepotSeamless Model: Office Depot
Added ValueAdded Value– Each customer has its own specialized view of Each customer has its own specialized view of
the OfficeDepot.com sitethe OfficeDepot.com site» authorizationauthorization
– Provide additional discount for larger Provide additional discount for larger customers if they place order on onlinecustomers if they place order on online
Actually increased the traffic at its physical Actually increased the traffic at its physical outletoutlet
Joint Venture Model: KB ToyJoint Venture Model: KB Toy
ReasonsReasons– Don’t have much experience with catalog Don’t have much experience with catalog
retailingretailing– Tend to focus exclusively on their physical Tend to focus exclusively on their physical
storesstores KB Toy and Kbkids.comKB Toy and Kbkids.com
– KB Toy joined with BrainPlay.com to create KB Toy joined with BrainPlay.com to create Kbkids.comKbkids.com
» $80 million$80 million
Joint Venture Model: KB ToyJoint Venture Model: KB Toy
OperationOperation– SeparationSeparation
» Kbkids headquarter: DenverKbkids headquarter: Denver
» KB Toy headquarter: MAKB Toy headquarter: MA
– IntegrationIntegration» Share brand: promotionShare brand: promotion
» Customer serviceCustomer service
» Purchasing functionPurchasing function
Virtual PartnershipVirtual Partnership
Rite Aid and Drugstore.comRite Aid and Drugstore.com Customer benefitCustomer benefit
– Customers can pick up their Drugstore.com Customers can pick up their Drugstore.com prescriptions at their local Rite Aidprescriptions at their local Rite Aid
A Spectrum of ChoicesA Spectrum of Choices
Model Brand Management Operation
Seamless Fully integrated Fully integrated Fully integrated
Joint VentureMostly
integratedSlightly
integratedModerately integrated
Partnership SeparateSlightly
integratedModerately integrated
Decision ProcessDecision ProcessBrand
Separation Integration
Does the brand extend naturallyto the Internet?
Will we need to price differently?
Management
Do we have the skills and experience?
Will there be major channel conflict?
Does the Internet threaten the currentbusiness model?
Decision ProcessDecision Process
OperationsSeparation Integration
Do our distribution systems translate well to the Internet?
Do our information systems providea foundation on which to build?
Does either systems constitute a significant competitive advantage?