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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
ACS 3907 E-Commerce
Instructor: Kerry Augustine
January 16th 2018
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
E-Commerce Business Models and Concepts
Business-to-Consumer (B2C)
Consumer-to-Consumer (C2C)
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Business Plan and Business Model
• Business model = set of planned activities designed to result in a profit in a marketplace
• Business plan = a document detailing firm’s business model and financial viability – Major pieces:
• Description of customers to be served and relationship with them
• Description of all products and services that will be offered
• Description of process required to produce and deliver them
• List of resources required, identification of their availability
• Description of supply chain: suppliers, other partners
• Description of revenue model, anticipated costs, finance sources, estimated profitability (financial viability)
• E-commerce business model = a business model that aims to use and leverage the unique qualities of the Internet and Web
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Competition in the Internet Economy
• Has low barriers to entry
• Increasingly easier for countries, companies, individuals to participate in Internet economy
• Very intense competition
• Online transactions make the following possible: – Customers can readily find cheaper and better products
– Customers can compare prices easily, use of shopping search engine
– Product differentiation (e.g. reviews, recommendations, ratings)
– Personalization: tailor toward specific customer preferences
– Low/competitive prices
– Call centre customer support
– Reduced barriers to entry – no need for physical store or sales force
– Discover large number of profitable market niches
– Size, location, language may not be major factors
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Non-Technical EC Trends
• Increased Internet usage and opportunities for buying
• Purchasing incentives
• Increased privacy and security interest
• More efficient information handling
• Innovative organizations
• Virtual communities
• Remote collaboration
• Online auctions
• Global firms and e-governance
What are some new business opportunities?
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Technical EC Trends
• Decreased cost and greater availability of client computers
• Greater availability and functionality in servers
• Advances in network and wireless technologies
• Advances in EC software and services
• Advances in search engine technology
• Growth of peer-to-peer technology
• Advances in mobile and wearable devices
What are some new business opportunities?
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Impact of EC on Businesses
• New technologies offer companies unprecedented opportunities to rethink business strategies, models, processes, and relationships
• Special focus: – Improve marketing of existing products
– Improve creation (manufacturing) of existing products
– Improve customer service
– Improve operations (e.g., efficiencies, satellite offices)
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Key to a Successful EC Business Model
• Leverage unique qualities of the Web
• Provide value to customers
• Develop highly effective and efficient operations
• Avoid legal problems
• Produce profitable business results
• Scale as the firm size grows
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Tweet Tweet: Twitter’s Business Model
• What characteristics or benchmarks can be used to assess the business value of a company such as Twitter?
• Have you used Twitter to communicate with friends or family? What are your thoughts on this service?
• What are Twitter’s most important assets?
• Which of the various methods described for monetizing Twitter’s assets do you feel might be most successful?
© 2016 Pearson Education, Inc. Publishing as Prentice Hall 9
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Eight Key Elements of a Business Model
1. Value proposition
2. Revenue model
3. Market opportunity
4. Competitive environment
5. Competitive advantage
6. Market strategy
7. Organizational development
8. Management team
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
1. Value Proposition
• How a company’s product and service fulfills customer needs
• Answer to “why choose you?”
• May differ for different market segments
• E.g. Amazon: – Unparallel selection
– Convenience (24/7 shopping, cheap/free delivery)
– Competitive prices
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
2. Revenue Model
• How firm will earn revenue, produce profits, produce superior return on invested capital
• Also called financial model
• Success of a firm: produce returns > alternative investments
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Types of Revenue Models
• Advertising = provides forum for ads, receive fees from advertisers – E.g., Yahoo!.com
• Subscription = charges subscription fees for some/all of company’s content/service offerings – E.g., eHarmony.com
• Transaction fees = forum that enables/executes transaction – E.g., eBay.com
• Sales = sells goods, information, or services – E.g., Amazon.com, Gap.com
• Affiliate = steers business to an affiliate, receives referral fee or % revenue from resulting sales – E.g., MyPoints.com
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Foursquare Checks Out a Revenue Model
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Foursquare: Check Your Privacy at the Door
• What revenue model does Foursquare use? What other revenue models might be appropriate?
• Are privacy concerns the only shortcoming of location-based mobile services?
• Should business firms be allowed to call cell phones with advertising messages based on location?
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
3. Market Opportunity • Identify firm’s intended marketspace
• Identify potential financial opportunities in that marketspace
• Usually divided into smaller market niches
• Realistic market opportunity is defined by revenue potential in each market niches where you hope to compete
• E.g., software learning system to sell online – Overall market: all those who participate in software training
– Smaller niches:
• Instructor-led training products
• Computer-based training
• Each can be subdivided as well
– Realistic market: not big companies or brand names, just to market segment that “helps” (e.g. increase efficiency, decrease cost, better quality)
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
4. Competitive Environment
• Must identify: – Other competitors operating in same marketspace
– Presence of substitute products
– Potential new entrants to market
– Power of consumers/suppliers over your business
• Field survey example
• Sole supplier example
• Market analysis can help avoid: – Market with many competitors may mean that market is saturated,
thus, difficult to generate profit
– Untapped market may mean that market was tried without success
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5. Competitive Advantage
• Achieved when firm produces superior product or cheaper-than-most product
• Asymmetry = when one participant has more resources
• First-mover advantage = competitive market advantage results from being a first-mover in that market
• Complementary resources = resources/assets not directly involved in production but crucial to success – E.g., reputation, management
• Unfair competitive advantage = occurs when firm develops advantage based on factor that other firms cannot purchase – E.g., brands: built on loyalty, trust, reliability, which enables premium
charges on products
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Ex. First Mover Advantage
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• Blackberry was the first brand to seamlessly integrate mobile communication, internet capabilities and corporate email into a convenient hand held gadget.
• Blackberry's stranglehold on smart phone market was strongly challenged by Apple with its introduction of iPhone in June 2007.
• Apple redefined the smartphone.
• Apple significantly improved the convergence of a mobile phone, a music player, an internet browser, a digital camera, and an in-built GPS. Furthermore, iPhone was efficiently connected to iTunes, Apple's online store to purchase music and movies.
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
6. Market Strategy
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• “How do you plan to promote your products or services to attract your target audience?”
– Details how a company intends to enter market and attract customers
– Best business concepts will fail if not properly marketed to potential customers
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
7. Organizational Development
• “What types of organizational structures within the firm are necessary to carry out the business plan?”
• Organizational development
– Plan describing how company will organize required work to be done
– Typically divided into functional departments
– Need efficient implementation of business plans and strategies
– Important for growing company
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
8. Management Team
• “What kind of backgrounds should the company’s leaders have?”
• A strong management team:
– Can make the business model work
– Can give credibility to outside investors
– Has market-specific knowledge
– Has experience in implementing business plans
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Raising Capital
• Seed capital • Traditional sources
– Incubators – Commercial banks – Angel investors – Venture capital firms – Strategic partners
• Crowdfunding – JOBS Act
24 © 2016 Pearson Education, Inc. Publishing as Prentice Hall
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Crowdfunding Takes Off
• What types of projects and companies might be able to most successfully use crowdfunding?
• Are there any negative aspects to crowdfunding?
• What obstacles are presented in the use of crowdfunding as a method to fund start-ups?
25 © 2016 Pearson Education, Inc. Publishing as Prentice Hall
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Categorizing EC Business Models
• For learning or analysis purposes
• Difficulties: – Models may continue to grow
– Subjective categorization
– Affected by technology used
– Companies may use multiple business models
• Major categories: – B2C – business-to-consumer
– B2B – business-to-business (extends to “organizations” such as government)
– C2C – customer-to-customer
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
EC Models – Bus | Consumer | Gov’t
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Team Exercises
Round 1 Team Exercise (1)
Round 2 Team Exercise (1)
Round 3 Team Exercise (1)
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Business-to-Consumer (B2C)
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B2C Business Models
• E-tailer
• Community provider (social network)
• Content provider
• Portal
• Transaction broker
• Market creator
• Service provider
| Copyright © 2013 Pearson Education, Inc. 30
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B2C Business Models
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
E-tailer
• Online retail store • Some are port of existing physical stores • Revenue model is based on product sales • Large potential market: retail market and Internet users • Extremely competitive sector because low barriers to entry • Barriers to entry = total cost of entering new marketplace • Challenge is to differentiate one’s business from existing
stores/websites • If try to reach every online user – likely deplete resources quickly • Key
– Focus on niche market and target audience – Keep expenses low – Keep selection broad – Good inventory control
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Types of E-tailers
• Virtual merchant = e-tailer with no physical store
• Brick-and-clicks = e-tailer with physical store
• Catalog merchant = online version of direct mail catalog
• Manufacturer-direct = manufacturer uses online channel to sell directly to customers
• Match companies to business models: – Walmart/ Ikea
– Dell
– Amazon
– Lands’ End (no physical store in Winnipeg)
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Types of E-tailers
• Virtual merchant = e-tailer with no physical store
• Brick-and-clicks = e-tailer with physical store
• Catalog merchant = online version of direct mail catalog
• Manufacturer-direct = manufacturer uses online channel to sell directly to customers
• Match companies to business models: – Walmart/ Ikea Bricks-and-clicks
– Dell
– Amazon
– Lands’ End (no physical store in Winnipeg)
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Types of E-tailers
• Virtual merchant = e-tailer with no physical store
• Brick-and-clicks = e-tailer with physical store
• Catalog merchant = online version of direct mail catalog
• Manufacturer-direct = manufacturer uses online channel to sell directly to customers
• Match companies to business models: – Walmart/ Ikea Bricks-and-clicks
– Dell Manufacturer-direct
– Amazon
– Lands’ End (no physical store in Winnipeg)
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Types of E-tailers
• Virtual merchant = e-tailer with no physical store
• Brick-and-clicks = e-tailer with physical store
• Catalog merchant = online version of direct mail catalog
• Manufacturer-direct = manufacturer uses online channel to sell directly to customers
• Match companies to business models: – Walmart/ Ikea Bricks-and-clicks
– Dell Manufacturer-direct
– Amazon Virtual Merchant
– Lands’ End (no physical store in Winnipeg)
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Types of E-tailers
• Virtual merchant = e-tailer with no physical store
• Brick-and-clicks = e-tailer with physical store
• Catalog merchant = online version of direct mail catalog
• Manufacturer-direct = manufacturer uses online channel to sell directly to customers
• Match companies to business models: – Walmart/ Ikea Bricks-and-clicks
– Dell Manufacturer-direct
– Amazon Virtual Merchant
– Lands’ End (no physical store in Winnipeg) Catalog merchant
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©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Community Provider
• Sites that create digital online environment where people with similar interests can: – Transact
– Share interests, photos, videos, anecdotes
– Communicate with like-minded people
– Receive interest-related information
• No limitation of geography and time
• Value proposition: create fast, convenient, one-step site where users can focus on their most important things
• Typically hybrid revenue models
• Provide ideal marketing and ad territories
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Example Community Provider
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Content Provider
• Distributes digital information content over the Web – E.g., news, media, music, art, etc.
• Intellectual property = all forms of human expression that can be put into tangible medium (such as CDs or on the Web)
• Revenue model: subscription fee or transaction fee
• Key is to own content (e.g., own copyright)
• Syndication = distribute content produced by others
• Web aggregator = syndication plus some added value to content – E.g., summary statistics or additional analysis
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Battle of the Titans: Music in the Cloud
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Portal
• Offer powerful Web search tools, integrated package of content and services all in one place
• Used to be viewed as “gateway” to the Internet
• Do not sell anything directly to users
• Service via ads, referral fees, premium services
• Horizontal portal = portal that includes everyone in marketspace
• Vertical portal = similar to horizontal portals in services, but focused on particular subject matter or market segment – Also called vortal
– Visitors to specialized niche vortals spend more money than average Yahoo visitor
– If attract enough market segment, advertisers are willing to pay premium to reach target audience
• Search = portals focused on search engine services
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Example Portal
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Example Vortal - LinkedIn
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
B2C Models: Transaction Broker
• Process online transactions for consumers – Primary value proposition—saving time and money
• Revenue model: – Transaction fees
• Industries using this model: – Financial services
– Travel services
– Job placement services
| Copyright © 2013 Pearson Education, Inc. 45
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Example Transaction Broker
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Market Creator
• Builds digital environment where buyers and sellers can: – Meet
– Display products
– Search for products
– Establish price for products
• E.g., eBay
• Has no inventory or production costs
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Example Market Creator
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Service Provider
• Offers online services
• E.g. photo sharing, maps, email, calendar, financial planning, advice (medical), appointment scheduling
• Various revenue models: fees, subscriptions, ads, collecting personal information and then selling it
• Some mix services and products
• Value proposition: convenience, time savings, low-cost, valuable alternatives to traditional services
• Convenience – important factor for time-starved people – A key predictor to online buying behaviour
• Critical to build confidence and trust
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Example Service Provider
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Consumer-to-Consumer (C2C)
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Consumer-to-Consumer (C2C)
• A way for consumers to sell to each other, via online business
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