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E COMMERCE BUSINESS MODELS AND CONCEPTS TWE ET T WEET!

E COMMERCE BUSINESS MODELS AND CONCEPTS TWEET TWEET!

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E COMMERCE B

USINESS

MODELS A

ND CONCEPT

S

TW

EE

T T

WE

ET

!

NEW TRENDS AND TECHNOLOGIES

2010 – 174 Million people would use search engines to conduct 15-17 billion searches online

150 million people would watch 30 billion videos online

104 million people would read blogs

Are we this starved for communication options?

Twitter was the phenomena of the moment in which “tweeple” express themselves in 140 characters or less … “friends’ here are “followers”

Twitter has produced little revenue and zero profits although $160 million has been invested … how can this be exploited for commercial purposes?

TWITTER

Is the buzz social network that is the web-based version of cell phone based texting

Podcasting company Odeo got the idea in a search to increase revenues and eventually spun it into Twitter.com

The idea of Twitter is to marry the short text message with the Web to create social networks

No fees, no charges or installation – you just tweet a short update on your cell phone and your friends can keep up with your activities, locations, etc.

Over 145 M registered users … great for updates during the World Cup, Iranian /Egyptian rebellions, death of Steve Jobs … 200 M tweets sometimes dispatched almost simultaneously

80% Tweets generated by 10% users and their churn rate is 60% … 40% users remain a month or more

Churn rates – high .. People feeling too connected to acquaintances?

Unique users

Number of tweets

Investors include

Amazon founder

Benchmark Capital

Spark Capital

Company Valuation $1B … why??

TERMS FOR DETERMINING BUSINESS AND COMMERCIAL USES

Valuation based on the commercial uses just as is Facebook … but what does Twitter produce of commercial value?

Primary Asset – user attention and audience size1. “get it now” access2. database of information from Tweets!

Additionally … powerful tool for news

COMPANY VALUATION

Click icon to add picture

NEWS R

EPORT

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HOW D

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IZE

THESE

ASSETS?

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otio

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Promotional Trendswhat’s hot, what are people talking about?

Twitter promotes this as reflective of what people are tweeting

@early bird accounts

Users follow for special offers … twofers for films, fashion, beauty products

“flash marketing” to influentials

MONETIZATION

TEMPORAL REAL TIME SEARCHES

Twitter offers something none of the other sites really can .. Real time information .. Agreements with Google, Yahoo, Microsoft enable them to index tweets and enable Internet searches

Who is this service a benefit to and how does it morph into a commercial use?

Dell has opened an @DellOutlet to sell discontinued models and open box computers

E-COMMERCE BUSINESS MODELS

Set of planned activities (business processes) designed to result in a profit in a marketplace

A business plan is the document that describes the firm’s business model

An E-Commerce Model aims to use and leverage the unique qualities of the Internet and WWW to generate profits

Key Elements of the Business Model

Value Proposition – why should the customer by from you?

Revenue Model – How will you earn money?

Competitive environment – who else occupies your intended marketplace

Market Strategy – How do you plan to promote your products or services to attract your TA

Organizational development – what types of organizational structures within the firm are necessary to carry out the business plan?

Management team – what kinds of experience and background are important for the company’s leaders to have?

VALUE PROPOSITION

How does your product or service fulfill a need for the consumer?

What are your competitive advantages?

Why should the customer patronize your firm versus another?

personalization, customization, reduced information search, facilitation of transactions

REVENUE MODEL

Describes how the firm will earn money ..

Generate profits and produce an adequate ROI vs. alternative investments

Advertising Revenue Model – website offers a forum for advertisements and receives fees from advertisers. Site attracts high viewership, retain viewers (stickiness) therefore able to charge higher prices

Transaction Fee Revenue Model – fee for enabling or executing transactions (E*Trade)

Sales Revenue Model – derive revenue by selling goods and information or services to customers. LL Bean, Amazon, Gap.com

Subscription Revenue Model – offers users content or services but charges a subscription fee for access to all or some of the offerings. Requirements to be successful involve offering information with high value added (Match.com, consumerreports.com)

Affiliate Revenue Model – receive a referral fee or % of revenue from business resulting from referral. (MyPoints)

MARKET OPPORTUNITYThe company’s intended MARKETSPACE (i.e., an area of actual or potential

commercial value).

Market Opportunity is defined as opportunities available to the firm in that market space and is usually divided into smaller market niches.

Realistic market opportunity – revenue potential in each of the market niches where you hope to compete

EX: Your company creates software learning systems for sale over the Internet.

Software Training market is $70B – 2 major segments – Instructor led (70%) and Computer Based (30%). Within this 2 niches – small business and Fortune 500 .

Your company is a startup – can’t compete for Fortune 500 …

Your realistic market opportunity is then $6B (smaller business looking for computer based software training that is cost effective

MarketSpace and Market Opportunity in the Software Training Market

Instructor Led Training $49 Billion (70% of the market)Small Business $19 Billion Fortune 500 $30 Billion

Computer Based Training (30% of the market)Small Business $6Billion Fortune 500 $15Billion

COMPETITIVE ENVIRONMENT

Composed of

Other companies selling similar products and operating in the same marketspace

Companies offering substitute products and services

New Entrants in the marketplace

Influenced by

# of active competitors

how large competitors operations are

market share of the competition

profitability

pricing strategy

COMPETITIVE ENVIRONMENT

Direct Competitors – similar products in the same market segment (brand competitors)

ex: Coke vs. Pepsi

Indirect Competitors – different industries but still compete because products can substitute for one another

ex: Coke vs. Red Bull (when benefit sought is an energy or caffeine boost)

ex: Coke vs. Iced Tea (when benefit sought is thirst quenching)

COMPETITIVE ADVANTAGE

Produce a superior product and/or bring the product to the market at a lower price than competitors

Does the firm have access to better production capabilities?

Does the firm have more experienced, knowledgeable and/or loyal employees?

Does the firm have a patent?

Superior shipping, supplier or distribution relationships?

COMPETITIVE ADVANTAGE

First Mover advantage – first entry into the marketplace, can lack complementary resources to maintain advantage (financial assets, marketing, management, reputation)

Unfair competitive advantage – advantage based on something others cannot purchase (i.e., brand name). Brands are built upon trust, loyalty, reliability, and quality.

Followers often reap significant benefits .. Learn from production and manufacturing problems of early entrants and pioneers.

COMPETITIVE ADVANTAGE

Perfect markets have no competitive advantages – Full access to information regarding production, research, etc.

Competitive Advantages hard to sustain – i.e., Coke … now being encroached upon by flavored waters, sports drinks, etc.

Some companies leverage their competitive advantages such Amazon using its data base of customers and e-commerce experience to enter the grocery market.

MARKET STRATEGY AND ORGANIZATIONAL DEVELOPMENTPlan that the business puts together that lays out how

the company will enter a new market ( new customers) or develop a new product.

Focus on each element of the 4Ps

Organizational Development is the plan that describes how the company will organize the work that needs to be completed

Divide work into functional areas, define jobs within these areas, hire accordingly. In small companies or young firms, generalists are often early hires

Initially the eBay founder, Pierre Omidyar, started an online auction site to help his girlfriend trade Pez dispensers .. Soon growth required hires, then functional departments and large numbers of employees!

MANAGEMENT TEAM

Single most important element of the business model

How many managers do you need?

How does experience balance against education?

How do you identify leaders?

What jobs should be filled first? Marketing, finance, production and operations

young companies may need managers with experience in raising money

BUS MODEL VARIATIONS EXAMPLES DESCRIPTIONS REVENUE

MODELPortal Horizontal/

General

Vertical/Specialized

Search

YahooAOLMSNFB

Sailnet

Google, Bing

Offers an integrated package of content, content-search, social network services, email, downloads, video, calendars .. Home base

Offers services and products to specialized mkt

Search services

Advertising, subscription fees, transaction fees

Same

Advertising, affiliate referrals

E-tailer Virtual Merchant

Bricks and Clicks

AmazoniTunesBluefly.com

Walmart.com

Online version of retail store, where customers can shop at any hour of the day/night without leaving their office/home

Online dist channel for co with phys stores

Sale of goods

Same

Catalog Merchant

Manufacturer-Direct

LLBean.comLillianvernon.comDell.comMattel.com

Online version of direct mail catalog

Manuf uses online channel to sell direct to cust

Same

Same

B2C MODELS

BUSINESS VARIATIONS EXAMPLES DESCRIPTION REVENUEMODELMODELContent Provider

WSJ.com Information and ent providers such as newspapers, sports sites

Advertising, subscript fees, affiliate referral fees

Transaction Broker

E*TradeExpediaMonsterTravelocityHotels.com

Processors of online sales transactions – increase productivity and decrease costs

Transaction fees

Market Creator

Service Provider

Community Provider

eBay -(97M active)$2k a second in sales/$62B

Priceline

VisaNow.cvomxDrive.comPayPay (100M active)(190 markets)FB, MySpace, Twitter, iVillage

Web-based businesses that use Internet technology to create markets that bring buyers and sellers togetherCompanies that make money by selling users a service, rather than a product

Sites where individuals meet online

Transaction fees

Sales of ServiceTransaction fees

Advertising, subscription, affiliate referral fees

B2C

MODELS

BUSINESS MODELS IN EMERGING E-COMMERCE AREAS

BUSINESS EXAMPLES DESCRIPTION REVENUE MODELConsumer to Consumer

eBay.comHalf.comCraigslist.com

Helps consumers connect with other consumers to conduct business

Transaction fees

Peer to Peer The Pirate Company,Cloudmark

Technology enabling consumers to share filesand services via Web without a common server

Subscription fees, advertising, transaction fees

Mobile Commerce eBay mobilePayPal mobileCheckoutAOL Mobile-Moviefone

Extending business applications using wireless technology

Sales of goods and services