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E-Commerce Business Models

E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following: List and describe the key components

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Page 1: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

E-Commerce Business Models

Page 2: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

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

Page 3: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business Models

Business Model 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)

Page 4: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

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

Page 5: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business ModelsKey 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

Page 6: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business ModelsKey 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

Page 7: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business ModelsKey Ingredients

Revenue Revenue ModelModel

DescriptionDescription ExamplesExamples

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

Page 8: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business ModelsKey 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

Page 9: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business ModelsKey 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

Page 10: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business ModelsKey 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

Page 11: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business ModelsKey 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

Page 12: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business ModelsKey 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)

Page 13: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business ModelsKey Ingredients

Competitive Advantage Firms can leverage (use) their competitive

advantage to perform better than their rivals, thus make more profits

Page 14: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business ModelsKey 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)

Page 15: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business ModelsKey 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

Page 16: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business ModelsKey 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

Page 17: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Categorizing E-Commerce ModelsBusiness-to-Consumer

Portal E-Tailer Content Provider Transaction Broker Market Creator Service Provider Community Provider

Page 18: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business-to-Consumer Business Models

Business Model

Description Revenue Model

Examples

Portal Offers an integrated package of services and content such as search, news, e-mail, chat, music downloads, video streaming, and calendars

Advertising, subscription fees, transaction fees

Yahoo.com, AOL.com, MSN.com, [email protected]

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

Page 19: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business-to-Consumer Business ModelsBusiness Model

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

Page 20: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business-to-Consumer Business ModelsBusiness Model

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

Page 21: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business-to-Consumer Business Models

Business Model 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

Page 22: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Categorizing E-Commerce ModelsBusiness-to-Business

Marketplace/exchanges (B2B hubs) E-Distributor B2B Service Provider Matchmaker Informediary

Page 23: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business-to-Business Business Models

Business Model

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

Page 24: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business-to-Business Business Models

Business Model

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

Page 25: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business-to-Business Business Models

Business Model

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

Page 26: E-Commerce Business Models. Topic Objectives At the end of this topic, you should be able to do the following:  List and describe the key components

Business Models in Emerging E-Commerce Areas

Consumer-to-consumer Market creator

Peer-to-peer Content provider

M-Commerce Various