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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 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
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)
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
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
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
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
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
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
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
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
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)
Business ModelsKey Ingredients
Competitive Advantage Firms can leverage (use) their competitive
advantage to perform better than their rivals, thus make more profits
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)
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
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
Categorizing E-Commerce ModelsBusiness-to-Consumer
Portal E-Tailer Content Provider Transaction Broker Market Creator Service Provider Community Provider
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
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
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
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
Categorizing E-Commerce ModelsBusiness-to-Business
Marketplace/exchanges (B2B hubs) E-Distributor B2B Service Provider Matchmaker Informediary
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
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
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
Business Models in Emerging E-Commerce Areas
Consumer-to-consumer Market creator
Peer-to-peer Content provider
M-Commerce Various
