Chapter 5 (& 10)

e-Commerce Business Strategies

 I. 8 Key Elements of a Business Model
n Business model
Set of planned activities designed to result in a profit in a marketplace

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 1. Value Proposition
n “Why should the customer buy from you?”
n Successful e-commerce value propositions:
v Personalization/customization
v Reduction of product search, price discovery costs
v Facilitation of transactions by managing product
delivery

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 2. Revenue Model
n “How will you earn money?”
n Five major types of revenue models:
v Advertising revenue model
v Subscription revenue model
n Freemium strategy: Give away a certain level of product or services for free, but then charge a
subscription fee for premium levels of the product or service
v Transaction fee revenue model
v Sales revenue model
v Affiliate revenue model: referral fee or percentage of the revenue from any resulting sales

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 3. Market Opportunity
n “What marketspace do you intend to serve and what is its
size?”
v Marketspace: Area of actual or potential commercial value in which company
intends to operate
v Realistic market opportunity: Defined by revenue potential in each market niche in
which company hopes to compete
n Market opportunity typically divided into smaller niches
e.g.) Marketspace & Market Opportunity in the SW Training Market

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 4. Competitive Environment
n PEST (Political, Economic, Social, and Technological
Environment)
n 5 Force Model (Michael Porter)
v Substitutes: “Who else occupies your intended
marketspace?”
n Other companies selling similar products in the same marketspace
n Includes both direct and indirect competitors (i.e., rivals, substitutes)
v Competition is influenced by:
n Number and size of active competitors
n Each competitor’s market share
n Competitors’ profitability
n Competitors’ pricing

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 5. Competitive Advantage
n “What special advantages does your firm bring to
the marketspace?”
v Is your product superior to or cheaper to produce than your
competitors’?
n Sources of Competitive Advantage:
v Asymmetries
n When one participant in a market has more resources than other
participants
v First-mover advantage
v Complementary resources
v Unfair competitive advantage
n When one firm develops an advantage based on a factor that other
firms cannot purchase
v Leverage

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 6. Market Strategy

n “How do you plan to promote your

products or services to attract your
target audience?”
v Details how a company intends to enter
market and attract customers (4P)
v Best business concepts will fail if not
properly marketed to potential customers

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 7. Organizational Development
n “What types of organizational
structures within the firm are necessary
to carry out the business plan?”
n Describes how firm will organize work
v Typically, divided into functional departments

v As company grows, hiring moves from

generalists to specialists

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 8. Management Team
n “What kind of backgrounds should the
company’s leaders have?”
n A strong management team:
v Can make the business model work
v Can give credibility to outside investors
v Has market-specific knowledge
v Has experience in implementing business plans

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 Categorizing E-commerce
Business Models
n No one correct way. Our textbook categorizes
according to:
v E-commerce sector (e.g., B2B)
v E-commerce technology (e.g., m-commerce)
n Similar business models appear in more than one
sector
v e.g., e-tailer (B2C) vs. e-distributer (B2B)
n Some companies use multiple business models
(e.g., eBay)

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II. B2C Business Models

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 B2C Models: E-tailer
n Online version of traditional retailer
n Revenue model: Sales
n Variations:
v Virtual merchant
v Bricks-and-clicks
v Catalog merchant
v Manufacturer-direct sales

n Low barriers to entry

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 B2C Models: Community Provider
n Provide online environment (social network) where
people with similar interests can transact, share
content, and communicate
v Examples: Facebook, LinkedIn, Twitter, Pinterest
n Revenue models:
v Typically hybrid, combining advertising, subscriptions, sales,
transaction fees, and so on
n Facebook vs. MySpace: Platform strategy
v Facebook leapfrogged its rival MySpace by encouraging the
development of third party revenue producing applications

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 B2C Models: Content Provider
n Own digital contents & distribute them on the Web
v News, music, video, text, artwork
n Revenue models:
v Use variety of models, including advertising, subscription; sales of
digital goods
n Syndication (Aggregation):
v Variation of the standard CP that does not own contents but collect
and distribute contents with added value
v e.g., Shopzilla:
n Collects price information of goods
n Analyzes this information
n Presents users with tables showing the range of prices and links
where the products can be purchased

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 B2C Business Models: Portal
Top 3 Portal/Search engines in
n Search plus an integrated package of U.S. (2018), Figure 10.4 (p.728)
content and services
n Revenue models:
v Advertising, referral fees, transaction fees,
subscriptions for premium services
n Variations:
v Horizontal/general (example: Yahoo, AOL,
MSN)
v Vertical/specialized (vortal) (example:
Sailnet)
v Search (example: Google, Bing)
n Compete on reach and unique visitors
v Subject to network effect
v Top 5 portals account for more than 95% of
online searches in U.S.

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 Types of Portals
n General purpose portals:
v Attempt to attract very large general audience and then retain
audience by providing in-depth vertical content channels
v Yahoo, MSN, AOL, Ask.com
n Vertical market portals (Vortals):
v Attempt to attract highly-focused, loyal audiences with specific
interest in:
n Community: Facebook, iVillage (for women), Sina.com (about China),
Sify.com (about India), Law.com (about legal news)
n Specialized content: ESPN.com, Bloomberg.com, NFL.com, WebMD.com
(for health information), Gamers.com, Away.com (about travel),
Econline.com (for electric contractors), Sailnet.com (about sailing)

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 Portal Business Models

[Table 10.7] (p.732)

Future Strategies:
• General purpose portals: Develop deep, rich vertical content to reach and engage
customers at the site
• Vertical portals: Put together a collection of vertical portals to form a vertical portal
network
• Search engine site (e.g., Google): Obtain more content to attract users for a long time
and expose them to more ad pages (or screens)

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 B2C Models: Transaction Broker
n Process online transactions for consumers as agent
v Primary value proposition—saving time and money

n Revenue model:
v Transaction fees

n Industries using this model:

v Financial services
v Travel services
v Job placement services

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 B2C Models: Market Creator
n Create digital environment where buyers and
sellers can meet and transact (e.g., NYSE)
v Examples: Priceline (for travel), eBay

v Revenue model: Transaction fees, fees to merchants for access

n Sharing economy (mesh economy): Platforms that

allow people to sell services
v Examples: Uber, Airbnb

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 B2C Models: Service Provider
n Online “services”
v Example: Google—Google Maps, Gmail, and so on

n Value proposition
v Valuable, convenient, time-saving, low-cost alternatives
to traditional service providers
n Revenue models:
v Sales of services, subscription fees, advertising, sales of
marketing data

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 III. B2B Business Models

AmazonBusiness

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 B2B Models: E-distributor
n Version of retail and wholesale store, MRO
(Maintenance, Repair & Operations) goods, and indirect
goods
n Owned by one company seeking to serve many
individual businesses
n Revenue model: Sales of goods
n Example: Grainger

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 B2B Models: E-procurement
n Creates digital markets where participants transact
for indirect goods
v B2B service providers, SaaS and PaaS providers
n Revenue model:
v Service fees, supply-chain management, fulfillment services
n Example: Ariba (acquired by SAP in 2012)
v SW that helps large firms organize their procurement process by
creating mini-digital markets for a single firm

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 B2B Models: Exchanges
n Independently owned vertical digital marketplace for
direct inputs
n Revenue model: Transaction, commission fees
n Create powerful competition between suppliers
n Tend to force suppliers into powerful price
competition; number of exchanges has dropped
dramatically
n Example: Go2Paper

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 B2B Models: Industry Consortia
n Industry-owned vertical digital marketplace open to
select suppliers
n More successful than independent exchanges
v Sponsored by powerful industry players
v Strengthen traditional purchasing behavior
n Revenue model: Transaction, commission fees
n Example: SupplyOn
v Founded in 2000 and owned by Bosch, Continental & Schaeffler
v Provides a shared supply chain collaboration platform for
companies in various manufacturing industries including Airbus,
BMW, BordWarner, Siemens, Thales, etc.

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 Private Industrial Networks
n So-called PTX (Private Trading Exchange)
n The most prevalent form of B2B transactions
n Digital network used to coordinate among firms
engaged in business together
n Typically evolve out of company’s internal
enterprise system (ERP)
n Cost absorbed by network owner and recovered
through production and distribution efficiencies
n Example: Walmart’s network for suppliers

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 IV. Raising Capital
n Seed capital
v Personal funds (savings, credit card advances, home equity loans, family, friends)
n Traditional sources
v Incubators (Accelerators):
n Funding + Services (business, technical, marketing)
n Y-Combinator, TechStars, DreamIt Ventures, Capital Factory
v Commercial banks:
n Debt (no impact on ownership)
v Angel investors
v Venture capital firms
n Obtain large stakes
n Exit strategy (IPO, M&A) within 3-7 years
v Strategic partners
n Crowdfunding
v U.S.: Under the JOBS Act (Jumpstart Our Business Startups Act, 2012), a company
can crowdfund up to US$1 million over a 12 month period
v Europe: More about P2P lending than equity investment (e.g., Zopa, Ratesetter
& Funding Setter in U.K. and Auxmoney in Germany)

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 Case Discussions
Foursquare: Check Your Connected Cars and the
Privacy at the Door (pp.330- Future of E-commerce
331) (pp.346-347)
v What revenue model does v What is the Internet of Things (Io
Foursquare use? What other T)?
revenue models might be v What value does the IoT have for
appropriate? businesses?
v Are privacy concerns the only v What impact does the IoT have on
shortcoming of location-based the content industry?
mobile services? v What impact does the IoT have on
v Should business firms be allowed to vehicles?
text or call mobile devices with
v Are there any disadvantages to
advertising messages based on “connected” cars?
location?

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