E-Commerce

Business Models
 Learning Objectives
 Identify the key components of e-
commerce business models.
 Describe the major B2C business models.
 Describe the major B2B business models.
 Recognize business models in other
emerging areas of e-commerce.
 Understand key business concepts and
strategies applicable to e-commerce.
Kozmo Finally Crashes
Kozmo tries to use the Internet to combine
the convenience of a catalog with the
immediate gratification of in-store
shopping by offering entertainment,
food, and convenience products
delivered within one hour, with no
minimum order required and no delivery
charges.
Kozmo Finally Crashes
 An order placed on the Web site would be
transmitted directly to Kozmo’s
distribution center, packed, and delivered.
 $250 million in Venture capital- backed by
Chase Venture Capital & others.
 Rapid expansion and intensive spending
to gain market share and brand
recognition- Ten cities & over 300000 loyal
customers.
 No concern for short-term profitability-
Over emphasis on growth & market share
Kozmo Finally Crashes

 Painful lessons:
 Hard to make money delivering low-priced
convenience store items.
 Business model didn’t work everywhere.
 Company founders are not necessarily its best
managers.
 Difficult for a new firm to establish a
profitable e-commerce business in an
entirely new market niche.
E-Commerce Business Models
 Business model
 a set of planned activities designed to result in a profit
in a marketplace
 A method of doing business.
 Business Model
 Specifies the positioning of business organization in the Value
Chain.
 It represents an architecture for the product, service and
information flow.
 A description of potential benefits for various business actors.
 A description of sources of Revenues
 Business plan
 a document that describes a firm’s business model
E-commerce business model

A Business model that has been evolved

for the business organization in the
Internet/Web environment.

A business model that aims to use and

leverage the unique qualities of the
Internet and the World Wide Web.
Eight Key Ingredients of a Business
Model: Value Proposition
 Defines how a company’s product or
service fulfills the needs of
customers.
 Questions
 Why will customers choose to do
business with your firm instead of
another company?
 What will your firm provide that other
firms do not and cannot?
Revenue Model
 Describes how the firm will earn
revenue, produce profits, and produce
a superior return on invested capital.
 E-commerce revenue models include:
 advertising model
 subscription model
 transaction fee model
 sales model
 affiliate model
Types of Revenue Model
 Advertising revenue model
 a company provides a forum for
advertisements and receives fees from
advertisers (Yahoo)
 Subscription revenue model
 a company offers it users content or
services and charges a subscription fee
for access to some or all of it offerings (
Consumer Reports or
Wall Street Journal)
Types of Revenue Model
 Transaction fee revenue model
 a company receives a fee for enabling or
executing a transaction (eBay or E-Trade)
 Sales revenue model
 a company derives revenue by selling goods,
information, or services (Amazon or
DoubleClick)
 Affiliate revenue model
 a company steers business to an affiliate and
receives a referral fee or percentage of the
revenue from any resulting sales (MyPoints)
Eight Key Ingredients of a Business
Model: Market Opportunity
 Market opportunity
 refers to the company’s intended
marketspace and the overall potential
financial opportunities available to the
firm in that market space
 defined by the revenue potential in each
of the market niches where you hope to
compete
Marketspace and Market Opportunity is
the Software Training Market
Eight Key Ingredients of a Business
Model: Competitive Environment
 Refers to the other companies
operating in the same marketplace
selling similar products
 Influenced by:
 how many competitors are active
 how large are their operations
 the market share of each competitor
 how profitable these firms are
 how they price their products
Eight Key Ingredients of a Business
Model: 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 because a firm has been able
to obtain differential access to the
factors of production that are denied
their competitors -- at least in the short
term
Eight Key Ingredients of a Business
Model: Market Strategy
 The plan you put together that
details exactly how you intend to
enter a new market and attract new
customers
 Best business concepts will fail if not
properly marketed to potential
customers
Eight Key Ingredients of a Business
Model: Organizational Development
 Describes how the company will
organize the work that needs to be
accomplished
 Work is typically divided into
functional departments
 Move from generalists to specialists
as the company grows
Eight Key Ingredients of a Business
Model: Management Team
 Employees of the company responsible
for making the business model work
 Strong management team gives instant
credibility to outside investors
 A strong management team may not be
able to salvage a weak business model
however it should be able to change the
model and redefine the business as it
becomes necessary
Eight Key Ingredients of a Business
Model
Major Business-to-Consumer (B2C)
Business Models
 Portal
 offers powerful search tools plus an
integrated package of content and
services
 typically utilizes a combines
subscription/advertising
revenues/transaction fee model
 may be general or specialized (vortal)
Major Business-to-Consumer (B2C)
Business Models
 E-tailer
 online version of traditional retailer
 includes
 virtual merchants (online retail store only)
 clicks and mortar e-tailers (online
distribution channel for a company that also
has physical stores)
 catalog merchants (online version of direct
mail catalog)
 online malls (online version of mall)
 Manufacturers selling directly over the Web
Major Business-to-Consumer (B2C)
Business Models
 Content Provider
 information and entertainment
companies that provide digital content
over the Web
 typically utilizes an advertising,
subscription, or affiliate referral fee
revenue model
 Transaction Broker
 processes online sales transactions
 typically utilizes a transactions feel
revenue model
Major Business-to-Consumer (B2C)
Business Models
 Market Creator
 uses Internet technology to create markets that bring
buyers and sellers together
 typically utilizes a transaction fee revenue model
 Service Provider
 offers services online
 Community Provider
 provides an online community of like-minded
individuals for networking and information sharing
 revenue is generated by referral fee, advertising, and
subscription
Major Business-to-Consumer (B2C)
Business Models
Major Business-to-Consumer (B2C)
Business Models
Major Business-to-Business (B2B)
Business Models
 B2B Hub
 also known as marketplace/exchange
 electronic marketplace where suppliers and
commercial purchasers can conduct
transactions.
 may be a general (horizontal marketplace-
Tradeout.com) or specialized (vertical
marketplace- esteel.com).
 E-distributor
 supplies products directly to individual
businesses
Major Business-to-Business (B2B)
Business Models
 B2B Service Provider
 sells business services to other firms-
ASPs
 Matchmaker- iship.com
 links businesses together
 charges transaction or usage fees
 Infomediary- epinions.com
 gather information and sells it to
businesses
Major Business-to-Business (B2B)
Business Models
Business Models in Other
Emerging Areas of E-Commerce
 C2C Business Models
 connect consumers with other
consumers
 most successful has been the market

creator business model

 P2P Business Models-MP3.com
 enable consumers to share file and

services via the Web without common

servers
 a challenge to find a revenue model that

works
Business Models in Other
Emerging Areas of E-Commerce
 M-commerce Business Models
 traditional e-commerce business
models leveraged for emerging wireless
technologies to permit mobile access to
the Web
 E-commerce Enablers’ Business
Models
 focus on providing infrastructure
necessary for e-commerce companies
to exist, grow, and prosper
Business Models in Other
Emerging Areas of E-Commerce
Classification of Web Business
Models

Two Categories of Business Models as:

Improvement Based Business Models- Objective of

the Business model is to improve the current
process, may not yield direct revenue but are
aimed at cutting costs.

Revenue-based Business Models- Business model is

aimed at generating new revenue streams
Improvement Based Business Models
 Enhancement
Brand Building Disney
Category Building Intel
Quality NPR, Radio Mirchi

 Efficiency
Cost Reduction Cisco/Banks
Free Trial Encyclopedia britannica

 Effectiveness
Dealer Support GM/Maruti
Supplier Support GE/ABB
Revenue-based Business Models
 Provider Pays
Sponsorship
Alliances- Yahoo & Amazon/ CDNow
Spot Advertising-Banner ads
Prospect fees-Edmund.com & Auto-by-Tel.com
Sales Commission Amazon Associates

 User Pays
Product Sales Dell Computers
Subscription WSJ
Pay per Use
Bundle sales
How the Internet and the Web Change
Business: Basic Business Concepts
 Business Strategy
 set of plans for achieving superior long-
term returns on the capital invested in a
firm
 offers unique ways
 differentiate products
 obtain cost advantages
 compete globally
 compete in a narrow market or product
segment
E-Commerce and Industry
Structure
E-Commerce and Firm Value
Chains
E-Commerce and Industry Value
Chains
End Of Session