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B2B Business Models

Business Information Systems > B2B Business Models
Abstract
Information technology is not only revolutionizing the way that enterprises do business with consumers, but also the
way that they do business with each other. In addition, many experts predict that business-to-business transactions
will exceed those of business-to-consumer e-commerce. However, just as there are different business models for
non-electronic businesses, there are also more than one model for business-to-business e-commerce. Two
revolutionary new business models that have come out of this movement are the business-to-business e-commerce
models of Dell and Cisco. However, these models are not appropriate for every organization. In addition to these
new paradigms for individual firms, other changes in business-to-business e-commerce are occurring that are
revolutionizing the traditional paradigms.
Overview
Traditionally, when one thinks of business paradigms, one of the first things that springs to mind is the concept of
companies selling to consumers. The department chain store or the big box store down the street are prime examples
of this business model. Historically, this meant that the business had a brick-and-mortar location where it employed
its own personnel. Even with the advent of the Information Age, this model changed only slightly, with information
technology being used to support the way that business was done by making standard operations more efficient. For
example, manual cash registers have been replaced in most modern businesses by high tech models that keep track
of various aspects of transactions including tender type (i.e., whether the transaction was cash, check, charge, etc.)
and amount paid as well as inventory control information or other administrative data. Such automated information
collection makes closing the store at night and balancing the books a much easier task and can also help store and
chain managers to make decisions about the type of inventory to carry, new services that could be offered to
customers, and demographics that can be used in marketing efforts.
However, information technology not only allows organizations to perform various business processes more
efficiently, in many cases it also allows them to reengineer organizational processes by improving the effectiveness
and efficiency of the various processes within an organization. With advances in information systems, however, this
model can now be taken a step further. Electronic business-to-consumer paradigms allow a business to market and
sell directly to consumers. Examples of this business model include Amazon.com, (the online purveyor of books and
a wide variety of other items) and Travelocity (the online travel agency) businesses that sell electronically directly to
consumers.
However, not all businesses sell directly to consumers, nor should they. Automobile parts manufacturers frequently
sell to the automotive industry rather than to the car owner. Precious stones’ miners sell to the gem industry where
the stones are cut and sold, in turn, to jewelers and suppliers who, in turn, sell to suppliers. Pharmaceutical
companies sell to directly or indirectly to pharmacies and hospitals who sell the products to customers. As with
business to consumer paradigms, the model of business-to-business (B2B) commerce has been revolutionized by
advances in information technology and systems.
Table of Contents
Abstract
Keywords
Overview
Applications
Conclusion
Terms & Concepts
Bibliography
Suggested Reading
B2B Business Models
Essay by Ruth A. Wienclaw, Ph.D.
EBSCO Research Starters® • Copyright © 2008 EBSCO Publishing Inc. • All Rights Reserved
Page 2
Despite the increasing popularity of business-to-consumer e-commerce with its ease of ordering and comparing
items online, many experts predict that business-to-business transactions will exceed those of business-to-consumer
e-commerce. This makes sense. For example, although a consumer may order a book over the Internet, the business
from whom the book is purchased not only has to interact with the purchaser but also with the publisher who printed
the book. The publisher, in turn, needs to interact with the paper and ink suppliers, the maintenance firm that keeps
the printing presses running, the authors who submit their manuscripts online, and so forth.
Business Models for Conducting B2B E-Commerce
Just as there are different business models for non-electronic businesses, there is also more than one model for
business-to-business e-commerce. In general, a business model is an organization’s approach to doing business.
Although there are many different business models available, most business models have several core concepts in
common.
At the level of the most basic business model, an organiza• tion must have something of value to offer to the
marketplace, whether it be goods, products, or services. A bookstore, for example, may offer books and magazines
as well as various services such as special ordering. To be successful, the thing which the organization offers its
customers needs to be of value – something that the customer either wants or needs (or both).
Another part of the business model is the customer – the • target market to whom the organization is trying to sell its
offering. The business model needs to articulate how the business will gain, maintain, and foster relationship with
customers.
In order to get the product into the hands of the customer, • the organization also needs an infrastructure in place.
The infrastructure includes such things as having the right mix of people and skills necessary to produce the product
as well as to run the business. This may include not only the people working directly for the organization, but
partners as well who provide skills or services that that business does not provide for itself but that are necessary to
get the product into the hands of the customer. This may include companies that provide complementary skills
necessary to make the product (e.g., suppliers) as well as supply chain partners that provide raw materials, supplies,
or components or that distribute, warehouse or sell finished products.
The business model also needs to include consideration • of the company’s income and cash flow as well as its cost
structure.
Electronic Data Interchange & E-Commerce Models
One of the outgrowths of information technology that has enabled the development of new business-to-business e-
commerce models is electronic data interchange, a standard format used in exchanging business data such as price or
product identification number. Electronic data interchange is a standard format that is used to exchange business
data including price or product identification number. Electronic data interchange technology is particularly
important for in international commerce where paperwork required for international trade creates costs that can be
up to seven percent of the value of the items being traded. With electronic data interchange technology, on the other
hand, shippers, carriers, customs agents, and customers all can send and receive documents electronically, thereby
saving both time and money for international transactions.
Advantages of E-Commerce for B2B Businesses
As shown in Figure 1, the traditional business model for business-to-business operations involves a procurement
staff that negotiates with various suppliers. For example, a bookstore may procure books from several distributors
and office supplies from one or more other suppliers. In the e-commerce business model, a procurement staff
(typically smaller than the staff necessary in the traditional business-to-business model) shops online for supplies
and other items necessary to the business. Just as it does for the consumer in the business-to-consumer business
model, the Internet allows businesses to comparison shop online in order to find the most appropriate product at the
best price. This reduces many of the front-end costs for finding goods and products that are incurred in the
traditional model.
Keywords
Business Model
Business Process
Business-to-Business (B2B) E-Business
Business-to-Consumer (B2C) E-Business
E-Commerce
Electronic Exchanges
Enterprise
Hub
Information System
Information Technology
Just-in-Time Manufacturing (JIT)
Portal
Target Market B2B Business Models Essay by Ruth A. Wienclaw, Ph.D. EBSCO Research Starters® • Copyright © 2008
EBSCO Publishing Inc. • All Rights Reserved Page 3
Figure 1: Business-to-Business Business Models
(From Lucas, p. 52)
Electronic Exchanges
Another way that this can be done is through the use of electronic exchanges (also known as electronic markets or
B2B hubs). These hubs are sites on the Internet where buyers and sellers can come together to exchange information
and buy and sell products and services. As shown in Figure 2, electronic interchanges typically have one of three
structures.
Public Exchange
In a public exchange (also known as an independent exchange), a third party market operates the electronic market,
displays information, and provides the tools necessary to conduct e-business. Independent exchanges may be
vertical (i.e., serving members of a specific industry) or horizontal (i.e., simultaneously serving businesses in
different industries). Public exchanges are independently owned by the third party that displays the content and
provides electronic tools for conducting business.
Figure 2: Electronic Exchange Structures
(Adapted from Senn, p.415)
Consortia-backed Exchange
The second general type of electronic exchange is the consortia-backed exchange. These are e-markets created by
consortia of traditional firms within an industry who band together to create a common forum for business-to-
business transactions of goods and services. One of the primary purposes of consortia-backed exchanges is to drive
down costs for all participants.
Private Exchange
Another type of electronic exchange structure is the private exchanges. These exchanges are structured around the
needs of a specific sponsoring business and its trading partners and can be joined by invitation only. There are
several advantages to private exchanges over other types of electronic exchanges. First, the owners of these
exchanges can regulate access to both buyers and sellers. This means that the owners have the ability to exclude
competitors and their suppliers from the exchange so that the exchange only benefits its members. The owners of a
private exchange can also offer pricing incentives or alternatives so that they can streamline business processes and
benefit participants. In addition, as opposed to public exchanges, most private exchanges can be tailored to serve
specific products.
Applications
For many years, the traditional mass manufacturing (or Fordist) model followed the principles of assembly line
manufacture that revolutionized production when first implemented by Henry Ford. Certainly, the assembly line
allowed products to be made more quickly and cheaply than ever before, but it did so at a price. Assembly lines are
set up to produce masses of products that are all the same; custom options were – at least in the beginning – difficult
to acquire. Even though the assembly line process improved over the years, it was not until the flexibility and power
brought about by information technology that a true revolution of the manufacturing process occurred. The use of
the Internet to facilitate business-to-business transactions promises reduced costs, better access to buyers and sellers,
improved marketplace liquidity, and more efficient and flexible transaction methods.
The Dell Business Model
One of the business models for business-to-business operations that has been enabled by information technology is
the Dell business model. As shown in Figure 3, in this model, orders for computers are placed with Dell by
telephone or through the Internet. Through a process called just-in-time (or lean) manufacturing, waste is reduced
and productivity improved by only having the required inventory on hand when it is actually needed for
manufacturing. This reduces both lead times and set up times for building a computer. Under the just-in-time
philosophy, Dell only orders the parts for a computer when it has a firm (and in the case of non-corporate orders,
prepaid) order. As a result, Dell operates with little in-process and no finished goods inventory: Products are shipped
as soon as they are manufactured. This approach also enables Dell to forego having brick and mortar store fronts
with inventory that must be kept on the books or that might become obsolete, thereby significantly reducing
overhead. In addition, items that are not built by Dell are shipped directly to the customer by the manufacturer.
These features help Dell to reduce the costs of production and sales. Far from being inflexB2B Business Models Essay
by Ruth A. Wienclaw, Ph.D. EBSCO Research Starters® • Copyright © 2008 EBSCO Publishing Inc. • All Rights Reserved Page 4
ible, however, this process also allows Dell to custom design systems for its customer within certain parameters as
well as to offer a range of items rather than a single system.
Figure 3: The Dell Business Model
(From Lucas, p. 53)
The Cisco Business Model
Another lean business-to-business model that has been enabled by information technology is the Cisco model
(Figure 4). This successful network communications manufacturer receives approximately 90 percent of its orders
over the Internet. The orders are routed to contract electronics manufacturers who build the products to Cisco’s
specifications. Not only are the majority of Cisco’s orders received over the web, but 70 to 80 percent of their
customer service requests are also dealt with online.
Figure 4: The Cisco Business Model
(From Lucas, p. 54)
Other Business Model Innovations
Although the business models used by Dell and Cisco have revolutionized the way that these and similar
organizations do business over the Internet, these models are not appropriate for every organization.
E-Hubs
In addition to these new paradigms for individual firms, other changes in business-to-business e-commerce are
occurring that change the traditional paradigms. Electronic hubs (also known as vertical portals) are business-to-
business web sites that bring together buyers and sellers in a particular industry such as information technology or
retail. These hubs facilitate business transactions within an industry and may charge a transaction fee for purchases.
The value of hubs is that they reduce transaction costs by aggregating buyers and sellers in an electronic
marketplace. As opposed to business-to-consumer hubs that are one-way networks that primarily create value for
sellers, business-to-business hubs are two-way networks that mediate between buyers and sellers and create value
for all parties. Business-to-business hubs create value in a number of ways including reducing search costs,
standardizing systems, and improving matches for both buyers and sellers. Business-to-business hubs offer more
choices to buyers and give sellers more access to buyers. For example, if five buyers and five sellers were
potentially interested in doing business with each other, they would first have to locate each other. The sellers would
have to determine who the potential buyers were through advertising or a direct sales force. The sellers would then
have to make a contact with each potential buyer. This would involve 25 separate searches and 25 separate contacts
each time a seller wanted to sell. With the hub system, however, this number is drastically reduced. The hub finds
the potential sellers and buyers, reducing the total number of postings to ten: Five postings on the hub by the sellers
and five views by the buyers. Hub systems also allow information such as credit checks, product descriptions, and
evaluations to be transferred more easily.
Vertical Hubs
Vertical hubs are set up to specialize within an industry or other vertical market. They provide domain-specific
content and relationships that are of value to their participants. Vertical hubs are particularly advantageous when
there is much fragmentation among the buyers and sellers, and inefficiency in the existing supply chain. Vertical
hubs that are successful tend to have a high degree of domain knowledge and industry relationships, create master
catalogs and allow advanced search options. Examples of vertical hubs include Band-X for the telecommunications
industry, Cattle Offerings Worldwide for the beef and dairy market, PlasticsNet.com for the plastics industry, and
Ultraprise for secondary mortgage exchange.
Functional Hubs
Functional hubs, on the other hand, are horizontal hubs that provide the same functions across different industries
rather than more functions within a single industry. Functional hubs are successful in situations where there is a
greater degree of process standardization and sufficient knowledge about the processes and the ability to customize
the business process to respond to differences in various industries. Examples of functional hubs include iMark
which focuses on buying and selling used capital B2B Business Models Essay by Ruth A. Wienclaw, Ph.D. EBSCO Research
Starters® • Copyright © 2008 EBSCO Publishing Inc. • All Rights Reserved Page 5
equipment across industries, MRO.com for maintenance, repair, and operating procurement, Employease for
employee benefits administration, and Youtilities for energy management.
Systems for Improving B2B E-Commerce
Business-to-business e-commerce is still in a state of flux as enterprises learn how to leverage information
technology in general and the Internet in particular into systems that help them more efficiently and effectively do
business. Observers are looking at several.
First, to make business-to-business e-commerce worthwhile, • systems need to evolve to handle not only simple
transactions but complex ones as well. To facilitate this need, standards will need to be developed and put into place.
In addition, as markets become more competitive, transac• tion fees will most likely decrease or even disappear.
Among other implications, this means that providers will need to shift from dealing in transactions to offering more
comprehensive solutions to business needs. For example, products can be bundled with related information and
services in an effort to forge customer loyalty and long-lasting relationships.
New business-to-business models will continue to appear as technology continues to evolve and enterprises seek
creative solutions. Among new business-to-business e-commerce models that are beginning to emerge are the mega
exchange that maximizes liquidity and sets common transaction standards, the specialist originator that deals with
complex and relatively expensive products, the e-speculator model that has a high degree of product standardization
and moderate to high price volatility, the solution provider in which product costs are only a small portion of the
overall costs, and the sell-side asset exchange with high fixed costs and a relatively fragmented supplier and
customer base.
Conclusion
E-commerce and the information technology that enables it allow organizations to conduct business together in new
ways. Two revolutionary new business models that have come out of this movement are the business-to-business e-
commerce models of Dell and Cisco, which support lean manufacturing and improve transaction efficiency. In
addition, new models for business-to-business e-commerce continue to evolve as enterprises find new and creative
ways to do business with each other.
Terms & Concepts
Business Model: The paradigm under which an organization operates and does business in order to accomplish its
goals. Business models include consideration of what the business offers of value to the marketplace, building and
maintaining customer relationships, an infrastructure that allows the organization to produce its offering, and the
income, cash flow, and cost structure of the organization.
Business Process: Any of a number of linked activities that transforms an input into the organization into an output
that is delivered to the customer. Business processes include management processes, operational processes (e.g.,
purchasing, manufacturing, marketing), and supporting processes, (accounting, human resources).
Business-to-Business (B2B) E-Business: E-business in which a business markets and sells to other businesses.
Business-to-Consumer (B2C) E-Business: E-business in which a business markets and sells directly to consumers.
E-Commerce: E-commerce (i.e., electronic commerce) is the process of buying and selling goods or services –
including information products and information retrieval services – electronically rather than through conventional
means. E-commerce is typically conducted over the Internet.
Electronic Exchanges: Sites on the Internet where buyers and sellers can come together to exchange information
and buy and sell products and services.
Enterprise: An organization that uses computers. Although this term is often applied to large organizations, the
term can be applied to both small and large organizations.
Hub: A business-to-business web site that brings together buyers and sellers in a particular industry. Web hubs may
charge a transaction fee for purchases. Also known as a vertical portal.
Information System: A system that facilitates the flow of information and data between people or departments.
Information Technology: The use of computers, communications networks, and knowledge in the creation,
storage, and dispersal of data and information. Information technology comprises a wide range of items and abilities
for use in the creation, storage, and distribution of information.
Just-in-Time Manufacturing (JIT): A manufacturing philosophy that strives to eliminate waste and continually
improve productivity. The primary characteristics of JIT include having the required inventory only when it is
needed for manufacturing and reducing lead times and set up times. Also called “lean manufacturing.”B2B Business
Models Essay by Ruth A. Wienclaw, Ph.D. EBSCO Research Starters® • Copyright © 2008 EBSCO Publishing Inc. • All Rights
Reserved Page 6
Portal: A web site that acts as a point of access to the World Wide Web. Portal sites typically offer a search engine
or catalog of web sites as well as other features.
Target Market: The people or businesses to whom the entrepreneur wishes to sell goods or services.
Bibliography
Lucas, H. C. Jr. (2005). Information technology: Strategic decision making for managers. New York: John Wiley
and Sons.
Sawhney, M. & Kaplan, S. (1998). Let’s get vertical. Imagine Media Inc. Retrieved September 25, 2007, from
http://www.gwu.edu/~ibus266j/Global%20B2B/Copy%20of%20models-b2b.htm
Senn, J. A. (2004). Information technology: Principles, practices, opportunities (3rd ed.). Upper Saddle River, NJ:
Pearson/Prentice Hall.
Wise, R. & Morrison, D. (2000). Beyond the exchange: The future of B2B. Harvard Business Review, 78(6), 86-96.
Retrieved September 25, 2007, from EBSCO Online Database Business Source Complete.
http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=3712730&site=bsi-live
Suggested Reading
Huang, E. (2007). Entry to the e-commerce markets of China and Taiwan: An application of content analysis.
International Journal of Management, 24(1), 82-91. Retrieved September 24, 2007, from EBSCO Online Database
Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=25139349&site=bsi-
live
McAfee, Andrew. (2000). The Napsterization of B2B. Harvard Business Review, 78(6), 18-19. Retrieved September
25, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?
direct=true&db=bth&AN=3712522&site=bsi-live
Teschler, L. (2000). New role for b-to-b exchanges: Helping developers collaborate. Machine Design, 72(19), 52-
57. Retrieved September 25, 2007, from EBSCO Online Database Business Source Complete.
http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=3646644&site=bsi-live
Williams, D. (2007). Going from push to pull. Brand Strategy, 209, 36-37. Retrieved September 25, 2007, from
EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?
direct=true&db=bth&AN=24283270&site=bsi-live
Essay by Ruth A. Wienclaw, Ph.D.
Dr. Ruth A. Wienclaw holds a Doctorate in industrial/organizational psychology with a specialization in
organization development from the University of Memphis. She is the owner of a small business that works with
organizations in both the public and private sectors, consulting on matters of strategic planning, training, and
human/systems integration.

B2B E-Commerce 12
basis of the posted price. Buyers identify suppliers from the website database and then
consummate the transaction on or offline. If the transaction is online, then the website is a
marketplace and collects revenues from some aspect of the transaction (see revenue sources
section below). If the transaction is consummated offline, then the website is a bulletin board or
community portal (Trepp, 2000).
“Stickiness” is again an issue for this transaction model (Lessons from the Past, 1999).
Catalog aggregation sites often feature “sticky” content or other features that attempt to retain
the purchaser at the website (Trepp, 2000). “Sticky” features that could be introduced include
members-only content, chat, or up to the minute industry news.
Request for Quotes Model. In the traditional procurement process, a buyer sends out a
Request for Quotes (RFQ) or Request for Proposals (RFP) to potential suppliers. These RFQs
have detailed specifications and instructions regarding the type and quantity of the products
requested, as well as other terms of sale. After suppliers submit competing offers, the buyer
selects the winning offer (often, but not always) based on the lowest price and sends a purchase
order to the winning vendor (Trepp, 2000). Many of these buyer-supplier relationships are long
established. However, in the case of new procurement contracts, the acquisition of new suppliers
is an expensive and time-consuming process.
In an Internet enabled RFQ process, the sourcing procedure is greatly enhanced. Using an
Internet enabled RFQ platform, buyers can achieve a much wider reach, achieve more efficiency
and lower the cost of supplier acquisition (Trepp, 2000). In addition, the Internet RFQ bidding
process allows for reverse auction competitive bidding, thus lowering procurement costs for
buyers. Competitive price discovery by suppliers during the RFQ bidding process could also
potentially enhance this benefit to buyers. http://www.csustan.edu/manage/harris/B2B%20E-
Commerce%20September%202000.pdf

B2B
Business-to-Business
marketing and e-
commerce

updated 2005 Dec 19th

(Nabeela noted that the fastparts.com link is broken cause the company no longer is extant)

This page used in the following courses taught by Prof. Richardson

. .
MGT D06 CCT 322
.
INTRODUCTION Beginning in November through December 1999 and into January and February
2000 there were a lot of newspaper and magazine reports, offline and online about
B2B being the new focus of e-business and how this area would grow very fast.
We can find many newspaper articles about B2B issues and many of them include
projections as to how big the market will grow - which may not be meaningful since
since whether it is $5 trillion or $7 trillion - it's still a lot of money
In the following space, you will find separate articles on B2B at three separate
times from E-commerce Times. Each story has a different perspective on B2B.
Why?
WTGR
.

By Mary Hillebrand
E-Commerce Times
January 27, 2000

"Forecasters Fuel Feeding Frenzy on B2B Projections"

Mary Hillebrand wrote an article in E-Commerce Times in January 2000
www.ecommercetimes.com/news/articles2000/000127-5.shtml
in which she noted several of these B2B projections and also commented on how important it would
be in the business commuity in general.
"The Stamford, Connecticut-based GartnerGroup sees the online B2B market reaching seven
percent of a predicted $105 trillion in total global sales transactions.... The study reports that
companies who develop B2B marketplaces -- so-called "e-market makers" -- will be a key
driving force for B2B e-commerce."
.

By Staff Writers
E-Commerce Times
February 23, 2000

Interestingly, following on the heels of Hillebrand's story in January, is a story in February 2000 which
says "Study: U.S. Manufacturers Not B2B E-Commerce Ready" - this story
http://www.ecommercetimes.com/news/articles2000/000223-6.shtml
is based on a report by a U.S. trade association called National Association of Manufacturers
WTGR
"A nationwide poll of U.S. industrial firms shows that most are not engaging in extensive business-to-
business (B2B) e-commerce, according to the National Association of Manufacturers (NAM). .. The
study echoed a recent report from Deloitte and Touche showing that 70 percent of U.S. retailers lack
a cohesive e-commerce strategy."
"No one questions the importance of B2B e-commerce, yet relatively few manufacturers are
participating in it," said NAM president Jerry Jasinowski.
Jasinowski added
"our survey shows that most manufacturing companies are still at a rather basic level when it comes
to integrating the Web into their corporate business activities. While 80 percent claim they have a
Web site, the vast majority offer only an information storefront."
..

By Mick Brady
E-Commerce Times
March 16, 2000

"More Glitter Than Gold in B2B Portals"

http://www.ecommercetimes.com/news/articles2000/000316-1.shtml
Brady writes "companies in nearly every industry are launching slick new Internet portals -- but
many have failed thus far to rise above the functionality of plain old Web sites ... As the list of new
portals continues to lengthen, it is nevertheless becoming increasingly clear that a portal launch does
not necessarily augur immediate B2B success. Customers are not flocking to the portals as quickly
as expected and even those who make the trip are often unwilling or unable to make transactions."
.
By Chet Dembeck
E-Commerce Times Columnist
April 11, 2000

"B2B Ventures Losing Their Allure"

http://www.ecommercetimes.com/news/viewpoint2000/view-000411-1.shtml
Dembeck writes in a more "sober" way about the B2B hype, noting "when a leading Web incubator
announced earlier this week [11Apr2000] that it would stop investing in business-to-business (B2B)
companies, it reinforced concern that the dot-com shakeout in the business-to-consumer arena may
be spreading to the realm of B2B."
"What seems like a sudden about face was actually expected by some industry analysts. In general,
valuation and the projected size of the B2B market have gotten so big they have become hard to
fathom...,"
Geoffrey Bock, an analyst with Boston, Massachusetts-based
Patricia Seybold Group told the E-Commerce Times.
"...the proliferation of B2B marketplaces is being fueled by the desire to improve business processes,
it is also being driven by hype"
George Reilly, research director for GartnerGroup, as quoted by Dembeck
.

By Beth Cox
August 17, 2001

"Market for B2B Apps Still Soft"

www.internetnews.com/ec-news/article/0,,4_867951,00.html
An indication of how B2B is progressing is information on the computer software applications that are
used by companies in B2B circumstances.
Cox writes, "Sales of B2B software, the applications needed to establish online marketplaces, bolster
supply chains and allow for collaboration among companies, continue to be soft, and Goldman,
Sachs analysts are lowering estimates for some of the prime players in the field."
.

By Erika Morphy
September 24, 2001

"Easy Payments Crucial for B2B Success"

www.ecommercetimes.com/perl/story/13696.html#story-start
"... with many B2B payments: Oftentimes, a buyer has to tie up its line of credit before the goods are
even shipped just to provide the seller with the assurance that the bill will be paid. Other payment
mechanisms, such as credit insurance or letters of credit, can be very costly -- and still, a buyer's
credit line is usually hamstrung for the duration of the transaction."
"An easy payment process is the foundation of any customer-friendly operation."
"In the B2B community, however, payment is still largely paper-based despite -- or perhaps because
of -- the large amounts of cash exchanged."

By Keith Regan
October 01, 2001

"B2B E-Commerce Takes a Global View, Cautiously"

www.ecommercetimes.com/perl/story/?id=13761
"Smart companies are using the Internet to shorten the time it takes to get materials from suppliers,
to communicate with third-party manufacturers and, in some ways, to turn business culture on its
head, Deloitte & Touche e-commerce consultant Aran Nathanson told the E-Commerce Times."
"But for many businesses, the motivation to overcome those hurdles is greater than the obstacles
posed. Analysts have predicted that the fastest growing markets in coming years will be the overseas
markets. For example, Gartner has estimated that B2B sales in the Asia-Pacific region will rise from
US$9 billion in 1999 to $992 billion by 2004."
Where is B2B
"Even though the overseas markets are expected to boom, U.S. companies thus far still dominate
the online B2B landscape, as they do in the business-to-consumer (B2C) e-commerce realm. An
Andersen survey of the B2B landscape last year [2000] found that U.S. companies generated 67 %
of global B2B e-commerce revenue, with Europe accounting for 14 %."
...
KEY So, what we can conclude from these 2000-2001 B2B articles ?
POINTS • B2B seems to be getting a lot of hype and the expectation among IT
oriented people is that it should grow rapidly as a business forum
• In this fast paced e-world, best thing to do when an issue surfaces, is wait
three or four months to see if it has "sustaining" power before jumping on
the bandwagon
• The reality among medium sized businesses is that they may believe B2B
is great - but they are still slow in implementing it.
• The B2B market is effected by many of the environmental forces
challenging business in general
WTGR
.

By Lesley Hensell
October 2003

"The True Path of B2B E-Commerce"

www.ecommercetimes.com/story/32000.html
Hensell explains "When it comes to buying and selling products, companies seem to have turned
away from each other -- and the bigger the companies are, the less they want to talk. This decline in
personal interaction during the sales process may be due partly to the rise of business-to-business,
or B2B , exchanges. These automated online marketplaces have moved past early stumbles and
now can help companies reach new levels of accuracy, efficiency and profitability. In fact, many large
corporations have begun requiring their trading partners to conduct sales ordering, payment and
fulfillment online or not at all. However, although conducting B2B transactions online has become
standard operating procedure, the way these exchanges are designed and run is anything but
standardized."
Hensell further explains that there is a wide variety of platforms and software within which companies
conduct B2B and therefore there is little standardization.
Hensell suggests B2B exchanges have grown and improved since the early 2000's, but that "...B2B
exchanges are not entirely problem-free. While the front-end trading portion of such marketplaces
has been refined over time, in many cases the back-end processes -- ranging from handling
purchase orders and credit references to billing and shipping -- have not lived up to their potential."
..
 During our discussions of B2B aspects we refer to an article written by Mohanbir
Sawhney and Steven Kaplanw, titled " Let's Get Vertical . This article appeared in
Business 2.0 in 1999.

.
Sawhney and Kaplanw explain that "The great untold story of online commerce is that
business-to-business sales have already eclipsed the higher-profile business-to-consumer
market by a long shot. Annual B-to-B ecommerce is projected to soar from $43 billion in
1998 to $1 trillion by 2003, according to Forrester Research, while the consumer market
swells from $7.8 billion to $108 billion in the same period."

B2B business-to-consumer business-to-business

Business 1998 $7.8 billion $43 billion
to 2003 $108 billion $1 trillion ***
Business 2005 . $10 trillion **
So, if the B2B market is growing so fast, we need to know what are some of the
successful characteristics business models so that we can "conduct E-commerce
successfully" in a B2B situation.
** - from page 217 in Turban Text - 2nd ed.
***- Turban Text - 2nd ed. says B2B will grow to the range of $ 1.1 - $ 4 trillion
.

Business-to-Business Electronic Commerce

How is B2B conducted?
B2B commerce can be conducted directly between a buyer and seller or via an online intermediary.
The intermediary can be
• a person
• or an organization
• or an electronic system
.
Business-to-Business Electronic Commerce
Types of Transactions
• Spot Buying
○ buying goods and services at market prices
○ often facilitated by a third party exchange
• Strategic Sourcing
○ long-term contracts that are usually negotiated to get a good cost advantage
○ often this is done by streamlining your supply chain
.
Business-to-Business Electronic Commerce
The key entities in B2B EC,
• Selling Company
• Buying Company
• Electronic Intermediary
• Deliverer
• Network Platform
• Protocols and communication
• Back-end information system - including ERP - Enterprise Resource Planning
.
Business-to-Business Electronic Commerce
The Information Processed in B2B
- meaning what you have to expect will be sent back and forth between the buyer, seller and
intermediary
• product details
• customer profile
• supplier conditions
• product process - capacities
• transportation, times, costs

Business-to-Business Electronic Commerce

B2B Models

• Company Centric Models

○ which would include
 Supplier Oriented Marketplace
 Buyer Oriented Marketplace
 Intermediary Oriented Marketplace
• Many-to-many Marketplaces
○ also known as
 Trading Communities
 or Trading Exchanges or Exchanges

..
Supplier Oriented Marketplace
common examples are manufacturers of electronic products
example companies are
• Cisco
 • IBM
• Intel
which all have a majority of their product sold to other businesses, even though they may have some
%age sold direct to consumers
Cisco Connection Online
 Customer Service
 Software downloads
 defect tracking
 technical advice
 Online Ordering
 Cisco builds most of its products for custom orders
 Custom orders can be facilitated more precisely through online menus
 Finding Order Status
empowers the customer to know when order is arriving and specific details
Buyer Oriented Marketplace
Buy-Side: One-From-Many
This is usually for large companies that buy a large volume, and wide variety of products, so they open up
a web site to inform companies what they require, and invite businesses to submit bids on what they wish
to supply. A lot of this is being done in the form of an Extranet.
One of the new terms used in this consideration is "Procurement Management" - which is a fancy way of
"figuring out best how to buy stuff"
example companies are
• General Electric
• Federal government agencies
• Automotive assemblers and Tier 1 parts companies
GE Trading Process Network (TPN)
GE TPN Post is an Internet-based trading network that enables buyers and sellers to do business-to-
business electronic commerce, including transactions.
In this process, sellers offer products for sale, and accept bids against the product.

Intermediary Oriented Marketplace

Boeing's PART case demonstrates the intermediary oriented

B2B marketplace. Boeing plays the role of intermediary in
supplying maintenance parts to airlines (most of which own
Boeing planes)

Currently the Boeing PART Page and myboeingfleet.com are administered separately.
Access to the PART Page requires a separate account and login password.
www.boeing.com/commercial/aviationservices/guesttour/html/partpage.htm
"Boeing views the Internet as an opportunity to encourage more of its customers to order parts
electronically"

CASE STUDY of a B2B e-commerce business model: FastParts.com

(In Dec 2005 student Nabeela noted that the domain name for fastparts.com appeared to be inactive and
all the other links do not work.
A Google search reveals little, their founding President left the company in 2001.)
FastParts.com:
FastParts.com was founded in 1991 to bring buyers and sellers of semiconductors and other electronic
components together directly and anonymously to negotiate 'trade' transactions. The company brought its
trading expertise onto the Internet upon receiving venture capital funding in 1996. OEMs, contract
assemblers, part makers, and distributors can trade components quickly and cost effectively at
www.fastparts.com. They offered exchange brokerage between buyers and sellers, and an auction
service. They also sell memory and some equipment of an authorized distributor/reseller of certain
manufacturers. In 2005 their URL was no longer active.
In FastParts words www.fastparts.com
"FastParts.com is a leading business-to-business e-commerce net marketplace for the Electronics
manufacturing industry. We facilitate the global trading of electronic inventory over the Internet with our
ComponentConnectTM and EquipmentConnectTM trading exchanges, SOLD! AuctionTM and Century
Catalog services. Membership assures participants they are dealing with pre-qualified trading partners."
from formerly www.fastparts.com/about/about_us.html
"It was founded in 1991 as an electronic bulletin board-based trading exchange, to serve the needs of
procurement professionals who faced the dual challenges of excess inventories on cancelled jobs and
inventory shortages for unforecasted orders." "became an e-commerce pioneer in 1996 launched the
first B2B Internet marketplace for buyers and sellers of electronic inventory"
"Business-to-business (B2B) EC is the engine behind the EC revolution. The genesis of B2B EC was
technologies such as Electronic Data Interchange (EDI) and Electronic Fund Transfer, which were
typically the exclusive domain of larger organizations. However, with the advent of the Internet and its
open network, small and medium size companies are now also able to start participating in B2B EC."
formerly from http://www.fastparts.com/about/b2b.html
"Key benefits of B2B EC [according to FastParts.com] include:
• Strengthen and globalize your corporate brand
• Increase customer satisfaction and loyalty
• Create flexible, dynamic business models
• Enhance cost structure and profit margins
• Create a virtual networked enterprise that transcends the time and geographic boundaries
imposed by the globe
• Build highly coordinated communities with business partners and customers"

Just how diverse can the B2B market be?

It does not have to be limited to conventional manufacturing and service
industries. Many other aspects of business can be involved, such as the "business
of" sports and entertainment.
 WTGR
journalist Patricia Zyska at Plesman wrote a story in the August 2000 issue of the
eBusiness Journal
http://www.plesman.com/Archives/eb/2000/Aug/0208/eb020804b.html
"NHL looks at online B2B"

Zyska noted that accounting firm PricewaterhouseCoopers has been hired by the NHL to do a study
on "the feasibility of implementing a B2B initiative for the National Hockey League".
Craig Harnett, chief financial officer of the NHL was quoted by Zyska as saying that "We have a lot of
vendor relationships, a lot of suppliers at the team levels, as well as league level, that run anything
from pencils and paper clips to Jumbotrons and zambonis,"
"Many of the individual teams buy their own products and services on an individual basis rather than
in any aggregated form, and this is going to bring them all together," said Patrick McDonnell,
management consulting services partner with PricewaterhouseCoopers.
NOTE: a Google search in May 2005 could not find any hits for NHL and B2B that were dated in
2003, 2004 or 2005 so it appears as if the NHL dropped this. A check on the NHL site did not reveal
any B2B activity - however, it should be noted thatthe NHL was closed down in 2004/2005 due to the
strike by the Players !

.
On this page there are several quotes from ecommercetimes.com. Permission was given by Richard Kern, Associate Publisher of the E-
Commerce Times, in an email to Prof. Richardson 2004 Dec 10th, a hard copy of the email is kep on file in Richardson's permissions binder.

CONTACT I MAIN PAGE I NEWS GALLERY I E-BIZ SHORTCUTS I INT'L BIZ SHORTCUTS I MKTG&BUSINESS SHORTCUTS I TE
.
witiger.com MISTAKES ITEXTS USED I IMAGES I RANK IDISCLAIMER I STUDENT CONTRIBUTORS I FORMER STUDENTS I
.
.
http://www.witiger.com/ecommerce/B2B.htm Prof. W. Tim G. Richardson ©
www.witiger.com
definition -
A lead generator is any marketing-related activity intended to publicize the availability of a
vendor's product or service. Lead generators may be as simple as printed advertising in a
newspaper or trade journal, or as formidable as an industry exhibit.
Internet technology is also broadly employed to acquire leads from Web site visitors that seek to
access helpful information, articles, or downloads. For example, a popular Web site may
advertise an interesting report, but require the visitor to register with their contact information
before accessing the promised content. The resulting lead is then passed back to the advertiser
for sales follow up.

before access
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 Social Networks: Hear the podcast:
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Things to watch: Things to read:

Charlie Rose Business models are perhaps the most discussed and least Important Note
series of executive Learning Objectives
interviews:
understood aspect of the web. There is so much talk about how
__/ 09-30-2005 \__
__/ 11-19-2007 \__ the web changes traditional business models. But there is little What Is Web 2.0:
Amazon: Jeff Bezos clear-cut evidence of exactly what this means. Design Patterns and
__/ 07-19-2007 \__ Business Models for the
Craigslist: Craig Newmark In the most basic sense, a business model is the method of doing business Next Generation of
Software
__/ 05-22-2007 \__ by which a company can sustain itself -- that is, generate revenue. The Tim O'Reilly
Wikipedia: Jimmy Wales business model spells-out how a company makes money by specifying __/ 05-06-2005 \__
__/ 12-29-2006 \__ where it is positioned in the value chain. Do Some Business
A panel discussion on the Models Perform Better
future of the Internet Some models are quite simple. A company produces a good or service than Others?
and Web 3.0 A Study of the
and sells it to customers. If all goes well, the revenues from sales exceed 1000 Largest US Firms
__/ 09-20-2006 \__
Yahoo: Terry Semel
the cost of operation and the company realizes a profit. Other models can Peter Weill

__/ 04-13-2006 \__

be more intricately woven. Broadcasting is a good example. Radio and __/ 01-14-2004 \__
The Utility Business
Google: Eric Schmidt later television programming has been broadcasted over the airwaves free Model and the Future of
__/ 12-27-2005 \__ to anyone with a receiver for much of the past century. The broadcaster is Computing Services
Netflix: Reed Hastings part of a complex network of distributors, content creators, advertisers Michael Rappa
__/ 03-01-2005 \__ (and their agencies), and listeners or viewers. Who makes money and how __/ 07-04-2005 \__
Yahoo: Jerry Yang The Abundance of Simple
much is not always clear at the outset. The bottom line depends on many Business Models on the
__/ 07-26-2001 \__
Google: Sergey Brin and
competing factors. World Wide Web
Michael Featherstone
Larry Page
Internet commerce will give rise to new kinds of business models. That Allan Ellis
__/ 03-07-2001 \__
eBay: Meg Whitman
much is certain. But the web is also likely to reinvent tried-and-true __/ 05-27-2002 \__
The Role of the
__/ 09-02-1999 \__
models. Auctions are a perfect example. One of the oldest forms of Business Model in
Dell: Michael Dell brokering, auctions have been widely used throughout the world to set Capturing Value from
Innovation
__/ 11-05-1998 \__ prices for such items as agricultural commodities, financial instruments, Henry Chesbrough
AOL: Steve Case and unique items like fine art and antiquities. The Web has popularized Richard S. Rosenbloom
__/ 10-30-1996 \__ the auction model and broadened its applicability to a wide array of goods __/ 11-00-2001 \__
Apple: Steve Jobs
and services. Migrating to Profitable
Electronic Commerce
Business models have been defined and categorized in many different Business Models
Jeanne W. Ross
__/ 01-27-2007 \__
ways. This is one attempt to present a comprehensive and cogent Michael R. Vitale
The Impact of Web 2.0 taxonomy of business models observable on the web. The proposed Peter Weill
and Emerging Social taxonomy is not meant to be exhaustive or definitive. Internet business
Network Models
World Economic Forum models continue to evolve. New and interesting variations can be
expected in the future.
 __/ 09-27-2006 \__ The basic categories of business models discussed in the table below On the airwaves:
Web-scale Computing
Services at Amazon.com include: __/ 12-22-2007 \__
Google Captures the
Jeff Bezos
 Brokerage 'Zeitgeist' of 2007
__/ 05-17-2006 \__
__/ 11-20-2007 \__
Users, Not Money: the  Advertising Ed Burns Makes First
Google Business Model
Straight-to-iTunes Movie
Marissa Mayer  Infomediary
__/ 11-19-2007 \__
__/ 01-27-2006 \__
Digital 2.0: Powering a
 Merchant Netflix's Million-Dollar
Quest for Good Movie
Creative Economy
World Economic Forum
 Manufacturer (Direct) Tips
Scott Horsley
__/ 06-05-2004 \__  Affiliate
__/ 11-19-2007 \__
Strategy for High
 Community Amazon Rolls Out New
Tech Companies
Wireless Reading Device
Michael Cusumano
 Subscription __/ 09-25-2007 \__
__/ 09-26-2002 \__
Amazon to Enter Music
A Conversation with  Utility Download Business
Michael Dell
Laura Sydell
__/ 05-01-2002 \__ The models are implemented in a variety of ways, as described below
__/ 08-22-2007 \__
How Does Google with examples. Moreover, a firm may combine several different models Internet Threatens
Actually Make Money?
Larry Page as part of its overall Internet business strategy. For example, it is not Local Newspapers
Geoffrey Bennett
uncommon for content driven businesses to blend advertising with a
__/ 07-19-2007 \__
subscription model. Drop in eBay Items
Concerns Investors
Case studies: Business models have taken on greater importance recently as a form of Wendy Kaufman
Amazon.com intellectual property that can be protected with a patent. Indeed, business __/ 03-27-2007 \__
America Online models (or more broadly speaking, "business methods") have fallen Blockbuster Targets Netflix
ChemConnect
Classmates increasingly within the realm of patent law. A number of business method with 'Total Access'
Greg Allen
Coolsavings patents relevant to e-commerce have been granted. But what is new and
Counterpane __/ 02-07-2007 \__
Craigslist novel as a business model is not always clear. Some of the more Steve Jobs Wades into
Dell Computer noteworthy patents may be challenged in the courts. Digital Music Debate
DoubleClick
__/ 02-01-2007 \__
eBay
Type of Model: Description: Michael Dell's Return
Flickr
Alex Chadwick
Google
iTunes __/ 01-02-2007 \__
Brokerage Brokers are market-makers: they bring buyers and sellers together
Lands' End Wikinomics: How Mass
Listen.com Model and facilitate transactions. Brokers play a frequent role in business-
Collaboration Changes
LiveWire to-business (B2B), business-to-consumer (B2C), or consumer-to- Everything
Monster.com consumer (C2C) markets. Usually a broker charges a fee or Don Tapscott
Netflix commission for each transaction it enables. The formula for fees can
New York Times
vary. Brokerage models include:
Orbitz
Overture Marketplace Exchange -- offers a full range of services covering the
PayPal Data sources:
transaction process, from market assessment to negotiation and
Priceline fulfillment. Exchanges operate independently or are backed by an Online Classifieds Data
Red Hat industry consortium. [Orbitz, ChemConnect] Pew Internet
Slashdot
Truste Buy/Sell Fulfillment -- takes customer orders to buy or sell a Usage Metrics
Wikipedia product or service, including terms like price and delivery. Nielsen // NetRatings
Yahoo! [CarsDirect, Respond.com]
Top 500 Sites
Demand Collection System -- the patented "name-your-price" Alexa Web Search
model pioneered by Priceline.com. Prospective buyer makes a final
(binding) bid for a specified good or service, and the broker arranges
Hungry minds: fulfillment. [Priceline.com]

The Long Tail Auction Broker -- conducts auctions for sellers (individuals or Next topic:
Chris Anderson merchants). Broker charges the seller a listing fee and commission
scaled with the value of the transaction. Auctions vary widely in terms
iTunes: How Copyright, of the offering and bidding rules. [eBay]
Contract, and
Technology Shape Transaction Broker -- provides a third-party payment mechanism
 the Business of for buyers and sellers to settle a transaction. [PayPal, Escrow.com]
Digital Media
William W. Fisher, et al. Distributor -- is a catalog operation that connects a large number of
product manufacturers with volume and retail buyers. Broker
An e-Business Model facilitates business transactions between franchised distributors and
Ontology for Modeling their trading partners.
e-Business
Alexander Osterwalder Search Agent -- a software agent or "robot" used to search-out the Digital Markets
Yves Pigneur price and availability for a good or service specified by the buyer, or
to locate hard to find information.
The Truth about
Internet Business Virtual Marketplace -- or virtual mall, a hosting service for online
Models merchants that charges setup, monthly listing, and/or transaction
Jeffrey F. Rayport fees. May also provide automated transaction and relationship
marketing services. [zShops and Merchant Services at Amazon.com]
B2B E-Commerce Hubs
Steven Kaplan
Mohanbir Sawhney return to top

Business Models for

Advertising The web advertising model is an extension of the traditional media
Electronic Markets
Paul Timmers Model broadcast model. The broadcaster, in this case, a web site, provides
content (usually, but not necessarily, for free) and services (like
A Taxonomy of
email, IM, blogs) mixed with advertising messages in the form of
Internet Commerce
Paul Bambury banner ads. The banner ads may be the major or sole source of
revenue for the broadcaster. The broadcaster may be a content
creator or a distributor of content created elsewhere. The advertising
model works best when the volume of viewer traffic is large or highly
Previous topic: specialized.

Portal -- usually a search engine that may include varied content or

services. A high volume of user traffic makes advertising profitable
and permits further diversification of site services. A personalized
portal allows customization of the interface and content to the user. A
niche portal cultivates a well-defined user demographic. [Yahoo!]
Classifieds -- list items for sale or wanted for purchase. Listing fees
Web Analytics are common, but there also may be a membership fee.
[Monster.com, Craigslist]
User Registration -- content-based sites that are free to access but
require users to register and provide demographic data. Registration
allows inter-session tracking of user surfing habits and thereby
generates data of potential value in targeted advertising campaigns.
[NYTimes]
Query-based Paid Placement -- sells favorable link positioning
(i.e., sponsored links) or advertising keyed to particular search terms
in a user query, such as Overture's trademark "pay-for-performance"
model. [Google, Overture]
Contextual Advertising / Behavioral Marketing -- freeware
developers who bundle adware with their product. For example, a
browser extension that automates authentication and form fill-ins,
also delivers advertising links or pop-ups as the user surfs the web.
Contextual advertisers can sell targeted advertising based on an
individual user's surfing activity.
Content-Targeted Advertising -- pioneered by Google, it extends
the precision of search advertising to the rest of the web. Google
identifies the meaning of a web page and then automatically delivers
relevant ads when a user visits that page. [Google]
Intromercials -- animated full-screen ads placed at the entry of a
site before a user reaches the intended content. [CBS MarketWatch]
Ultramercials -- interactive online ads that require the user to
respond intermittently in order to wade through the message before
reaching the intended content. [Salon in cooperation with Mercedes-
Benz]

return to top
Infomediary Data about consumers and their consumption habits are valuable,
Model especially when that information is carefully analyzed and used to
target marketing campaigns. Independently collected data about
producers and their products are useful to consumers when
considering a purchase. Some firms function as infomediaries
(information intermediaries) assisting buyers and/or sellers
understand a given market.

Advertising Networks -- feed banner ads to a network of member

sites, thereby enabling advertisers to deploy large marketing
campaigns. Ad networks collect data about web users that can be
used to analyze marketing effectiveness. [DoubleClick]
Audience Measurement Services -- online audience market
research agencies. [Nielsen//Netratings]
Incentive Marketing -- customer loyalty program that provides
incentives to customers such as redeemable points or coupons for
making purchases from associated retailers. Data collected about
users is sold for targeted advertising. [Coolsavings]
Metamediary -- facilitates transactions between buyer and sellers by
providing comprehensive information and ancillary services, without
being involved in the actual exchange of goods or services between
the parties. [Edmunds]

return to top

Merchant Wholesalers and retailers of goods and services. Sales may be made
Model based on list prices or through auction.

Virtual Merchant --or e-tailer, is a retail merchant that operates

solely over the web. [Amazon.com]
Catalog Merchant -- mail-order business with a web-based catalog.
Combines mail, telephone and online ordering. [Lands' End]
Click and Mortar -- traditional brick-and-mortar retail establishment
with web storefront. [Barnes & Noble]
Bit Vendor -- a merchant that deals strictly in digital products and
services and, in its purest form, conducts both sales and distribution
over the web. [Apple iTunes Music Store]

return to top

Manufacturer The manufacturer or "direct model", it is predicated on the power of

(Direct) Model the web to allow a manufacturer (i.e., a company that creates a
product or service) to reach buyers directly and thereby compress the
distribution channel. The manufacturer model can be based on
efficiency, improved customer service, and a better understanding of
customer preferences. [Dell Computer]

Purchase -- the sale of a product in which the right of ownership is

transferred to the buyer.
Lease -- in exchange for a rental fee, the buyer receives the right to
use the product under a “terms of use” agreement. The product is
returned to the seller upon expiration or default of the lease
agreement. One type of agreement may include a right of purchase
upon expiration of the lease.
License -- the sale of a product that involves only the transfer of
usage rights to the buyer, in accordance with a “terms of use”
agreement. Ownership rights remain with the manufacturer (e.g.,
with software licensing).
Brand Integrated Content -- in contrast to the sponsored-content
approach (i.e., the advertising model), brand-integrated content is
created by the manufacturer itself for the sole basis of product
placement.
 return to top

Affiliate In contrast to the generalized portal, which seeks to drive a high

Model volume of traffic to one site, the affiliate model, provides purchase
opportunities wherever people may be surfing. It does this by offering
financial incentives (in the form of a percentage of revenue) to
affiliated partner sites. The affiliates provide purchase-point click-
through to the merchant. It is a pay-for-performance model -- if an
affiliate does not generate sales, it represents no cost to the
merchant. The affiliate model is inherently well-suited to the web,
which explains its popularity. Variations include, banner exchange,
pay-per-click, and revenue sharing programs. [Barnes & Noble,
Amazon.com]

Banner Exchange -- trades banner placement among a network of

affiliated sites.
Pay-per-click -- site that pays affiliates for a user click-through.
Revenue Sharing -- offers a percent-of-sale commission based on a
user click-through in which the user subsequently purchases a
product.

return to top

Community The viability of the community model is based on user loyalty. Users
Model have a high investment in both time and emotion. Revenue can be
based on the sale of ancillary products and services or voluntary
contributions; or revenue may be tied to contextual advertising and
subscriptions for premium services. The Internet is inherently suited
to community business models and today this is one of the more
fertile areas of development, as seen in rise of social networking.

Open Source -- software developed collaboratively by a global

community of programmers who share code openly. Instead of
licensing code for a fee, open source relies on revenue generated
from related services like systems integration, product support,
tutorials and user documentation. [Red Hat]
Open Content -- openly accessible content developed collaboratively
by a global community of contributors who work voluntarily.
[Wikipedia]
Public Broadcasting -- user-supported model used by not-for-profit
radio and television broadcasting extended to the web. A community
of users support the site through voluntary donations. [The Classical
Station (WCPE.org)]
Social Networking Services -- sites that provide individuals with
the ability to connect to other individuals along a defined common
interest (professional, hobby, romance). Social networking services
can provide opportunities for contextual advertising and subscriptions
for premium services. [Flickr, Friendster, Orkut]

return to top

Subscription Users are charged a periodic -- daily, monthly or annual -- fee to

Model subscribe to a service. It is not uncommon for sites to combine free
content with "premium" (i.e., subscriber- or member-only) content.
Subscription fees are incurred irrespective of actual usage rates.
Subscription and advertising models are frequently combined.

Content Services -- provide text, audio, or video content to users

who subscribe for a fee to gain access to the service. [Listen.com,
Netflix]
 Person-to-Person Networking Services -- are conduits for the
distribution of user-submitted information, such as individuals
searching for former schoolmates. [Classmates]
Trust Services -- come in the form of membership associations that
abide by an explicit code of conduct, and in which members pay a
subscription fee. [Truste]
Internet Services Providers -- offer network connectivity and
related services on a monthly subscription. [America Online]

return to top

Utility The utility or "on-demand" model is based on metering usage, or a

Model "pay as you go" approach. Unlike subscriber services, metered
services are based on actual usage rates. Traditionally, metering has
been used for essential services (e.g., electricity water, long-distance
telephone services). Internet service providers (ISPs) in some parts
of the world operate as utilities, charging customers for connection
minutes, as opposed to the subscriber model common in the U.S.

Metered Usage -- measures and bills users based on actual usage of

a service.
Metered Subscriptions -- allows subscribers to purchase access to
content in metered portions (e.g., numbers of pages viewed).
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About the author: Michael Rappa is director of the Institute for Advanced Analytics at
North Carolina State University.

© 2010 Michael Rappa

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