E-Business

Models and Concepts

Prof. Himanshu Joshi

Sr. Lecturer, International Management
Institute
[email protected]

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Learning Objectives
 What constitutes a Business Model?
 Generic E-Business Models
 Emerging E-Business Models.
 Key business concepts and strategies
applicable to E-Business.

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 Online Groceries: Up from the Embers
Class Discussion
 Why do you think Webvan.com failed?
 Why are more traditional grocery chains succeeding
today?
 Why would online customers pay the same prices as in
the stores plus pay delivery charges? What’s the
benefit to the customer?
 What are the important success factors for
FreshDirect?
 Do you think online grocery would work in your
city/town?

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What is the learning?
 Businesses need to make more money than what
they spend.
 Earnings/Profits are more important than just
revenues.
 Customer will always demand for more.
 The underlying principles behind the old and new
model remain the same. It’s the use of technology for
attaining competitive advantage which is different.
 Internet changed everything except the rules of
the business

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E-commerce Business Models—Definitions

 Business model
 Set of planned activities designed to result in a
profit in a marketplace
 Business plan
 Describes a firm’s business model
 E-commerce business model
 Uses/leverages unique qualities of Internet and
Web

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Key Ingredients of a Business Model
Table 2.1, Page 67

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Value Proposition
 Defines how a company’s product or service fulfills
the needs of customers
 Questions to ask:
 Why will customers choose to do business with your firm
instead of another?
 What will your firm provide that others do not or cannot?
 Examples of successful value propositions:
 Personalization/customization
 Reduction of product search, price discovery costs
 Facilitation of transactions by managing product delivery

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Revenue Model
 Describes how the firm will earn revenue,
generate profits, and produce a superior
return on invested capital
 Major types:
 Advertising revenue model
 Subscription revenue model
 Transaction fee revenue model
 Sales revenue model
 Affiliate revenue model

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 Sources of Revenue
Content Provider
1. Advertising
Networking/Community
2. Transaction Fee (B2B, B2C)
Business Knowledge

Auction Platform 3. Subscription/Membership

Hosting and Promotion 4. Sales

(ASP Model)

Service Provider (E-Education 5. Affiliate Referral

& Training)
Recruitment of Staff/Access to Expertise

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Market Opportunity
 Refers to a company’s intended marketspace
and the overall potential financial
opportunities available to the firm in that
marketspace
 Marketspace: area of actual or potential
commercial value in which company intends to
operate
 Realistic market opportunity: defined by revenue
potential in each of market niches in which
company hopes to compete

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Competitive Environment
 Refers to the other companies selling similar
products and operating in the same marketspace
 Influenced by:
 how many competitors are active
 how large their operations are
 the market share for each competitor
 how profitable these firms are
 how they price their products
 Includes both direct competitors and indirect
competitors

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Competitive Advantage
 Achieved when a firm can produce a superior product
and/or bring product to market at a lower price than
most, or all, of competitors
 Types of competitive advantage include:
 Scope
 Factors of production
 Favorable terms with suppliers, vendors
 Experienced, Knowledgeable workforce
 Patents
 Asymmetry
 First mover advantage
 Unfair competitive advantage

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Market Strategy
 Plan that details how a company intends to
enter a new market and attract customers
 Best business concepts will fail if not properly
marketed to potential customers

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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
company grows

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Management Team
 Employees of the company responsible for
making the business model work
 Strong management team gives instant
credibility to outside investors
 Strong management team may not be able to
salvage a weak business model, but should
be able to change the model and redefine the
business as it becomes necessary

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Categorizing E-commerce Business Models:
Some Difficulties
 New business models are emerging
 We categorize business models according to
e-business sector (B2C, B2B, C2C)
 Type of e-commerce technology used can
also affect classification of a business model
 Some companies use multiple business
models (ebay has a B2C and C2C business
model)

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B2C Business Models: Portal
 Offers powerful search tools plus an
integrated package of content and services
 Typically utilizes a combined
subscription/advertising revenues/affiliate
referral fee model
 It’s a destination site.
 May be general or specialized (vortal)

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B2C Business Models: E-tailer
 Online version of traditional retailer
 Types include:
 Virtual merchants (online retail store only)
 Bricks-and-clicks (online presence + physical stores)
 Catalog merchants (online version of direct mail
catalog)
 Manufacturer-direct (manufacturers selling directly
over the web)
 Highly competitive, barriers to entry low, survival difficult

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B2C Business Models: Content Provider

 Information and entertainment companies

that provide digital content over the Web
 Typically utilizes a subscription, pay for
download, or advertising revenue model
 Syndication a variation of standard content
provider model
 Web aggregators: collect information from
various sources, add value and presents user
a comparative picture.

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B2C Business Models: Transaction Broker

 Processes online transactions for consumers

 Primary value proposition—saving time and
money
 Typical revenue model—transaction fee
 Industries using this model include:
 Financial services
 Travel services
 Job placement services

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B2C Business Models: Market Creator

 Uses Internet technology to create markets

that bring buyers and sellers together
 Examples:
 Priceline.com
 eBay.com
 Typically uses a transaction fee revenue
model

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B2C Business Models: Service Provider

 Offers services online

 Value proposition: valuable, convenient, time-
saving, low-cost alternatives to traditional
service providers
 Revenue models: subscription fees or one-
time payment

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B2C Business Models: Community Provider
 Sites that create a digital online environment
where people with similar interests can
transact, communicate, and receive interest-
related information.
 Typically rely on a hybrid revenue model
 Examples:
 MySpace.com
 Facebook.com
 iVillage.com

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 Insight on Technology: Search, Ads, and
Apps: The Future For Google (and Microsoft)
Class Discussion
 How many of you use Google, Yahoo, or
MSN search engines? Why do you use a
particular search engine?
 Why are search engines so profitable?
 Why do people stay longer at Yahoo and
MSN.com when compared to Google? Does
this give them an advantage?

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B2B Classification
What business buy? (Goods)
Indirect Goods Direct Goods

E-distributor Independent
Exchange
Spot Grainger.com
purchase ESteel.com
How
business
buy? E-procurement Industry Consortia
Contract
(ways) purchase Ariba.com ChemConnect.com

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B2B Business Models: E-distributor

 Supplies products and services directly to individual

businesses
 Owned by one company seeking to serve many
industrial customers a single source from which to
order indirect goods on a spot basis
 Provides electronic catalogs with products from
various direct manufacturers
 Example: Grainger.com (Works with more than 3,000
suppliers to provide customers with access to more
than 870,000 products from various categories)

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B2B Business Models: E-procurement
 Creates and sells access to digital electronic markets
 B2B service provider is one type: Offer purchasing
firm sophisticated set of sourcing and supply
management tools
 Typically used for long-term contractual purchasing of
indirect goods
 Application service providers: a subset of B2B
service providers
 Revenue through fees (market making services,
supply chain management)
 Example: Ariba

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B2B Business Models: Exchanges
 Electronic digital marketplace where suppliers
and commercial purchasers can conduct
transactions (eSteel.com)
 Usually owned by independent firms whose
business is making a market
 Generate revenue by charging transaction
fees
 Usually serve a single vertical industry
 Number of exchanges has fallen dramatically

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B2B Business Models: Industry Consortia

 Industry-owned vertical marketplaces that

serve specific industries
 Horizontal marketplaces, in contrast, sell
specific products and services to a wide
range of industries
 Emphasize on long-term contractual
purchasing and development of stable
relationship
 Example: ChemConnect.com

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B2B Business Models: Private Industrial
Networks
 Digital networks designed by large
organizations to coordinate the flow of
communications among firms engaged in
business together
 Single firm private network: the most common
form (Example: Wal-Mart, GE, DELL etc)
 Industry-wide private networks: often evolve
out of industry associations (Example:
Agentrics)

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Business Models in Emerging E-commerce
Areas
 Consumer-to-Consumer (C2C): Provides a way
for consumers to sell to each other, with the help
of an online marketmaker
 Peer-to-Peer (P2P): Links users, enabling them
to share files and common resources without a
common server
 M-commerce: E-commerce business models that
use wireless technologies
 To date, m-commerce a disappointment in the United
States; however, technology platform continues to
evolve

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E-Business Enablers
 Internet infrastructure companies who provide hardware, software,
networking, security, e-commerce software systems, payment systems,
databases, hosting services, etc.

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How the Internet and the Web Change
Business: Strategy, Structure, and Process
 E-commerce changes the nature of players in
an industry and their relative bargaining
power by changing:
 the basis of competition among rivals
 the barriers to entry
 the threat of new substitute products
 the strength of suppliers
 the bargaining power of buyers

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Industry Value Chains

 Set of activities performed in an industry by

suppliers, manufacturers, transporters,
distributors, and retailers that transform raw
inputs into final products and services
 Reduces the cost of information and other
transactional costs

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E-commerce and Industry Value Chains
Figure 2.5, Page 102

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Firm Value Chains

 Set of activities that a firm engages in to

create final products from raw inputs
 Increases operational efficiency and
differentiation

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E-commerce and Firm Value Chains
Figure 2.6, Page 103

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Firm Value Webs

 Networked business ecosystem that uses

Internet technology to coordinate the value
chains of business partners within an
industry, or within a group of firms
 Coordinates a firm’s suppliers with its own
production needs using an Internet-based
supply chain management system

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Internet-Enabled Value Web
Figure 2.7, Page 104

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Business Strategy
 Set of plans for achieving superior long-term returns
on the capital invested in a business firm (i.e., a plan
for making a profit in a competitive environment)
 Why will someone pay more for a product/service?
 Four generic strategies
 Differentiation
 Cost
 Scope
 Focus

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