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E-commerce 2014

Kenneth C. Laudon

Carol Guercio Traver

business. technology. society.

tenth edition

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Chapter 2

E-commerce Business Models

and Concepts

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Tweet Tweet: X’s Business Model

What characteristics or benchmarks can be used to assess the business value of a company such as Twitter?
Have you used Twitter to communicate with friends or family? What are your thoughts on this service?
What are Twitter’s most important assets?
Which of the various methods described for monetizing Twitter’s assets do you feel might be most successful?

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Class Discussion

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E-commerce Business Models

Business model

Set of planned activities designed to result in a profit in a marketplace

Examples https://www.investopedia.com/terms/b/businessmodel.asp#:~:text=The%20term%20business%20model%20refers,both%20new%20and%20established%20businesses.

Business plan

Describes a firm’s business model

Examples; http://articles.bplans.com/a-standard-business-plan-outline/

E-commerce business model

Leverages unique qualities of Internet and Web

http://www.tutorialspoint.com/e_commerce/e_commerce_business_models.htm

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Eight Key Elements of a Business Model

Value proposition
Revenue model
Market opportunity
Competitive environment
Competitive advantage
Market strategy
Organizational development
Management team

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https://www.youtube.com/watch?v=wwShFsSFb-Y&list=PLTIQeeP-ERzrDj2aExWNvMD3mLnSRMJsC

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1. Value Proposition

How does the product or service fulfill customer needs
E-commerce value propositions:

Personalization/customization
Convenience
Price/No shipping cost
Quick delivery
Unparalleled Selection
Product/service quality

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2. Revenue Model

How will the company earn money
Major types of revenue models:

Advertising revenue model- Facebook
Subscription revenue model –Anti virus, Consumer Reports, Wall Street News Subscription, Online Dating
Transaction fee revenue model- ebay, E-trade, Credit cards
Sales revenue model – AmazonMP3, Amazon, Gap
Affiliate revenue model – airlines/car rentals/hotels

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Foursquare: Check Your Privacy at the Door

What revenue model does Foursquare use? What other revenue models might be appropriate?
Are privacy concerns the only shortcoming of location-based mobile services?
Should business firms be allowed to call cell phones with advertising messages based on location?

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Insight on Society: Class Discussion

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3. Market Opportunity

The intended Marketspace of the company

Marketspace: Area of actual or potential commercial value in which company intends to operate
Realistic market opportunity: Defined by revenue potential in each market niche in which company hopes to compete

Market opportunity typically divided into smaller niches

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4. Competitive Environment

Who else occupies your intended marketspace?”

Other companies selling similar products in the same marketspace
New entrants into market, substitute products, and power of consumers and suppliers (nature of competition)
Includes both direct and indirect competitors (e.g., Netflix vs Xfinity or DirectTV)

Influenced by:

Number and size of active competitors
Each competitor’s market share
Competitors’profitability
Competitors’pricing

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5. Competitive Advantage

The special advantages of a firm

Superior or cheaper product than competitors
What makes a product superior?

Important concepts:

Asymmetries exist when one competitor has more resources or differential access to them compared to other competitors
First-mover advantage
Unfair competitive advantage results from factors of production that are hard to duplicate or acquire (brands, natural resources, capital investments)
Leverage using vast resources to move in other markets – leveraging a large customer base, or lots of money (Apple car)
Perfect markets do not allow for competitive advantage as all firms have equal access to all factors of production

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6. Market Strategy

How do you plan to promote your products or services to attract the target audience

Details how a company intends to enter market and attract customers
Best business concepts will fail if not properly marketed to potential customers -IBM OS 2

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7. Organizational Development

The types of organizational structures within the firm necessary to carry out the business plan
Describes how firm will organize work

Typically, divided into functional departments, some organize around products, combination of both (auto manufacturers)
As company grows, hiring moves from generalists to specialists

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8. Management Team

“What kind of backgrounds should the company’leaders have?”
A strong management team:

Make the business model work
Give credibility to outside investors
Has market-specific knowledge
Has experience in implementing business plans

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Raising Capital

Seed capital personal funds used to start business
Traditional sources

Incubators provide small amount of funding and provide services to start-ups
Commercial banks
Angel investors wealthy investors who invest money in exchange for equity share of the business (Shark tank☹)
Venture capital firms invest funds they manage for other investors
Strategic partners

Crowdfunding

Using internet to allow individuals to contribute to new ventures

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Crowdfunding Takes Off

What types of projects and companies might be able to most successfully use crowdfunding?
Are there any negative aspects to crowdfunding?
What obstacles are presented in the use of crowdfunding as a method to fund start-ups?

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Insight on Business: Class Discussion

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Categorizing E-commerce�Business Models

No one correct way (explained on upcoming slides)
The book categorizes them based on:

E-commerce sectors (B2B, and B2C)
E-commerce technology (e.g., m-commerce)

Similar business models appear in more than one sector
Some companies use multiple business models (e.g., eBay, Amazon)

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B2C Business Models�

E-tailer
Community providers create communities for like minded people (social networks eg. Facebook)
Content provider disseminate info (CNN, ESPN etc)
Portal enable searching to provide info (Yahoo, Google)
Transaction broker (E*TRADE, Hotels.com, Travelocity)
Market creator creates market spaces (Ebay, Amazon)
Service provider (Gmail, Verizon, PayPal, VisaNow.com)

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B2C Models: E-tailer

Online version of traditional retailer (Walmart, Macys)
Revenue model: Sales
Variations:

Virtual merchant (online bank)
Bricks-and-clicks
Catalog merchant (home shopping network)

Sells large variety of household and personal products

Manufacturer-direct

Low barriers to entry

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B2C Models: Community Provider

Provide online environment (social network) where people with similar interests can transact, share content, and communicate

Examples: Facebook, LinkedIn, Twitter, Pinterest

Revenue models:

Typically hybrid, combining advertising, subscriptions, sales, transaction fees, and so on

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B2C Models: Content Provider

Digital content on the Web:

News, music, video, text, artwork

Revenue models:

Subscription; pay per download (micropayment); advertising; affiliate referral

Variations:

Syndication- firm does not own material just distributes it (newspaper horoscopes and crossword puzzles are syndicated content)
Web aggregators (shopping.com, Travelocity, Priceline) aggregate info and add value to it

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Battle of the Titans: Music in the Cloud

Have you purchased music online or subscribed to a music service? What was your experience?
What revenue models do cloud music services use?
Do cloud music services provide a clear advantage over download and subscription services?
Of the cloud services from Google, Amazon, and Apple, which would you prefer to use, and why?

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Insight on Technology: Class Discussion

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B2C Business Models: Portal

Searching capability plus an integrated package of content and services
Revenue models:

Advertising, referral fees, transaction fees, subscriptions

Variations:

Horizontal/general includes all internet users
Vertical/specialized (vortal) provides a directory of links to information related to a particular industry or subject matter
Searching capabilities

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B2C Models: Transaction Broker

Process online transactions for consumers

Primary value proposition—saving time and money, and enabling online transactions (stocks, credit card and PayPal payments)

Revenue model:

Transaction fees

Industries using this model:

Financial services
Travel services and entertainment
Job placement services

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B2C Models: Market Creator

Create digital environments where buyers and sellers can meet and transact business
Examples:

Priceline
eBay
E*trade

Revenue model:

Transaction fees, fees to merchants for access

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B2C Models: Service Provider

Online services

Example: Google—Google Maps, Gmail, and so on

Value proposition

Valuable, convenient, time-saving, low-cost alternatives to traditional service providers

Revenue models:

Sales of services, subscription fees, advertising, sale of marketing data

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B2B Business Models

B2B relies on EDI (electronic data interchange)
Net marketplaces (explained in upcoming slides)

E-distributor
E-procurement
Exchange
Industry consortium

Private industrial network

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B2B Models: E-distributor

Version of retail and wholesale store, MRO (explain next slide) goods, and indirect goods
Owned by one company seeking to serve many customers
Revenue model: Sales of goods
Example: Grainger.com

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MRO

MRO - Maintenance, repair and operations
Supplies consumed in the production processin the production process but which do not either become part of the end productin the production process but which do not either become part of the end product or are not central to the firm's outputin the production process but which do not either become part of the end product or are not central to the firm's output. MRO itemsin the production process but which do not either become part of the end product or are not central to the firm's output. MRO items include consumablesin the production process but which do not either become part of the end product or are not central to the firm's output. MRO items include consumables (such as cleaning, laboratory, or office suppliesin the production process but which do not either become part of the end product or are not central to the firm's output. MRO items include consumables (such as cleaning, laboratory, or office supplies), industrialin the production process but which do not either become part of the end product or are not central to the firm's output. MRO items include consumables (such as cleaning, laboratory, or office supplies), industrial equipmentin the production process but which do not either become part of the end product or are not central to the firm's output. MRO items include consumables (such as cleaning, laboratory, or office supplies), industrial equipment (such as compressors, pumps, valvesin the production process but which do not either become part of the end product or are not central to the firm's output. MRO items include consumables (such as cleaning, laboratory, or office supplies), industrial equipment (such as compressors, pumps, valves) and plantin the production process but which do not either become part of the end product or are not central to the firm's output. MRO items include consumables (such as cleaning, laboratory, or office supplies), industrial equipment (such as compressors, pumps, valves) and plant upkeep supplies (such as gaskets, lubricants, repairin the production process but which do not either become part of the end product or are not central to the firm's output. MRO items include consumables (such as cleaning, laboratory, or office supplies), industrial equipment (such as compressors, pumps, valves) and plant upkeep supplies (such as gaskets, lubricants, repair toolsin the production process but which do not either become part of the end product or are not central to the firm's output. MRO items include consumables (such as cleaning, laboratory, or office supplies), industrial equipment (such as compressors, pumps, valves) and plant upkeep supplies (such as gaskets, lubricants, repair tools), and computersin the production process but which do not either become part of the end product or are not central to the firm's output. MRO items include consumables (such as cleaning, laboratory, or office supplies), industrial equipment (such as compressors, pumps, valves) and plant upkeep supplies (such as gaskets, lubricants, repair tools), and computers, fixtures, furniture, etc.��

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B2B Models: E-procurement

Creates and sells access to digital markets where participants transact for indirect goods

B2B service providers, application service providers (ASPs)

Revenue model:

Service fees, supply-chain management, fulfillment services

Example: Ariba- system provides sellers with the ability to manage catalogs, bids, purchases and invoices and provides buyers with the ability to search for suppliers, negotiate savings, procure goods and services and track spending.
http://www.ariba.com/about/our-story

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B2B Models: Exchanges

Independently owned vertical digital marketplace where hundreds of suppliers meet a small number of large commercial purchasers
Revenue model: Transaction, commission fees
Create powerful competition between suppliers
Tend to force suppliers into powerful price competition; number of exchanges has dropped dramatically
Example, Walmart has the ability to negotiate the best prices in the industry

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B2B Models: Industry Consortia

Industry-owned vertical digital marketplace open to select suppliers
More successful than exchanges

Sponsored by powerful industry players
Strengthen traditional purchasing behavior

Revenue model: Transaction, commission fees
Example: Exostar used by defense industry - http://www.exostar.com/Mission/
ICAMR: International Consortium for Advanced Manufacturing Research

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About 15,100,000 results (0.63 seconds)

Search Results

ICAMR: International Consortium for Advanced Manufacturing Research

About 15,100,000 results (0.63 seconds)

Search Results

ICAMR: International Consortium for Advanced Manufacturing Research

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Private Industrial Networks

Digital network used to coordinate among firms engaged in business together
Represents 75% of B2B business by large firms
Often owned by a large network firm
Example: Walmart’s network for suppliers
Cost absorbed by network owner and recovered through production and distribution efficiencies

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Exchange	Consortia	Private Industrial Network
Hundreds of suppliers meet small number of large buyers Generate revenue by a commission or fee based on the size of the transaction Usually serve a single industry	Is industry owned Serves a vertical marketplace	Coordinate the flow of communications among firms doing business together Participation is by invitation only Walmart operates the largest private network

Difference between Exchange, Consortia, Private Industrial Network

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How E-commerce Changes Business

E-commerce changes industry structure by changing:

Rivalry among existing competitors
Barriers to entry
Threat of new substitute products
Strength of suppliers
Bargaining power of buyers

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Industry Value Chains

Set of activities performed by suppliers, manufacturers, transporters, distributors, and retailers that transform raw inputs into final products and services
Internet reduces cost of information and other transactional costs
Leads to greater operational efficiencies, lowering cost, prices, adding value for customers

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E-commerce and Industry Value Chains

Figure 2.5, Page 90

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Firm Value Chains

Activities that a firm engages in to create final products from raw inputs
Each step adds value
Effect of Internet:

Increases operational efficiency
Enables product differentiation
Enables precise coordination of steps in chain

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E-commerce and Firm Value Chains

Figure 2.6, Page 91

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Firm Value Webs

Networked business ecosystem
Uses Internet technology to coordinate the value chains of business partners
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 92

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Business Strategy

Plan for achieving superior long-term returns on capital invested: that is, profit
Five generic strategies

Product/service differentiation
Cost competition
Scope
Focus
Customer intimacy: A marketing strategy where a service supplier or product retailer gets close to customers. The benefits include improved highly tailored problem solving capabilities, greater customization of products to customer needs, as well as higher customer loyalty.

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