ECOMMERCE BUSINESS MODELS AND CONCEPTS Copyright 2014 Pearson

E-commerce Business Models n Business model v Set of planned activities designed to result in a profit in a marketplace n Business plan v A written document that describes a firm’s business model n E-commerce business model v Uses/leverages unique qualities of Internet and Web Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -2

Eight Key Elements of a Successful E-Commerce Business Model 1. Value proposition 2. Revenue model 3. Market opportunity 4. Competitive environment 5. Competitive advantage 6. Market strategy 7. Organizational development 8. Management team Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -3

1. Value Proposition (Benefits - Cost) “Why should the customer buy from you? ” n Successful e-commerce value propositions: n v Personalization/customization Reduction of product search, price discovery costs (List all feature of product) Facilitation of transactions by managing product delivery (Same Day) Offer free shipping (TCS-Connect) [Own Logistics] Have live help Offer deal of the day (http: //klickmart. com/pk/) Have effective order tracking Offer coupon codes in emails Provide gift-wrapping List best sellers Decrease shopping cart confusion Support charities v Lenovo Think. Pad X 240's 6 -cell battery more than 20 hours on a charge v v v Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -4

2. Revenue Model “How will you earn money? ” n How the firm will earn revenue, produce profits, and produce a superior return on invested capital - “Retailers, sell a product, such as a personal computer to a customer , this n generate revenue. “ n Major types of revenue models in E-Commerce: v Advertising Revenue Model v Affiliate Revenue Model v Transaction fee revenue model v Sales revenue model v Subscription Revenue Model Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -5

2. 1 Advertising Revenue Model n “The way most websites (may be they do not sell anything or do not sell memberships) make money. When they display ads on their site, they earn revenue. The more visitors they can get to their site, the more they earn. ” n Examples: v v v Yahoo. com Olx. com Msn. com Google. com News Websites Social Networking Website Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -6

2. 2 Affiliate Revenue Model “Electronic commerce business model that enables a website to generate revenue streams on hundreds (even thousands) of items without carrying inventories, managing orders, processing payments, or handling packaging and shipping. In this arrangement, a website concentrates on a relationship with a very specific group of individuals(E-Commerce Business such as amazon. com, bestbuy. com, emarkz. com)” n Affiliate marketing is a type of performance-based marketing in which a business (actual merchant for example emarkaz. com) rewards one or more affiliates (Whose Business Model is Affiliate for example Your. Website) for each visitor or customer brought by the affiliate's own marketing efforts. n Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -7

Affiliate Revenue Model (Continue …) n “How it Works. . . ” Examples: Findgift. com Find. The. Best. com These websites base on affiliate Revenue Model Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -8

2. 3 Subscription Revenue Model n “The subscription business model is a business model where a customer must pay a subscription price to have access to the product/service. The model was pioneered by magazines and newspapers. ” n Examples: Yahoo. com | Premium Services v www. wsj. com | Premium Services v Consumerreports. com | Premium Services v Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -9

2. 4 Sales Revenue Model “Wholesalers and retailers of goods and services sell their products online. ” n Examples: n v v v v Shophive. com Tcsconnect. com Dell. com Amazon. com Llbean. co Gap. com Homeshopping. pk Ishopping. com. pk Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -10

2. 5 Transaction Fee Revenue Model “A company receives commissions based on volume for enabling or executing transactions. ” n Examples: n ebay. com v olx. com | Didn’t charge commission for transaction v Elance. com v www. ubid. com v Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -11

3. Market Opportunity n “What marketspace do you intend to serve and what is its size? ” [To know your market] v Marketspace: Area of actual or potential commercial value in which company intends to operate. v Marketspace consist on multiple segments. v Realistic market opportunity: Defined by revenue potential in each market niche in which company hopes to compete n Market opportunity typically divided into smaller niches - (Segmentation) Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -12

Market Oppertunity Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2

Example : A software training company that create software's learning systems for sale to corporations on the internet. Over all size Computer Training market 100 % 70% 30% Realistic Market opportunity for start up firm

4. Competitive Environment n “Who else occupies your intended marketspace? ” Other companies selling similar products in the same marketspace [Can a business enter in that marketspace? ] v Includes both direct and indirect competitors v Direct: that selling similar products/services in same market segment. Example: - pia. com & airblue. com Indirect: may be in different industries but they compete indirectly Example: - Automobile manufactures and Airline companies - CNN & ESPN n Competitive environment for a company Influenced by Several Factors such as: Number and size of active competitors v Each competitor’s market share v Competitors’ profitability v Competitors’ pricing v Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -15

Question? n Existence of a large number of competitors n Market is Profitable? n If there is no Competitors In Marketspace. n Can we make money?

5. Competitive Advantage n “What special advantages does your firm bring to the marketspace? ” Is your product superior to or cheaper to produce than your competitors’? v Firms that can provide superior products at lowest cost on a global basis are truly have advantage. v n Important concepts (CA on the basis of): v v v Asymmetries First-mover advantage Complementary resources Unfair competitive advantage Leverage Perfect markets Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -17

5. Competitive Advantage n (Continue …) Asymmetries Asymmetry exists whenever one participant in market has more resources than other Competitors v May be firm has more experienced, knowledgeable, and loyal employees than any competitors. . v May be firm has a patent on a product that others cannot. v n First-mover advantage, complementary resources Advantage for a firm that results from being the first into a marketplace v May be firm has a patent on a product that others cannot. v As amazon. com first in books retailing v v n Paktel(First Mover) -----but survivor--- Jazz(Follower) Complementary Resources v Resources and assets not directly involved in the production of a product but require for success. Such as Marketing, Management, Financial Assets and Reputation. Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -18

5. Competitive Advantage n (Continue …) Unfair competitive advantage v Occurs when one firm develops an advantage based on a factor that other firms cannot purchase. For example on the basis of brand Brand Name: Consist on Loyalty, Trust, Reliability and Quality. - Due this a Company charge premium prices (UNFAIR) - May be a Company buy a Brand Name and charge premium prices (UNFAIR) n Leverage When a company uses its competitive advantages to achieve more advantage in surrounding markets. For example: - tcsconnect. com (from courier services to online shopping site) - fresh. amazon. com (from online store to fresh food) - Telenor a mobile service to Easy Paisa (Money Transfer) - Fresh direct use its leverage (Direct Buying from formers ) and sell fresh food v online at lowest price. (freshdirect. com) Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -19

5. Competitive Advantage n (Continue …) Perfect markets v A market in which there are no Competitive advantage or Asymmetries because all firms have equal access to all factors of production. ? Real markets are imperfect. . . Y Coca Cola CA is long term but now challenged by fruit, health and unique flavor drinks. Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -20

6. Market Strategy n “How do you plan to promote your products or services to attract your target audience? ” v Details how a company intends to enter market and attract customers v Best business concepts will fail if not properly marketed to potential customers Examples: S S S Ufone give free Sims's at initial level Microsoft office offer free trail version News paper agency give free paper at startup One get one Free option Universities give free prospectus Scratch and win offer by diff companies. Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -21

7. Organizational Development n “What types of organizational structures within the firm are necessary to carry out the business plan? ” It is rare that one person alone can grow an idea into a multi-million dollar company. (Facebook, Ebay etc. ) v In short , Every new business need an organization to efficiently implement their business plans and strategies. v Many firms fails due to lack of organizational structure. v n Plan describes how firm will organize work v Typically, divided into functional departments such as Production, Shipping , Marketing, Customer Support, Finance v Jobs within these functional areas are defined, then recruitment begins for specific job titles and responsibilities Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -22

7. Organizational Development (Continue …) Mostly , in the beginning those persons are hired who perform multiple tasks. n For example: At start up a company have one marketing manager. n But after two are three year A marketing position broken down into seven separate jobs done by seven individual.

7. Organizational Development (Continue …) Example: Ebay(an auctions site ) Founder Pierre Omidyar To help his friend PEZ BUT within few months the volume of business exceeded. What he alone could handle? So he hiring people with more business experience to help out. Soon company had many employees, departments and business managers.

8. Management Team Employees of the company responsible for making the business model work. n “What kind of backgrounds should the company’s leaders have? ” n A strong management team: n Can make the business model work v Can give credibility to outside investors v Has market-specific knowledge v Has experience in implementing business plans v n A strong Management Team, may not be able to salvage a weak business model , but the team should be able to change the model and redefine the business Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -25

8. Management Team (Continue …) EXAMPELS S Google stanford grad students 1998, Sergey brin and Larry page v Identify good managers for a business startup: v v v First consider kind of experience His/her Technical Background His/her supervisory experience How many year in a particular area What job functions should be fulfilled first Production Finance Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Marketing Operations Slide 2 -26

DISCUSSION Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -27

How to Raising Capital (Assignment) Seed capital n Traditional sources n v v v n Crowdfunding (www. kickstarter. com) v n Incubators (http: //www. nbia. org/) Commercial banks Angel investors Venture capital firms Strategic partners (www. kickstarter. com) Donation v Donate $2 for open source project. Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -28

Insight on Business: Class Discussion Crowdfunding Takes Off n What types of projects and companies might be able to most successfully use crowdfunding? n Are there any negative aspects to crowdfunding? n What obstacles are presented in the use of crowdfunding as a method to fund start-ups? Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 -29