Ecommerce business technology society Sixth Edition Kenneth C

Chapter 2 E-commerce Business Models and Concepts Copyright © 2010 Pearson Education, Inc. Slide

Tweet: What’s Your Business Model? Class Discussion n What characteristics or benchmarks can be used to assess the business value of a company such as Twitter that does have revenue? n Have you used Twitter to communicate with friends or family? What are your thoughts on this service? n What are Twitter’s most important assets? n Which of the possible methods described for monetizing Twitter’s assets do you feel might be most successful? Copyright © 2010 Pearson Education, Inc. Slide 2 -3

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 Document that describes a firm’s business model n E-commerce business model v Aims to use and leverage the unique qualities of Internet and Web Copyright © 2010 Pearson Education, Inc. Slide 2 -4

8 Key Elements of a Business Model 1. 2. 3. 4. 5. 6. 7. 8. Value proposition Revenue model Market opportunity Competitive environment Competitive advantage Market strategy Organizational development Management team Copyright © 2010 Pearson Education, Inc. Slide 2 -5

1. Value Proposition n Why should the customer buy from you? n What the firm provides that other cannot? n Successful e-commerce value propositions: v Personalization/customization v Reduction of product search, price discovery costs v Facilitation of transactions by managing product delivery n Fresh. Direct (Convenience and Time Saving) n Amazon (Unparalleled Selection and Convenience) Copyright © 2010 Pearson Education, Inc. Slide 2 -6

2. Revenue Model n How will the firm earn revenue, generate profits, and produce a superior return on invested capital? n Major types: v Advertising revenue model (e. g. yahoo) v Subscription revenue model (e. g. yahoo) v Transaction fee revenue model (e. g. e. Bay) v Sales revenue model (e. g. Amazon) v Affiliate revenue model (e. g. My. Points) Copyright © 2010 Pearson Education, Inc. Slide 2 -7

3. Market Opportunity n What marketspace do you intend to serve and what is its size? v Marketspace: Area of actual or potential commercial value in which company intends to operate v Realistic market opportunity: Defined by revenue potential in each of market niches in which company hopes to compete n Market opportunity typically divided into smaller niches Copyright © 2010 Pearson Education, Inc. Slide 2 -8

4. Competitive Environment n Who else occupies your intended marketspace? v Other companies selling similar products in the same marketspace v Includes both direct and indirect competitors n Influenced by: v Number and size of active competitors v Each competitor’s market share v Competitors’ profitability v Competitors’ pricing Copyright © 2010 Pearson Education, Inc. Slide 2 -9

5. Competitive Advantage n What special advantages does your firm bring to the marketspace? v Achieved when firm produces superior product can bring product to market at lower price than competitors n or Important concepts: v Asymmetries v First-mover advantage v Unfair competitive advantage v Leverage Copyright © 2010 Pearson Education, Inc. Slide 2 -10

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 Copyright © 2010 Pearson Education, Inc. Slide 2 -11

7. Organizational Development n What types of organizational structures within the firm are necessary to carry out the business plan? n Describes how firm will organize work v Typically divided into functional departments v Hiring moves from generalists to specialists as company grows Copyright © 2010 Pearson Education, Inc. Slide 2 -12

8. Management Team n What kinds of experiences and background are important for the company’s leaders to have? v Employees are responsible for making the business model work v Strong management team gives instant credibility to outside investors v 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 Copyright © 2010 Pearson Education, Inc. Slide 2 -13

Insight on Business Online Grocers: Finding and Executing the Right Model Class Discussion n Why do you think Webvan failed? n Why are more traditional grocery chains succeeding online today? n Why would an online customer pay the same price as in the store plus a delivery charge? What’s the benefit to the customer? n What are the important success factors for Fresh. Direct? n Do you think Fresh. Direct would work in your town? Copyright © 2010 Pearson Education, Inc. Slide 2 -14

Categorizing E-commerce Business Models No one correct way n We categorize business models according to: n v E-commerce sector (B 2 C, B 2 B, C 2 C) v Type of e-commerce technology; i. e. , m-commerce Similar business models appear in more than one sector n Some companies use multiple business models; e. g. , e. Bay n Copyright © 2010 Pearson Education, Inc. Slide 2 -15

B 2 C Business Models n Portal n E-Tailer n Content Provider n Transaction

Portal n Search plus an integrated package of content and services n News n Email/IM n Calendars n Music/Video n Shopping v Google, Yahoo, MSN, AOL, Ask. com n Revenue models: v Advertising, subscription fees, transaction fees n Variations: v Horizontal/General e. g Yahoo, AOL v Vertical/Specialized (Vortal) e. g Sailnet Copyright © 2010 Pearson Education, Inc. Slide 2 -17

E-tailer n Online version of traditional retailer n Revenue model: v. Sales Revenue Model n Variations: v Virtual merchant (Amazon) v Bricks-and-clicks (Walmart) v Catalog merchant (Argos) n Low barriers to entry v The total cost of entering a new marketplace Copyright © 2010 Pearson Education, Inc. Slide 2 -18

Content Provider n Digital content on the Web v News, music, video n Revenue models: v Subscription; pay per download (micropayment); advertising; affiliate referral fees n Variations: v Content owners v Syndication v Web aggregators Copyright © 2010 Pearson Education, Inc. Slide 2 -19

Transaction Broker n Process online transactions for consumers v Primary value proposition (saving time and money) n Revenue model: v Transaction fees n Industries using this model: v Financial services v Travel services v Job placement services Copyright © 2010 Pearson Education, Inc. Slide 2 -20

Market Creator n Builds a digital environment where buyers and sellers can v. Meet v. Display product v. Search for products v. Establish a price for products n Examples: n Priceline n e. Bay n Revenue model: n Transaction fees Copyright © 2010 Pearson Education, Inc. Slide 2 -21

Service Provider n Provide Online services v Google Maps v Google Docs and Spreadsheets v Gmail v Google Drive n Value proposition v Valuable, convenient, time-saving, low-cost alternatives to traditional service providers n Revenue models: v Sales of services, subscription fees, advertising, sales of marketing data Copyright © 2010 Pearson Education, Inc. Slide 2 -22

Community Provider n Provides online environment (social network) where people with similar interests can transact, share content, and communicate v E. g. , Facebook, My. Space, Friendster n Revenue models: v Advertising fees, subscription fees, sales revenues, transaction fees, affiliate fees Copyright © 2010 Pearson Education, Inc. Slide 2 -23

B 2 B Business Models n Net marketplaces v. E-distributor v. E-procurement v. Exchange v. Industry consortium n Private industrial network v. Single firm v. Industry-wide Copyright © 2010 Pearson Education, Inc. Slide 2 -24

E-distributor n Company that supplies products and services directly to individual businesses n Owned by one company seeking to serve many customers n Revenue model: v. Sales of goods n Example: Grainger. com v. Motors, lighting, material handling, fasteners, plumbing, tools, and safety supplies. Copyright © 2010 Pearson Education, Inc. Slide 2 -25

E-procurement n Creates and sells access to digital electronic markets v Includes B 2 B service providers, also called application service providers (ASPs) n Revenue model: v Transaction fees v Usage fees v Annual licensing fees n Example: n Ariba. com n Perfectcommerce. com Copyright © 2010 Pearson Education, Inc. Slide 2 -26

Exchanges n Electronic digital marketplace where suppliers and purchasers conduct transactions v Usually owned by independent firms whose business is making a market v Usually serve a single vertical industry n Revenue model: Transaction, commission fees n Create powerful competition between suppliers n Number has dropped dramatically Copyright © 2010 Pearson Education, Inc. Slide 2 -27

Industry Consortia n Industry-owned vertical marketplaces that serve specific industries (e. g. , automobile, chemical) n More successful than exchanges v Sponsored by powerful industry players v Strengthen traditional purchasing behavior n Example: Exostar. com Copyright © 2010 Pearson Education, Inc. Slide 2 -28

Private Industrial Networks n Designed to coordinate flow of communication among firms engaged in business together v Electronic data interchange (EDI) n Single firm networks v Most common form v Example: Wal-Mart’s network for suppliers n Industry-wide networks v Often evolve out of industry associations v Example: Agentrics Copyright © 2010 Pearson Education, Inc. Slide 2 -29

Business Models in Emerging E-commerce Areas n Consumer-to-consumer (C 2 C) v Examples: e. Bay, Half. com n Peer-to-peer (P 2 P) v Examples: The Pirate Bay, Cloudmark n M-commerce: v E-commerce models using wireless technologies v Technology platform continues to evolve Copyright © 2010 Pearson Education, Inc. Slide 2 -30

Insight on Society Where R U? Class Discussion n Why should you care if companies track your location via cell phone? n What is the “opt-in” principle and how does it protect privacy? n Should business firms be allowed to call cell phones with advertising messages based on location? Copyright © 2010 Pearson Education, Inc. Slide 2 -31

E-commerce Enablers: The Gold Rush Model n E-commerce infrastructure companies: v Hardware, software, networking, security v E-commerce software systems, payment systems v Media solutions, performance enhancement v CRM software v Databases v Hosting services, etc. Copyright © 2010 Pearson Education, Inc. Slide 2 -32

How the Internet and the Web Change Business n E-commerce changes industry structure by changing: v Rivalry among existing competitors v Threat of new entrants v Threat of new substitute products v Bargaining power of suppliers v Bargaining power of buyers Copyright © 2010 Pearson Education, Inc. Slide 2 -33

Industry Value Chains n Set of activities performed by suppliers, manufacturers, transporters, distributors, and retailers that transform raw inputs into final products and services n Internet reduces cost of information and other transactional costs n Leads to greater operational efficiencies, lowering cost, prices, adding value for customers Copyright © 2010 Pearson Education, Inc. Slide 2 -34

E-commerce and Industry Value Figure 2. 5, Page 103 Chains Copyright © 2010 Pearson

Firm Value Chains n Activities that a firm engages in to create final products from raw inputs n Each step adds value n Effect of Internet: v Increases operational efficiency v Enables product differentiation Copyright © 2010 Pearson Education, Inc. Slide 2 -36

Firm Value Webs n A networked business ecosystem that uses internet technology to coordinate the value chains of business partners within an industry. v Firms use Internet to coordinate the value chains of business partners v Firms also use the internet to develop close relationships Copyright © 2010 Pearson Education, Inc. Slide 2 -37

Business Strategy n Plan for achieving superior long-term returns on the capital invested in a business firm n Four generic strategies 1. Differentiation 2. Cost 3. Scope 4. Focus Copyright © 2010 Pearson Education, Inc. Slide 2 -38