BUSA 266

E-commerce

Spring 2026
E-commerce 2023: business. technology.
society
 E-commerce Business
Models and Concepts
CHAPTER 2
E-commerce Business Models and Concepts
Chapter Objectives
1. Identify the key components of e-commerce business models.
2. Describe the major B2C business models.
3. Describe the major B2B business models.
4. Understand key business concepts and strategies applicable to e-commerce.
E-commerce Business Models and Concepts
➢ E-COMMERCE BUSINESS MODELS

INTRODUCTION
• A business model explains how a company operates and makes a profit.
• It defines planned activities and processes in a competitive market.
• A business model is the heart/ core of a business plan.
• E-commerce business models use the Internet, Web, and mobile platforms to create value.
E-commerce Business Models and Concepts
➢ EIGHT KEY ELEMENTS OF A BUSINESS MODEL
1. Value Proposition: What value or benefit the business offers customers.
2. Revenue Model: How the business earns money.
3. Market Opportunity: The target market size and customer potential.
4. Competitive Environment: The level of competition in the market.
5. Competitive Advantage: What makes the business better than competitors.
6. Market Strategy: How the business reaches and attracts customers.
7. Organizational Development: How the business is structured and operated.
8. Management Team: The experience and skills of the leaders running the business.
E-commerce Business Models and Concepts
1. A value proposition
✓ Explains why customers choose a company over competitors.
✓ It shows how a product or service meets customer needs better or differently.
✓ In e-commerce, value comes from convenience, personalization, lower search costs, and
easy transactions.
E-commerce Business Models and Concepts
2. Revenue Model (5 models):
✓ A revenue model defines how a business earns money and profits.
✓ Success requires high returns.
1. Advertising model: Earns revenue by selling ad space to advertisers. YouTube
2. Subscription model: Charges users recurring fees for content or services. Netflix
3. Freemium model: Basic service is free; premium features are paid. Spotify
4. Transaction fee model: Charges fees for enabling transactions. eBay “when sold”
5. Sales and affiliate models: Earns revenue from product sales “Amazon” or referral
commissions “TripAdvisor”
E-commerce Business Models and Concepts
3. Market Opportunity:
✓ Market opportunity means how big the target market is.
✓ The market is split into smaller segments and niches.
✓ A company cannot compete in every segment.
✓ The real opportunity is the market size the company can actually reach.
4. Competitive Environment:
✓ It includes other businesses, substitutes, new entrants, and customer/supplier
power.
✓ Businesses face direct competitors (similar products) and indirect competitors
(substitute products).
E-commerce Business Models and Concepts
✓ The number and size of competitors affect market profitability.
✓ Understanding competition helps a business identify opportunities and risks.
5. Competitive Advantage:
✓ Occurs when a business offers better products or lower prices than competitors.
✓ Advantages can come from scope, resources, patents, or unique capabilities.
✓ First-mover advantage helps early entrants gain loyal customers.
✓ Unfair advantages include brands, reputation, or other factors competitors cannot
copy.
✓ Competitive advantages are often temporary, but they can be leveraged into new
markets for growth.
E-commerce Business Models and Concepts
6. Market Strategy:
✓ Market strategy is the plan a business uses to reach and attract customers.
✓ Even the best products can fail without effective marketing and execution.
7. Organizational Development:
✓ Fast-growth businesses need employees and structured processes to implement plans.
✓ Organizational development plans define departments, roles, and responsibilities.
✓ Early teams often include generalists, later replaced by specialized staff as the
business grows.
✓ Strong organizational structure and culture are critical for e-commerce success.
E-commerce Business Models and Concepts
8. Management Team:
✓ The management team is responsible for making the business model work.
✓ Strong managers provide credibility, market knowledge, and experience.
✓ Skilled managers can adapt or redefine the business model when needed.
✓ Manager experience, technical skills, and industry contacts can be a competitive
advantage.
E-commerce Business Models and Concepts
➢ RAISING CAPITAL
✓ Startups often begin with seed capital from personal savings, family, or friends
(“bootstrapping”).
✓ Other funding/ Traditional sources comes from banks, incubators, angel investors, or venture
capital.
✓ An elevator pitch/ presentation quickly explains the business to attract investors.
✓ Angel investors give small investments for equity/ share and help growth.
✓ Venture capital/ (risky) gives larger funds, wants control, and plans an exit (IPO or sale).
✓ Crowdfunding lets many people invest or donate online to support a startup.
E-commerce Business Models and Concepts
➢ CATEGORIZING E-COMMERCE BUSINESS MODELS
✓ Many models exist: E-commerce has lots of different ways companies can do business online.
✓ Grouped by audience: Models are mainly for selling to consumers (B2C) or to other businesses
(B2B).
✓ Same idea, different focus: Some models are similar but target different buyers.
✓ Platforms aren’t models: Using mobile apps, smart devices, or social media is just a way to
sell—they are platforms, not models.
✓ One company, many models: Big companies like AliExpress use several business models at
once to make more money.
✓ Helpers exist: Some companies don’t sell products themselves but provide tools, software, or
systems that other e-commerce businesses need to run.
E-commerce Business Models and Concepts
➢ MAJOR BUSINESS-TO-CONSUMER (B2C): 7 MODELS
➢ 1. ONLINE RETAILER (E-TAILER)
✓ An e-tailer sells products directly to customers through a website or mobile app.
✓ E-tailers may operate only online or combine online sales with physical stores (omnichannel).
✓ The online retail market is very large, but competition is intense due to low entry barriers.
✓ Successful e-tailers focus on a clear target market, control costs, and manage inventory
carefully.

2. COMMUNITY PROVIDER
✓ A community provider is a website or app where people talk, share, and interact with each
other online (Facebook, Instagram, TikTok, LinkedIn)
E-commerce Business Models and Concepts
✓ Users post photos, videos, messages, comments, and sometimes buy or sell things.
✓ Why people use it: To stay connected with friends, family, or people with the same interests.
✓ How the company makes money: Mostly from ads, and sometimes from subscriptions or fees.

3. CONTENT PROVIDER
✓ A content provider creates or shares digital content like news, music, videos, or articles
(Netflix, Apple Music)
✓ Users read, watch, or listen to content online, sometimes for free and sometimes paid.
✓ How money is made: Through subscriptions, ads, or content sales (downloads or access fees).
✓ Who succeeds most: Companies that own original content or have unique information do best.
E-commerce Business Models and Concepts
4. PORTAL
✓ A portal is a one-stop website that offers search, news, email, entertainment, and services.
✓ Main goal: To keep users on the site longer as a main online destination.
✓ How it makes money: Mostly through advertising, referral fees, and premium services.
✓ Types & examples: Horizontal portals serve everyone (Yahoo); vertical portals focus on one
topic (Toyota).

5. TRANSACTION BROKER
✓ A transaction broker processes online transactions that were once done in person or by phone
E-commerce Business Models and Concepts
✓ Main value: Saves customers time and money, and often provides helpful related information.
✓ How it makes money: Earns a fee or commission for each transaction (e.g., stock trades or travel
bookings).
✓ Key challenge: Must build trust by ensuring security, privacy, and reliable services.

6. MARKET CREATOR
✓ A market creator builds an online marketplace where buyers and sellers meet and trade. (Airbnb)
✓ Provides the platform only; buyers and sellers set prices and complete deals themselves.
✓ How it makes money: Charges transaction commissions, listing fees, or access fees.
✓ Success requirement: Must attract many buyers and sellers to make the market active and valuable.
E-commerce Business Models and Concepts
7. SERVICE PROVIDER
✓ A service provider delivers services online, not physical products.
✓ What they offer: Sells knowledge, expertise, or capabilities (e.g., storage, legal).
✓ How they earn money: Uses fees, subscriptions, freemium models, or advertising.
✓ Value to customers: Offers convenience, time savings, lower cost, or unique services.
✓ Key challenge: Must build trust and confidence so customers feel safe using online services.
E-commerce Business Models and Concepts
➢ MAJOR BUSINESS-TO-BUSINESS (B2B) MODELS
1. E-Distributor
✓ Provides an online catalog of products from multiple manufacturers for business buyers
(Alibaba)
✓ Advantage: Offers one-stop shopping, making it easier for customers to find products in one
place.
2. E-PROCUREMENT
✓ Purpose: E-procurement automates how businesses buy goods and services, making the process
faster and simpler.
✓ How it works: Software (like Ariba) creates online catalogs where suppliers list products, and
buyers can order directly.
E-commerce Business Models and Concepts
✓ Cost efficiency: The software is shared among many companies (SaaS), so creating extra
copies is almost free, saving money.

In your opinion: What is the difference between E-distribution and E-procurement?

✓ E-Procurement: Helps businesses buy efficiently.
✓ E-Distribution: Helps businesses sell products online.
✓ Focus: E-procurement = buyer’s process, E-distribution = seller’s catalog.
E-commerce Business Models and Concepts
3. Exchanges
✓ Digital marketplace: Connects many buyers and suppliers in real time.
✓ Revenue model: Earns fees or commissions from transactions.
✓ Benefits & example: Reduces costs, saves time, increases access to buyers and sellers.
✓ Example: ThomasNet, a B2B platform for industrial suppliers and manufacturers.
4. Industry Consortia/ unions or associations
✓ Definition: Industry-owned marketplaces serving a specific vertical industry.
✓ Focus: Provide products, services, and collaboration tools tailored to that industry.
✓ Example: SupplyOn – used by Continental, Airbus, BMW, and others for shared supply chain
collaboration.
E-commerce Business Models and Concepts
5. Private B2B Networks
✓ Definition: Digital networks owned by a single company to coordinate communication and
supply chains with trusted suppliers.
✓ Example: Walmart’s private B2B network for managing relationships with its suppliers.
E-commerce Business Models and Concepts
➢ HOW E-COMMERCE CHANGES BUSINESS: STRATEGY, STRUCTURE, AND
PROCESS
1. Industry Structure
✓ What it means: Industry structure describes who the players are and who has power.
✓ Five forces: Competition, substitutes, entry barriers, buyer power, and supplier power.
✓ E-commerce changes forces: Online technology can strengthen or weaken these forces.
✓ New competitors appear: E-commerce allows new firms and substitutes to enter easily.
✓ New intermediaries form: Online platforms can replace or challenge traditional middlemen.
✓ Some firms weaken: Content industries like (music, books, news) lost power and profits.
E-commerce Business Models and Concepts
✓ Some firms strengthen: In manufacturing, large firms use e-commerce to improve supply chains.
✓ More price competition: Easy price comparison pushes prices down and lowers profits.
✓ Industry-specific impact: Effects differ by industry, so each must be analyzed separately.

2. Industry Value Chain

✓ Meaning: The value chain is all the steps that turn raw materials into finished products for customers.
✓ Main players: Suppliers, manufacturers, transporters, distributors, retailers, and customers.
✓ Role of e-commerce: It reduces information and operating costs at every stage of the chain.
✓ Overall impact: Firms become more efficient, customers get lower prices and better service, and the
whole industry becomes more competitive.
✓ Example: Smartphone industry
E-commerce Business Models and Concepts
3. Firm Value Chains
1. A firm value chain is all the activities a company performs to turn inputs into final products.
2. E-commerce helps firm's lower costs by better coordination and outsourcing activities online.
3. Online systems improve efficiency in production, logistics, and management.
4. E-commerce allows firms to differentiate products by offering more choice, information,
and services.
E-commerce Business Models and Concepts

In your opinion: What is the Difference between Industry Value Chain and Firm Value Chain

1. Industry value chain shows how value is created across the entire industry (suppliers →
manufacturers → distributors → retailers → customers).
2. Firm value chain shows how value is created inside one specific company.
3. Industry value chain focuses on relationships between different firms.
4. Firm value chain focuses on a company’s internal activities and efficiency.
E-commerce Business Models and Concepts
4. Firm Value Web
1. A value web is a network of a firm and its partners (suppliers, logistics, service firms).
2. It uses e-commerce systems to coordinate activities across companies.
3. Partners work together to produce and deliver value more efficiently.
4. Example: Amazon coordinating suppliers, warehouses to serve customers.
E-commerce Business Models and Concepts
5. Business Strategy
✓ Business strategy is a long-term plan to earn profits in a competitive market.
✓ E-commerce strategy uses the Internet to strengthen the business and offer hard-to-copy
advantages.
E-commerce Business Models and Concepts
E-commerce Business Models and Concepts
➢ E-COMMERCE TECHNOLOGY AND BUSINESS MODEL DISRUPTION
✓ Disruptive technology occurs when businesses use ordinary technology in innovative ways to create
new business models and markets.
✓ Digital disruption happens when digital technology fundamentally changes industries and value
chains.
✓ Early disruptors offer products that are cheaper, simpler, or lower-quality to markets ignored by
incumbents.
✓ Rapid improvement: Disruptors quickly enhance products, attracting customers from incumbent
firms.
✓ Industry impact: New markets grow, incumbents lose market share, and some go out of business.
✓ Examples: Personal computers disrupted mainframes; Uber and Airbnb disrupted taxis and hotels.
E-commerce Business Models and Concepts
✓ Incumbent resistance: Existing firms often fail to respond due to management focus,
shareholder expectations, and customer habits.
✓ Survival strategies: Some incumbents adapt by adopting new technologies, targeting new
markets, or focusing on niche areas.
BEST OF LUCK