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• 2.1 Types of E-Commerce

• There are a variety of different types of e-commerce and
many different ways to characterize these types.
• Figure 2.1 Classification of e-commerce by transaction
partners
CHAPTER TWO

INTERNET MARKETING
ENVIRONMENT

• Business –to- consumer (B2C) electronic commerce: In a • As an example, a wholesaler places an order from a
Business-to-Consumer E-commerce environment, companies company's website and after receiving the consignment,
sell their online goods to consumers who are the end users of sells the end-product to the final customer who comes to
their products or services. The website will then send a buy the product at one of its retail outlets.
notification to the business organization via email and the • Business-to-Government (B-to-G): The exchange of
organization will dispatch the product/goods to the customer. information, services and products between business
[Link] is general merchandise that sells consumer organizations and government agencies on-line.
products to retail consumers. • This may include;

• Business –to- business (B2B) electronic commerce: In a  E-procurement services, in which businesses learn about the
purchasing needs of agencies and provide services.
Business-to-Business E-commerce environment, companies
sell their online goods to other companies without being
•
engaged in sales to consumers, is the largest form of e-
commerce.

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 A virtual workplace in which a business and a • Consumer-to-Business (C-to-B): This is the exchange of
government agency could coordinate the work on a products, information or services from individuals to business. A
classic example of this would be individuals selling their services to
contracted project by collaborating on-line to coordinate
businesses.
on-line meetings, review plans and manage progress.
• Consumer-to-Consumer (C-to-C): In this category consumers
 Rental of on-line applications and databases designed
interact directly with other consumers, Such as [Link] creates a
especially for use by government agencies. market space where consumers can auction or sell goods directly to
• Business-to-Peer Networks (B-to-P): This would be the other consumers. A common example is the online auction, in which
provision of hardware, software or other services to the peer a consumer posts an item for sale and other consumers bid to
purchase it; the third party generally charges a flat fee or
networks.
commission. The sites are only intermediaries, just there to match
• An example here would be Napster who provided the consumers. They do not have to check quality of the products being
software and facilities to enable peer networking. offered.

• Consumer-to-Peer Networks (C-to-P): This is exactly • Government-to-Consumer (G-to-C): (Also known as e-

part of what peer-to-peer networking is and so is a slightly government). Government sites offering information, forms
redundant distinction since consumers offer their and facilities to conduct transactions for individuals,
computing facilities once they are on the peer network. including paying bills and submitting official forms on-line
such as tax returns.
• Government-to-Business (G-to-B): (Also known as e-
government) the exchange of information, services and • Government-to-Government (G-to-G) (Also known as
products between government agencies and business e-government). Government- to government transactions
organizations. within countries linking local governments together and
also international governments, especially within the
• Government sites now enable the exchange between
European Union, which is in the early stages of developing
government and business.
coordinated strategies to link up different national systems.

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• Peer–to-Peer Network (P-to-P): Peer-to-peer technology • 2.2 Business Model for E-Commerce
enables Internet users to share files and computer resources • A business model is a set of planned activities (sometimes
directly without having to go through a central Web server. E.g. referred to as business processes) designed to result in a
• Gnutella is a software application that permits consumers to profit in a marketplace. The business model is at the center
share music with one another directly, without the intervention of of the business plan. A business plan is a document that
a market maker as in C2C e-commerce. describes a firm’s business model. An e-commerce business
model aims to use and leverage the unique qualities of the
Internet and the World Wide Web.
• Key Ingredients of a Business Model
• If you hope to develop a successful business model in any
arena, not just e-commerce, you must make sure that the
model effectively addresses the eight elements listed in
Table 2.1.

• Many writers focus on a firm’s value proposition and revenue

model. While these may be the most important and most easily
identifiable aspects of a company’s business model, the other
elements are equally important when evaluating business models.
• 1. Value proposition
• It answers the question “why should customer buy products and
services from a given firm?” In other words, how a company's
product or service fulfills the needs of customers is typically
addressed by value proposition. Typical e-commerce value
propositions include personalization, customization, convenience,
and reduction of product search and price delivery costs.

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• i) Advertising revenue model (ARM)

• 2. Revenue model • Web site that offers content, services and/or products also
• Refers to how the company plans to make money from its provides a forum for advertisements and receives fees from
operations. Revenue model describes how the firm will advertisers. Example: [Link]
earn revenue, generate profits, and produce a superior
• ii) Subscription fee revenue model (SFRM)
return on invested capital.
 Major types: • Web site that offers users content or services charges a
 Advertising revenue model subscription fee for access to some or all of its offerings.
 Subscription revenue model Example: Consumer Reports Online
 Transaction fee revenue model • iii) Transaction fee revenue model (TFRM)
 Sales revenue model • Company that receives a fee for enabling or executing a
 Affiliate revenue model [Link]:[Link] and [Link].

• iii) Sales revenue model (SRM)

• 4. Competitive Environment: refers to the other
• Company derives revenue by selling goods, information, or
services to customers. Examples: [Link]
companies selling similar products and operating in
• iv) Affiliate referral revenue model (ARRM)
the same market space. Competitive environment is
influenced by:
• Sites that steer business to an “affiliate” receive a referral
fee or percentage of the revenue from any resulting  How many competitors are active?
[Link]:[Link]  How large their operations are.
• 3. Market Opportunity: Refers to a company’s intended
 What is the market share for each competitor?
market space and the overall potential financial
opportunities available to the firm in that market space.  How profitable these firms are.
Market space: the area of actual or potential commercial  How they price their products.
value in which a company intends to operate is what a  Includes both direct competitors and indirect
market opportunity means.
competitors

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• 4. Competitive Environment: refers to the other • 6. Market Strategy: A plan that details how a company
companies selling similar products and operating in the intends to enter a new market and attract customers. Best
same market space. Competitive environment is influenced business concepts will fail if not properly marketed to
by: potential customers. It also connotes to all marketing mix
 How many competitors are active? strategies: product, price, place and promotion.
 How large their operations are. • 7. Organizational Development: The process of defining
 What is the market share for each competitor? all the functions within a business and the skills necessary
 How profitable these firms are. to perform each job, as well as the process of recruiting and
 How they price their products. hiring strong employees. Describes how the company will
 Includes both direct competitors and indirect organize the work that needs to be accomplished.
competitors

• Work is typically divided into functional departments • . A strong management team may not be able to salvage a
and respective employees are assigned accordingly. weak business model, but should be able to change the
model and redefine the business as it becomes necessary.
Move from generalists to specialists as the company
grows. • 2.2.1 Major Business-To-Business (B2B) Business
Models
• 8. Management Team
• We noted that business-to-business (B2B) e-commerce, in
• The group of individuals retained to guide the which businesses sell to other businesses, is more than 10
company's growth and expansion. Employees of the times the size of B2C e-commerce, even though most of
company responsible for making the business model the public attention has focused on B2C. Clearly, most of
work. Strong management team gives instant credibility the dollar revenues in e-commerce involve B2B e-
to outside investors commerce. The major business models utilized in the B2B
arena includes;

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• Firms such as Ariba, creates custom-integrated online

• a. E-Distributor: Companies that supply products and
services directly to individual businesses are e-distributors. catalogs (where supplier firms can list their offerings) for
Grainger, for example, is the largest distributor of purchasing firms. On the sell side, Ariba helps vendors sell
maintenance, repair, and operations (MRO) supplies. MRO to large purchasers by providing software to handle catalog
supplies are thought of as indirect inputs to the production creation, shipping, insurance, and finance. Both the buy and
process as opposed to direct inputs. The source of revenue sell side software is referred to generically as “value chain
for this model is Sales of goods. management” software.
• B2B service provider is one type – offer purchasing firms
• b. E-Procurement: Just as e-distributors provide products
to other companies, e-procurement firms create and sell sophisticated set of sourcing and supply chain management
access to digital electronic markets. tools. B2B service providers make money through
transaction fees, fees based on the number of workstations
using the service, or annual licensing fees.

• c. Marketplace/exchanges or B2B hubs: an exchange is a • The ease, speed, and volume of transactions are summarily
digital electronic marketplace where suppliers and referred to as market liquidity.
commercial purchasers can conduct transactions.
Exchanges are owned by independent, usually • d. Industry consortia are industry-owned vertical
entrepreneurial startup firms whose business is making a marketplaces that serve specific industries, such as the
market, and they generate revenue by charging a automobile, aerospace, chemical, floral, or logging
commission or fee based on the size of the transactions industries.
conducted among trading parties
• For buyers, B2B exchanges make it possible to gather • In contrast, horizontal marketplaces sell specific products
information, check out suppliers, collect prices, and keep and services to a wide range of companies. Vertical
up to date on the latest happenings all in one place. Sellers, marketplaces supply a smaller number of companies with
on the other hand, benefit from expanded access to buyers. products and services of specific interest to their industry,
The greater the number of sellers and buyers, the lower the while horizontal marketplaces supply companies in
sales cost and the higher the chances of making a sale. different industries with a particular type of product and

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• Private Industrial Networks: digital network designed to coordinate • service, such as marketing-related, financial, or computing
the flow of communications among firms engaged in business together. services. For example, Exo star is an online trading
For instance, exchange for the aerospace and defense industry.
• Wal-Mart operates one of the largest private industrial networks in the  Industry-wide networks - industry-owned private
world for its suppliers, who on a daily basis use Wal-Mart’s network to
monitor the sales of their goods, the status of shipments, and the actual
industrial networks to set standards, coordinate supply
inventory level of their goods. There are two types of private industrial and logistics for an industry. These networks are usually
networks: single-firm networks and industry-wide networks. owned by a consortium of the large firms in an industry
 Single-firm private industrial networks -company-owned private
and have the following goals: providing a neutral set of
industrial networks to coordinate supply chains with a limited set of
partners. These single-firm networks are owned by a single large standards for commercial communication over the
purchasing firm, such as Wal-Mart or Procter & Gamble. Internet.
Participation is by invitation only to trusted long-term suppliers of
direct inputs.

• 2.2.2 Major Business-To-Consumer (B2C) Business • Today, however, the portal business model is to be a destination site.
They are marketed as places where consumers will want to start their
Models Web searching and hopefully stay a long time to read news, find
entertainment, and meet other people (think of destination resorts).
• Business-to-consumer (B2C) e-commerce, in which online
• Yahoo, AOL, MSN, and others like them are considered to be
businesses seek to reach individual consumers, is the most horizontal portals because they define their market-space to include all
well-known and familiar type of e-commerce. The major users of the Internet.
• They generate revenues primarily from search engine advertising
business models utilized in the B2C arena include; sales and also from affiliate referral fees.
• Portals: offer users powerful Web search tools as well as •
• E-Tailer: Online retail stores, often called e-tailers. E-tailors are
an integrated package of content and services, such as
similar to the typical bricks and mortar storefront, except that
news, e-mail, instant messaging, calendars, shopping, customers only have to connect to the Internet to check their inventory
music downloads, video streaming, and more, all in one and place an order. Some e-tailers, which are referred to as “bricks-and-
place. Initially, portals sought to be viewed as “gateways” clicks,” are subsidiaries or divisions of existing physical stores and
to the Internet, such as Yahoo, MSN, and AOL carry the same products.

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• This sector is extremely competitive, however. Since barriers • Content providers distribute information content, such as
to entry (the total cost of entering a new marketplace) into the digital news, music, photos, videos, and artwork over the
Web e-tail market are low, tens of thousands of small e-tail
Web. Retrieving and paying for content is the second largest
shops have sprung up on the Web. Becoming profitable and
revenue source for B2C e-commerce. Content providers
surviving is very difficult, however, for etailers with no prior
make money by charging a subscription fee.
brand name or experience. The e-tailer’s challenge is
• Of course, not all online content providers charge for their
differentiating its business from existing stores and Web sites.
• Content Provider: refers to all forms of human expression
information; just look at [Link], [Link],
that can be put into a tangible medium such as text, CDs, or the [Link], and the online versions of many newspapers and
Web. Although there are many different ways the Internet can be magazines. Users can access news and information at these
useful, “information content,” which can be defined broadly to sites without paying a cent
include all forms of intellectual property, is one of the largest
types of Internet usage

• These popular sites make money in other ways, such as • Transaction brokers make money each time a transaction
through advertising and partner promotions on the site. occurs. Each stock trade, for example, nets the company a
Increasingly, however, “free content” is limited to headlines fee, based either on a flat rate or a sliding scale related to the
and text, whereas premium content—in-depth articles or size of the transaction. Attracting new customers and
video delivery—is sold for a fee. encouraging them to trade frequently are the keys to
• Transaction Broker: Sites that process transactions for generating more revenue for these companies. Job sites
consumers normally handled in person, by phone, or by generate listing fees from employers up front, rather than
mail are transaction brokers. The largest industries using
charging a fee when a position is filled.
this model are financial services, travel services, and job
placement services. The online transaction broker’s
primary value propositions are savings of money and time.
In addition, most transaction brokers provide timely
information and opinion

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• Market Creator: build a digital environment in which • Service Provider: While e-tailers sell products online,
buyers and sellers can meet, display products, search for service providers offer services online.
products, and establish prices. Prior to the Internet and the • Some charge a fee, while others generate revenue from
Web, market creators relied on physical places to establish other sources, such as through advertising and by collecting
a market. personal information that is useful in direct marketing
• A prime example is [Link], which allows
• Obviously, some services cannot be provided online;
consumers to set the price they are willing to pay for
plumbing and car repair, for example, cannot be completed
various travel accommodations and other products
via the Internet
(sometimes referred to as a reverse auction) and
[Link], the online auction site utilized by both
businesses and consumers. The revenue source for this is
Transaction fees.
•.

• . The most obvious and successful service providers on the • Community Provider: Community providers are sites that
Web are the search engines like Google, Yahoo, Overture, create a digital online environment where people with
Alta Vista, and Lycos. similar interests can transact (buy and sell goods),
• The basic value proposition of service providers is that
communicate with likeminded people, receive interest-
related information, and even play out fantasies by adopting
they offer consumers valuable, convenient, time-saving, and
online personalities. The basic value proposition of
low-cost alternatives to traditional service providers or—in
community a provider is to create a fast, convenient, one-
the case of search engines—they provide services that are stop site where users can focus on their most important
truly unique to the Web. concerns and interests.
• Community providers typically rely on a hybrid revenue
model that includes subscription fees, sales revenues,
transaction fees, affiliate fees, and advertising fees from
other firms that are attracted by a tightly focused audience.

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• Consumers who don’t like auctions but still want to

• 2.3. Business Models in Emerging E-commerce areas find used merchandise can visit [Link] (also owned
• When we think about a business, we typically think of a
by eBay), which enables consumers to sell unwanted
business firm that produces a product or good, and then sells it
books, movies, music, and games to other consumers at
to a customer. But the Web has forced us to recognize new forms
a fixed price. In return for facilitating the transaction,
of business, such as consumer-to-consumer e-commerce, peer-
[Link] takes a commission on the sale, ranging from
to-peer e-commerce, and m commerce.
• 2.3.1. Consumer –to- Consumer (C2C) Business Models
5%–15%, depending on the sale price, plus a fraction of
• Consumer-to-consumer (C2C) ventures provide a way for the shipping fee it charges.
consumers to sell to each other, with the help of an online
business. The first and best example of this type of business is
[Link], utilizing a market creator business model.

• 2.3.2. Peer-to-Peer (P2P) Business Models

• 2.3.3. M-Commerce Business Models
• Like the C2C models, P2P business models link users, enabling them
to share files and computer resources without a common server.
• M-commerce, short for mobile-commerce, takes
• The focus in P2P companies is on helping individuals make traditional e-commerce models and leverages emerging
information available for anyone’s use by connecting users on the new wireless technologies—to permit mobile access to
Web. Historically, peer-to peer software technology has been used to
the Web. Wireless Web technology is being used to
allow the sharing of copyrighted music files in violation of digital
copyright law. The challenge for P2P ventures is to develop viable,
enable the extension of existing Web business models
legal business models that will enable them to make money. to service the mobile work force and consumer of the
• future. The key technologies here are telephone-based
3G (third generation wireless), Wi-Fi (wireless local
area networks), and Bluetooth (short range radio
frequency Web devices).

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