COMSATS Institute of Information Technology

(CIIT) Vehari Campus

Business Models

Khalid Abubakr

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 Quiz # 2
Question 1:
Name the key component that you should care
about to develop a business model?

Question 2:
What is market strategy? Why we need it?

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 E-commerce Business Models —
Definitions
• Business model: set of planned activities
designed to result in a profit in a
marketplace
• Business plan: document that describes a
firm’s business model
• E-commerce business model: aims to use
and leverage the unique qualities of Internet
and Web

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Key Ingredients of a Business Model

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 Value Proposition

• Defines how a company’s product or service fulfills

the needs of customers
• Questions to ask:
 Why will customers choose to do business with your firm
instead of another?
 What will your firm provide that others do not or cannot?
• Examples of successful value propositions:
 Personalization/customization
 Reduction of product search costs
 Reduction of price discover costs
 Facilitation of transactions by managing product delivery
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 Revenue Model
• Describes how the firm will earn revenue,
generate profits, and produce a superior return on
invested capital
• Major types:
 Advertising revenue model
 Subscription revenue model
 Transaction fee revenue model
 Sales revenue model
 Affiliate revenue model

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 Market Opportunity
• Refers to a company’s intended marketspace and
the overall potential financial opportunities
available to the firm in that marketspace
• Marketspace: the area of actual or potential
commercial value in which a company intends to
operate
• Realistic market opportunity is defined by
revenue potential in each of market niches in
which company hopes to compete

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 Competitive Environment
• Refers to the other companies selling similar
products and operating in the same marketspace
• Influenced by:
 how many competitors are active
 how large their operations are
 what is the market share for each competitor
 how profitable these firms are
 how they price their products
• Includes both direct competitors and indirector
competitors

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 Competitive Advantage
• Achieved when a firm can produce a superior
product and/or bring product to market at a lower
price than most, or all, of competitors
• Firms achieve competitive advantage when they are
able to obtain differential access to the factors of
production that are denied to competitors
• Types of competitive advantage include:
 First mover advantage—results from a firm being first into
a marketplace
 Unfair competitive advantage—occurs when one firm
develops an advantage based on a factor that other firms
cannot purchase
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 Market Strategy
• A plan that details how a company intends
to enter a new market and attract
customers
• Best business concepts will fail if not
properly marketed to potential customers

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 Organizational Development
• Describes how the company will organize
the work that needs to be accomplished
• Work is typically divided into functional
departments
• Move from generalists to specialists as the
company grows

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 Management Team
• Employees of the company responsible for
making the business model work
• Strong management team gives instant
credibility to outside investors
• A 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

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 Types of E-Commerce
Typically based on the nature of market
relationship.
• Business to Consumer (B2C)
• Business to Business (B2B)
• Consumer to Consumer (C2C)
• Business to Government (B2G)
• Peer to Peer (P2P)
• M-Commerce

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 Types of E-Commerce
• B2C: Online businesses seeks to reach individual consumers of the
concern product or service
• B2B: Businesses focus on selling their products/services to other
businesses
• C2C: Consumers are provided the opportunity to sell their
product/service to other consumers through an online
website
• B2G: Involve transaction that businesses perform with state
government typically through websites provided by state
government
• P2P: Enable users to share/exchange file and computer resources
without the help of central web servers.
• M-Commerce: Use of mobiles or other wireless digital devices to
enable transaction on the web 14
Categorizing E-commerce Business Models:
Some Difficulties
• No one correct way
• We will discus categorization of business models
according to e-commerce sector (B2C, B2B, C2C)
• Type of e-commerce technology used can also
affect classification of a business model e.g. M-
Commerce
• Similar business models appear in more than one
sector
• Some companies use multiple business models

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 B2C Business Models
• Portal
• E-tailer
• Content Provider
• Transaction Broker
• Market Creator
• Service Provider
• Community Provider

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 Portal
• Offers powerful search tools plus an integrated
package of content and services collectively
• Present themselves as unbiased
• Typically utilizes advertising, subscription and
referral fee revenues model.
• May be
– General (horizontal portals) or
– specialized (vortals: vertical portal)

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 E-tailer
• Online version of traditional retailer often called e-tailer
• Types include:
– Virtual merchants, Bricks-and-clicks, Catalog
merchants, Manufacturer-direct
• Every internet user is potential customer specially who feel
time-starved.
• Utilize sales and transaction fee for revenue generation.
• Extremely competitive
– Lower the barriers to entry but difficult to be profitable
and survive
• Keeping expense low, selection broad and inventory
controlled are keys to success in e-taiering

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 Content Provider
• Distribute Information Content (digital news, photos,
music, videos and artwork etc) over the web.
• Information Content that can includes all form of
intellectual property, is one of the largest usage of
internet.
• Its is the second largest revenue source of e-commerce
• Typically Subscription/transaction fee, advertisement
and affiliation models are used for making money
• Syndication a variation of standard content provider
model
• Key to be a successful Content Provider is:
– Owing the content
– Has a unique information source
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 Transaction Broker
• Processes online transactions for consumers
• Primary value proposition—saving of time and money
• Typical revenue model—transaction fee
• Industries using this model include:
 Financial services, Travel services, Job placement
services
 Fear of privacy invasion and lose of control over
financial information are main cause of resistance

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 Market Creator
• Uses Internet technology to build a digital
environment for buyers and sellers to meet,
display/search products and pricing.
• It separate the physical space from the concept of
markets.
• Speed is the key to success in this model i.e. how
quickly you become operatonal.
• Examples:
 [Link]
 [Link]
• Typically uses a transaction fee revenue model

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 Service Provider
• Offers services online
• Value proposition: valuable, convenient, time-
saving, low-cost alternatives to traditional service
providers
• As retailer trade products for cash, service
providers trade knowledge, expertise and efforts to
make money
• Revenue models: subscription fees or one-time
payment, advertisement, referral model.

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 Community Provider
• Sites that create a digital online environment
where people with similar interests can transact,
communicate, and receive interest-related
information.
• Typically rely on a hybrid revenue model
• Main value proposition is
– To create a fast, convenient one-stop site where user
can focus on his/er most important concern and interest.
• Examples:
 [Link]
 [Link]
 [Link]

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 B2B Business Models

• Marketplace/Exchange
• E-Distributor
• B2B Service Providers
• Matchmaker
• Infomediary

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 Marketplace/Exchange
• Is a digital electronic marketplace where suppliers and commercial
purchasers can conduct transactions
(Kaplan & Sawhney,2000).
• Vertical Marketplaces
– Serve specific industries
• Horizontal Marketplaces
– Sell specific products/services to a wide range of companies.
• Transaction fee model is commonly used
• Key to success is
– Size of Industry and number of registered users

Buyer Concerns Seller Concerns

•Gather information •Expended access to buyer
•Checkout Suppliers •Low sales cost
•Collect price •High chances of sale
•Up-to-date on latest • Higher average revenue per
happening buyer 25
 E-distributor

• Company that supplies products and

services directly to individual businesses
• Owned by one company seeking to serve
many customers
• Critical mass is a factor to success
• More the number of product offered, greater
the number of potential customers attracted
• Example: [Link]

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 B2B service provider
• B2B service provider offers purchasing firms
sophisticated business services
• Application service providers:
– a subset of B2B service providers
– Sell access to Internet-based software application to other
businesses
• Make money through transaction fee, licensing fee
and No. of workstation using service.
• Provide Scale Economies facility
• Example: [Link]

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 Matchmaker

• Companies that make money by

– Linking other business and
– Taking a cut of any business that occur via
transaction or usage fee
• Example: [Link]

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 Infomediary

• Company whose business model is

premised upon gathering information about
consumers and selling it to other business
• They act as custodian, agents and brokers of
customer information
• Marketing it to businesses on consumer's
behalf
• And protecting the privacy of consumer at
the same time

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 Vender-Oriented Infomediary

• sells the information it gather to the vendors

who use it to target products, services and
promotion to specific customers.
• Two basic categories:
– Audience Broker
• Capture information about the customer
• Use it to help advertisers reach most appropriate
audience for their advertisement
– Lead Generator
• Gather customer data and create customer profiles
and preferences
• Then lead appropriate vendors to the customers 30
Business Models in Emerging E-commerce
Areas
• Consumer to Consumer (C2C): Provides a way for
consumers to sell to each other, with the help of an
online marketmaker such as [Link]
• Peer-to-Peer (P2P): Links users, enabling them to
share files and common resources without a
common server
• M-commerce: Takes traditional e-commerce
business models and leverages emerging new
wireless technologies

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 How the Internet and the Web Change
Business: Strategy, Structure, and Process
• Important to understand how Internet and
Web have changed business environment,
including
– industry structures,
– business strategies, and
– industry and firm operations

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 Industry Structure

• E-commerce changes the nature of players in an

industry and their relative bargaining power by
changing:
 the basis of competition among rivals
 the barriers to entry
 the threat of new substitute products
 the strength of suppliers
 the bargaining power of buyers
 Describing the industry structure is describing the
business environment of industry and overall profitability
of doing business in this environment 33
How the Internet Influences Industry Structure

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SOURCE: Porter, 2001.
 Industry Value Chains

• A set of activities performed in an industry( by

suppliers, manufacturers, transporters, distributors, and
retailers) that transform raw inputs into final products
and services
• Each of these activities adds some economic value to
the product/service.
• Reduces the cost of information and other transactional
costs, Internet offer the key players to maximize their
position.

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E-commerce and Industry Value Chains

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 Firm Value Chains

• A set of activities that a firm engages in to

create final products from raw inputs
• Increases operational efficiency

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 Business Strategy

• A set of plans for achieving superior long-term

returns on the capital invested in a business
firm (i.e., a plan for making a profit in a
competitive environment)
• Profit ?
• Four generic strategies
 Differentiation- way producer make their products unique
 Cost
 Scope
 Focus

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 Assignment # 1
Marks: 15
Till now we have studied different business models and categorized them based
on the types of e-commerce. Now you are required to explore The Gold Rush
Model. You assignment must include:
1. What is the focus and purpose of Gold Rush Model 04
2. Who uses it? 03
3. Brief History 03
4. E-Commerce enablers 03
5. On time submission 01
6. Format 01

Last date of submission --------- 30th April 2011

Soft copy must be emailed at khalidhabibullah@[Link] to check the format.
• Format Guidelines:
– Must be computer printed pages(not more then four single sided)
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– Font must be 12, Times, Left Aligned, First line indented by half inch