Chapter 1
E-commerce Business
Models and Concepts
What Is E-commerce?
Use of Internet and Web to transact business
More formally:
Digitally enabled commercial transactions
between and among organizations and
individuals
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E-commerce vs. E-business
E-business:
Digital enabling of transactions and
processes within a firm, involving
information systems under firm’s control
Does not include commercial transactions
involving an exchange of value across
organizational boundaries
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Why Study E-commerce?
E-commerce technology is different, more
powerful than previous technologies
E-commerce brings fundamental changes to
commerce
Traditional commerce:
Consumer as passive targets
Mass-marketing driven
Sales-force driven
Fixed prices
Information asymmetry
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Eight Unique Features of
E-commerce Technology
1. Ubiquity
2. Global reach
3. Universal standards
4. Information richness
5. Interactivity
6. Information density
7. Personalization/customization
8. Social technology
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Understanding E-commerce:
Organizing Themes
Technology:
Development and mastery of digital computing and
communications technology
Business:
New technologies present businesses with new ways
of organizing production and transacting business
Society:
Intellectual property, individual privacy, public welfare
policy
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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
Eight Key Elements of a 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
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1. Value Proposition
“Why should the customer buy from you?”
Successful e-commerce value propositions:
Personalization/customization
Reduction of product search, price
discovery costs
Facilitation of transactions by managing
product delivery
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2. Revenue Model
“How will you earn money?”
Major types of revenue models:
Advertising revenue model
Subscription revenue model
Transaction fee revenue model
Sales revenue model
Affiliate revenue model
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3. Market Opportunity
“What marketspace do you intend to serve
and what is its size?”
Marketspace: Area of actual or potential
commercial value in which company intends to
operate
Realistic market opportunity: Defined by revenue
potential in each market niche in which company
hopes to compete
Market opportunity typically divided into
smaller niches
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4. Competitive Environment
“Who else occupies your intended marketspac
e?”
Other companies selling similar products in the same
marketspace
Includes both direct and indirect competitors
Influenced by:
Number and size of active competitors
Each competitor’s market share
Competitors’ profitability
Competitors’ pricing
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5. Competitive Advantage
“What special advantages does your firm
bring to the marketspace?”
Is your product superior to or cheaper to produce than
your competitors’?
Important concepts:
Asymmetries
First-mover advantage, complementary resources
Unfair competitive advantage
Leverage
Perfect markets
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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
(i.e., suppliers, shippers, labor) 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
6. Market Strategy
“How do you plan to promote your products
or services to attract your target audience?”
Details how a company intends to enter
market and attract customers
Best business concepts will fail if not
properly marketed to potential customers
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Business Strategy
Plan for achieving superior long-term returns
on capital invested: that is, profit
Five generic strategies
Product/service differentiation
Cost competition
Scope
Focus
Customer intimacy
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7. Organizational Development
“What types of organizational structures
within the firm are necessary to carry out the
business plan?”
Describes how firm will organize work
Typically,divided into functional
departments
As company grows, hiring moves from
generalists to specialists
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8. Management Team
“What kind of backgrounds should the
company’s leaders have?”
A strong management team:
Can make the business model work
Can give credibility to outside investors
Has market-specific knowledge
Has experience in implementing business
plans
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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
Categorizing E-commerce Business Models:
Some Difficulties
No one correct way
We categorize business models according to
e-commerce sector (B2C, B2B, C2C)
Some companies use multiple business
models
B2C Business Models: Portal
Offers powerful search tools plus an
integrated package of content and services
Typically utilizes a combines
subscription/advertising revenues/transaction
fee model
May be general or specialized (vortal)
B2C Business Models: E-tailer
Online version of traditional retailer
Types include:
Virtual merchants
Bricks-and-clicks
Catalog merchants
Manufacturer-direct
B2C Business Models: Content Provider
Information and entertainment companies
that provide digital content over the Web
Typically utilizes a subscription, pay for
download, or advertising revenue model
Syndication a variation of standard content
provider model
B2C Business Models: 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
B2C Business Models: Market Creator
Uses Internet technology to create markets
that bring buyers and sellers together
Examples:
[Link]
[Link]
Typically uses a transaction fee revenue
model
B2C Business Models: Service Provider
Offers services online
Value proposition: valuable, convenient, time-
saving, low-cost alternatives to traditional
service providers
Revenue models: subscription fees or one-
time payment
B2C Business Models: 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 (advertising,
subscription, affiliate referral fees)
Examples:
[Link]
[Link]
[Link]
B2B Business Models: E-distributor
Company that supplies products and services
directly to individual businesses
Owned by one company seeking to serve
many customers
Example: [Link]
B2B Business Models: E-procurement
Companies
Create and sell access to digital electronic
markets
B2B service provider is one type: offer
purchasing firms sophisticated set of sourcing
and supply chain management tools
Application service providers: a subset of
B2B service providers
Example:
Ariba
B2B Business Models: Exchanges
An electronic digital marketplace where
suppliers and commercial purchasers can
conduct transactions
Usually owned by independent firms whose
business is making a market
Generate revenue by charging transaction
fees
Usually serve a single vertical industry
Number of exchanges has fallen to around
200 in 2005
B2B Business Models: Industry Consortia
Industry-owned vertical marketplaces that
serve specific industries
Horizontal marketplaces, in contrast, sell
specific products and services to a wide
range of industries
Example: Exostar
B2B Business Models: Private Industrial
Networks
Digital networks (usually, but not always
Internet-based) designed to coordinate the
flow of communications among firms engaged
in business together
Single firm network: the most common form
(Example: Walmart)
Industry-wide networks: often evolve out of
industry associations (Example: Agentrics)
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
To date, a disappointment in the United States;
however, technology platform continues to evolve
E-commerce Enablers: The Gold Rush
Model
Internet infrastructure companies: Companies
whose business model is focused on
providing infrastructure necessary for e-
commerce companies to exist, grow, and
prosper
Provide hardware, software, networking,
security, e-commerce software systems,
payment systems, databases, hosting
services, etc.
How E-commerce Changes
Business
E-commerce changes industry structure by
changing:
Rivalry among existing competitors
Barriers to entry
Threat of new substitute products
Strength of suppliers
Bargaining power of buyers
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Case Study: The Pirate Bay:
Searching for a Safe Haven
page: 46