Lecture E-Commerce - Chapter 11: E-commerce business model and concepts (part I)

In this chapter students will be able to: Identify the key components of e-commerce business models: value proposition, revenue model, market opportunity, competitive environment, competitive advantage, market strategy, organizational development, management team; describe the major B2C business models.

CSC 330 E-Commerce

Teacher

Ahmed Mumtaz Mustehsan

GM-IT CIIT Islamabad

COMSATS Institute of Information Technology

T1-Lecture-11

E-commerce Business Models

Business model

in a marketplace

plan

Business plan : Describes a firm’s business model

E-commerce business model

◦A business model that aim to Use and leverages

the unique qualities of Internet and World Wide

Web

◦Eight key ingredients of Business Model

Key Ingredients of a Business Models

8 Key Elements of a Business Model

1 Value Proposition

1. Why should the customer buy from you?

2. What will your firm provide that other firms do not and

cannot?

 A value proposition defines how a company’s product

or service fulfills the needs of customers

delivery

Example: Before Amezone.com ? The customers used to

visit supermarket; Book shops, keep waiting for the availability of the book; keep coming back!!!

2 Revenue Model

How will the firm earn revenue, generate profits, and

produce a superior return on invested capital?

Advertising revenue model

receives fees from advertisers

of its revenue from selling advertising such as banner

ads

Subscription revenue model

a subscription fee for access to some or all of its

offerings

monthly subscription to Yahoo Platinum, which gives

viewers access to CNN, NASCAR racing, ABC News,

and other video feeds

2 Revenue Model contd…

Transaction fee revenue model

transaction

receives a small transaction fee from a seller if the

seller is successful in selling the item

transaction fees each time it executes a stock

transaction on behalf of a customer

Sales revenue model

information, or services to customers

Gap.com, all have sales revenue models

2 Revenue Model contd…

Affiliate revenue model

referral fee or percentage of the revenue from any

resulting sales

connecting companies with potential customers by

make a purchase, members earn “points” they can

redeem for freebies, and MyPoints.com receives a

fee

receive much of their revenue from steering potential customers to Web sites where they make a purchase

1-2 Five Primary Revenue Model

1-3 Market Opportunity

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 of market niches in which company hopes to compete

1-4 Competitive Environment

Who else occupies your intended marketspace?

marketspace

Example: automobile manufacturers and airline

companies operate in different industries, but compete indirectly because they offer alternative means of

transportation

CNN.com and ESPN.com compete for airtime

consumed by the clients

Competitive environment Influenced by:

1-5 Competitive Advantage

What special advantages does your firm bring to the

marketspace?

bring product to market at lower price than competitors

Important concepts:

Asymmetries : exists whenever one participant in a

market has an edge than others due to more resources such as financial backing, knowledge, information, and/or power

Example: AOL.com offered music subscription of their

250,000 songs catalog through MusicNet

First-mover advantage: is a competitive market

advantage for a firm that results from being the first into a marketplace with a serviceable product or service For

1-5 Competitive Advantage

Unfair competitive advantage: occurs when one firm

develops an advantage based on a factor that other

cannot be purchased and is in that sense an “unfair”

advantage brands are built upon loyalty, trust, reliability, and quality

Leverage: when a company use its competitive

advantages to achieve more advantage in surrounding

online auction arena leveraged the company’s customer database, offering one more way to buy from Amazon

A A perfect markets, in which there are no competitive

advantages or asymmetries because all firms have

access to all the factors of production

in magazines and newspapers across the country This

strategy has proven to be very successful for AOLs

1-7 Organizational Development

are necessary to carry out the business plan?

Organizational development Plan that describes how the company will organize the work that needs to be accomplished

company grows

1-8 Management Team

What kinds of experiences and background are

important for the company’s leaders to have?

Employees are responsible for making the business model work

Strong management team gives instant credibility to outside investors

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

Important Questions to be answered

background is desirable? What kind of supervisory experience is necessary? How many years in a particular function should be

required? What job functions should be fulfilled first: marketing,

production, finance, or operations?

1-Categorizing E-commerce Business Models

sector

eBay

1-B2C Business Models: Portal

integrated package of content and services all in one place

Vertical/Specialized (Vortal): attempt to provide similar services as horizontal portals, but are focused around

a particular subject matter or market segment

Example sailnet.com

1-B2C Models: E-tailer

e-tailers, come in all sizes and shapes, from giant

Amazon.com to tiny local stores that have Web sites

Revenue model: Sales of products and services

1-B2C Models: E-tailer

catalogs, online malls.

consumers.

new marketplace) into the Web e-tail market are low

1-B2C Models: Content Provider

Content providers distribute information/ digital contents over the Web such as:

revenue source for B2C e-commerce

Content owners: owners of copyrighted content such

as publishers of books and newspapers, broadcasters

of radio and television content, music publishers, and movie studios

1-B2C Models: Content Provider

Variations: (continued)

Syndication: Some content providers, however, do not own content, but syndicate (aggregate) and then

distribute content produced by others

Syndication (Web aggregators) is a major variation of

the standard content provider model

1-B2C Models: Transaction Broker

1-B2C Models: Market Creator

Uses Internet technology to create markets that bring

buyers and sellers together

Examples:

Priceline.com: which allows consumers to set the

price they are willing to pay for various travel

accommodations and other products (sometimes

referred to as a reverse auction)

eBay: the online auction site utilized by both

businesses and consumers At eBay, the buyers and

sellers are their own agents Each sale on eBay nets

the company a fee,

Revenue model: Transaction fees

1-B2C Models: Service Provider

Offer Online services

Examples: Search engines, Google, Yahoo, Alta Vista:

Location based services: Google Maps, Google Earth

Computer services: such as information storage at

xDrive.com

Consulting services: such as at Mybconsulting.com,

where small businesses can obtain business advice

Value proposition

to traditional service providers

Revenue models:

of customer database for marketing purpose

1-B2C Models: Community Provider

Provides online environment (social network) where

people with similar interests can transact (buy and sell goods), share content, and communicate

Example: Facebook, MySpace, twitter, LinkedIn

Revenue models:

transaction fees, affiliate fees (Epinions.com,

Oxygen.com, and About.com make money with affiliate relationship with retailers.)