CSC330ELECTRONIC COMMERCE

Mr. Dilawar

Lecturer,Department of Computer Science,

Jahan UniversityKabul, Afghanistan.

E-Commerce Business ModelsChapter 2

Chapter Outline• Business plan and business model

• Ingredients of a business model

• Major B2C business model

• Major B2B business models

• Business models in emerging e-commerce areas

• Basic business concepts

• Case Study: Priceline.com-Can this Business Model Be Saved?

Lecture Outline• Business Plan and Business Model

• Ingredients of a Business Model

• Major B2C Business Model

E-Commerce Business Models• Business Model• A business model is a set of planned activities ( also called business processes)

designed to result in a profit in a marketplace. • The business model is at the center of the business plan.

• Business Plan• Describes a firm’s business model.

E-Commerce Business Models• A business model that aims to use and forces the unique qualities of Internet, Web and

mobile platform.

• Eight key ingredients of Business Model.• Value Proposition• Revenue Model• Market Opportunity• Competitive Environment• Competitive Advantage• Market Strategy• Organizational Development• Management Team

Key Ingredients of a Business Models

Value Proposition

• A value proposition defines how a company’s product or service fulfills the needs of customers.

• Successful e-commerce value propositions:• Personalization/customization• Reduction of product search, price discovery costs• Facilitation of transactions by managing product delivery

Why should the customer buy from you?What will your firm provide that other firms do not and cannot?

Value Proposition• An Example• Before Amazon.com ? The customers used to visit supermarket; Book

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

Revenue Model

• A firm’s revenue model describes how the firm will earn revenue, generate profits, and produce a superior return on invested capital.• Advertising revenue model• Subscription revenue model• Transaction fee revenue model• Sales revenue model• Affiliate revenue model

How will the firm earn revenue, generate profits, and produce a superior return on invested capital?

Revenue Model

Market Opportunity

• Market opportunity refers to the company’s intended marketspace and the overall potential financial opportunities available to the firm in that marketspace.

• The market opportunity is usually divided into smaller market niches.

What marketspace do you mean to work and what is its size?

Competitive Environment

• Other companies selling similar products in the same marketspace.

• Includes both direct and indirect competitors.• 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.

Who else occupies your planned marketspace?

Competitive Environment• Competitive environment Influenced by:• Number and size of active competitors• Each competitor’s market share• Competitors’ profitability• Competitors’ pricing• Customer buying power

Competitive Advantage

• Achieved when firm produces superior product or can bring product to market at lower price than competitors.

• Important concepts:• Asymmetries• First-Mover Advantage• Complementary resources• Unfair Competitive Advantage • Leverage

What special advantages does your firm bring to the marketspace?

Market Strategy

• Details how a company means to enter market and attract customers.

• Best business concepts will fail if not properly marketed to potential customers.• AOL, uses sampling of millions of free CD ROMs to attract new users. AOL

encloses CDs with free trial offer in magazines and newspapers across the country. This strategy has proven to be very successful for AOLs.

How do you plan to promote your products or services to attract your target audience?

Organizational Development

• Organizational Development Plan describes how the company will organize the work that needs to be accomplished.• Typically divided into functional departments• Hiring moves from generalists to specialists as company grows

What types of organizational structures within the firm are necessary to carry out the business plan?

Management Team

• 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 save a weak business model, but should be able to change the model and redefine the business as it becomes necessary.

What kinds of experiences and background are important for the company’s leaders to have?

Management Team• Important Questions to be answered• What kind of technical background is desirable? • What kind of managerial experience is necessary? • How many years of experience in a particular area should be required? • What job functions should be fulfilled first: marketing, production, finance,

or operations?

Categorizing E-Commerce Business Models• Business Models are categorized according to:• E-commerce sector (B2C, B2B, C2C)

• Similar business models appear in more than one sector.

• Some companies use multiple business models; e.g., eBay.

B2C Models: E-tailer• E-tailers, come in all sizes and shapes, from giant Amazon.com to tiny

local stores that have Web sites.• E-tailers Online version of traditional retailer.• Revenue model: For all variations – Sales of products and services.

• Variations:• Virtual Merchant – Online version of retail store such as Amazon, iTunes, and

Blufly.• Bricks-and-Mortars / Bricks-and-clicks – Online distribution channel for a

company that also has physical stores such as Walmart.com, and Sears.com

B2C Models: E-tailer• Manufacturer-direct – Offering their products directly to consumers such as

Dell.com, SonyStyle.com and Mattel.com

• Too much competitive, as barrier to entry into the e-tail market is low.

B2C Models: Community Provider• Sites where individuals with particular interests, hobbies, common

experiences, or social networks can come together, transact and meet online.

• For example Facebook, MySpace, twitter, LinkedIn, and Pinterest.

• Revenue models:• Advertising fees, subscription fees, affiliate referral fees (Epinions.com,

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

B2C Models: Content Provider• Content providers distribute information/digital contents over the

Web such as WSJ.com, CBSSports.com, CNN.com, ESPN.com and etc…• Digital news, music, photos, videos, and artwork.• Retrieving and paying for content is the second largest revenue source for B2C

e-commerce.

• Revenue Models:• Subscription and Pay per download (micropayment)• Advertising• Affiliate referral fees

B2C Models: Content Provider• Variations:• Content owners – Owners of copyrighted content such as publishers of books

and newspapers, broadcasters of radio and television content, music publishers, and movie studios.• Syndication – Some content providers, however, do not own content, but

syndicate (aggregate) and then distribute content produced by others.• Syndication (Web aggregators) – It is a major variation of the standard

content provider model.

B2C Business Models: Portal• Offers users powerful Web search tools as well as an integrated

package of content and services (news, e-mail, calendars, shopping, music download, video streaming, and more) all in one place.

• Variations• Horizontal/General – They define their marketspace to include all users of the

Internet for examples are Yahoo, AOL, MSN, and others like them.• Revenue models – Advertising, subscription fees, transaction fees.

B2C Business Models: Portal• Vertical/Specialized (Vortal) – Attempt to provide similar services as

horizontal portals, but are focused around a particular subject matter or market segment for example sailnet.com• Revenue models – Advertising, subscription fees, transaction fees.

• Search – Focuses primarily on offering search services such s Google, bing, and ask.• Revenue models – Advertising, affiliate referrel.

B2C Models: Transaction Broker• Processes online transactions for consumers normally handled in person,

by phone, or by mail such as Travelocity, Hotels.com and etc…• Primary value proposition – saving time and money.

• Revenue model: • Transaction fees.

• The Industries using this model:• Financial services• Travel services• Job placement services

B2C Models: Market Creator• Uses Internet technology to create markets that bring buyers and

sellers together such as eBay, Etsy, Amazon, and Priceline.com.

• Revenue model – Transaction fees.

B2C Models: Service Provider• Companies that make money by selling users a service, rather than a

product such as Google, VisaNow.com, RocketLawyer and etc… • 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.

B2C Models: Service Provider• Value proposition: • Valuable, convenient, time-saving, low-cost alternatives to traditional service

providers.

• Revenue models:• Sale of services, subscription fees, advertising, sale of customer database for

marketing purpose.

Summery• Business Plan and Business Model

• Ingredients of a Business Model

• Major B2C Business Model

Thank YouFor your Patience