E-business models

Making sense of the Internet business landscape

Unprohibited want Massive channel

disintermediation? Delineation between technology

producers and technology users? Conducts of Dot-com Performance of vogue virtual

integrations?

The “new” economics of information

Evan & Wurster Less about any specific new technology than

a new behavior for reaching critical mass; The universal pervasion of open standards; The precipitate changes of the structure of en

tire industry and the ways companies compete

M. Porter: Return to the fundamental principles underlyi

ng the novelty of phenomena

Operations of new business

Be shaped and reshaped by customers and the business community

Emerging through evolution and adaptation

A flexible Value web (network) dominated a single/dedicated value chain

What is a model? The properties of models

Enable study of the structure of a complex system, relationships among structural elements, assumptions, and a description of the system in action

Can be built before the real system to help predict how the system might respond if we change the structure, structure, relationships, and assumptions

A model in the world of business A description of a complex business that enables study

of its structure, the relationships among structural elements, and how it will respond in the real world

What is the so-called business model?

A business model depicts the content, structure, and governance of transactions designed so as to create value through the exploitation of business opportuniti

es.

Amit & Zott (SMJ, 2001, p.511)

The Content of Business Model

The good or information that are being exchanged

The resources and capabilities that are required to enable the exchange

E.g., transparency of transaction, vertical & horizontal expansion of product/service, the degree of customization, technologies of transaction

The Structure of Business Model

The parties that participate in the exchange

The ways in which these parties are linked The order process and the adopted

exchange mechanism E.g., the providers of complementary

assets, transaction speed, mode, simplicity, safety & reliability, integration of online & offline supply chains

The Governance of Business Model

The ways in which flows of information, resources, and goods are controlled by the relative parties

The incentives for the participants in transactions

E.g.,cooperative and shared incentive among allied partners, commitment and investment of co-specialized assets, loyalty maintenance

E-business Models

A description of roles and relationships among a firm’s consumers, customers, allies, and suppliers that identifies the major flows of product, information, and money, and the major benefits to participants, almost, over Internet .

(Weill & Vitale, Place to Space, 2001, p.34)

E-business models & examples

Distributors models Focused distributor models

Retailer, marketplace, aggregator/infomediary, exchange, E*trade, Amazon

Portal models Horizontal, vertical, affinity, AOL, Yahoo!, iVillage

Producer models Manufacturers, service providers, educators, ad

visors, information/news service, custom suppliers, Ford, GE, Boeing, Ernst & Yong, WSJ, McGraw-Hill

E-business models & examples (cont.)

Infrastructure provider models: to construct business that deliver the technology infrastructure

Focused distributor Infrastructure retailer/marketplace/exchange, CompUSA, Staples, Ing

ramMicro, EggheadPortal

Horizontal/vertical infrastructure portals, AOL, AT&T, OracleProducer

Equipment/component manufacturers, infrastructure software/services firms, IBM, Dell, Compaq, Oracle, Ariba, MS, Doubleclick

Custom software/hardware suppliers, Dell, Andersen Consulting

Does Adam Smith’s law still work?

Three technological prerequisites to facilitate market economy Excludability Rivalry Transparency

Could Internet technologies promote above three properties for the information-based economy? If not all, some business mechanisms will be needed

Indicators of survival business model

Customer value—segmentation, value proposition Scope—core or by-products Pricing—attractive willingness-to-pay prices Revenue sources—exploitation & leverage of

complements Connected activities—the complete value chain Construction—IT infrastructure, organization, and

key champion Capability—acquisition of necessary competence Sustainability—setup firewall to prevent imitation

Business models: a matter of perspective

The customer perspective Efficiency, responsiveness, security Anything valuable more than social contact

& face-to-face interactions? The business community perspective

Assets investment: current/tangible/intangible assets

Revenue flow: commerce/content/community/ infrastructure revenue sources

Cost allocation: M/I/T categories

Crafting an e-business web Attach to the gateway Leverage with the complements Search the common interface

Enhancement on functionality Expansion of diversity on existing

businesses Extension on new businesses Exit for far-leap

Extended readings

Evans, P. and T. Wurster (1997), “Strategy and the New Economics of Information,” Harvard Business Review, 75(5), Sept.-Oct., pp.70-83.

Porter, M. E. (2001), “Strategy and the Internet,” Harvard Business Review, 79(3), March, pp.62-78.

Referred papers Chatterjee, Debabroto, Rajdeep Grewal and V. Sam

bamurthy (2002), “Shaping Up for E-commerce: Institutional Enablers of the Organizational Assimilation of Web Technologies,” MIS Quarterly, Volume 26, Number 2, pp.65-89.

Fichman, R. G. and Kemerer C. F. (1999), “The Illusion Diffusion of Innovation: An Examination of Assimilation Gaps,” Information Systems Research, Sept. pp, 255-275.

Kline, R. B. (1998), Principles and Practices of Structural Equation Modeling, The Guilford Press, New Work.

Referred papers (cont.)

Grover, Varun, and Pradipkumar Ramanlal (1999), “Six Myths of Information and Markets: Information Technology Network, Electronic Commerce, and the Battle for Consumer Surplus,” MIS Quarterly, Volume 23, Number 4, pp.469-495.

Stigler, George (1961), "The Economics of Information", Journal of Political Economy.

Distorted Market Signals Attracting the base of customers by heavy

discounts rather than true costs Click-through is not the same as cash Booming by the curiosity rather than utility Revenue inflow from stocks rather prices Enjoying subsidized inputs Masking true costs but transferring them to

shareholders Understatement of the need of capital for asset

building

The Illusion of Prosperity Dot-Coms multiplied so rapidly

because of Every low barriers to entry Raising capital without having to

demonstrate performance and viability. Just going through a period of

transition Return to the fundamentals eventually

A Return to Fundamentals Industry structure

Five/six forces analysis Competitors/complementarities Customers Suppliers Substitutes Entrants

Sustainable competitive advantage Operational effectiveness Strategic positioning