INFO 3435 eCommerce

Teaching Objectives

2. eCommerce Business •
•
Identify the key components of eCommerce business models.
Describe the major B2C business models.

Models and Concepts •

•
Describe the major B2B business models.
Describe business models in other emerging areas of
eCommerce.
• Explain the key business concepts and strategies applicable
to eCommerce.

Alexander Nikov
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Video: How to use Twitter for business How popular is

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 Tweet Tweet:
Outline
What’s Your Business Model?
1. eCommerce Business Models
• What characteristics or benchmarks can be used 2. Major Business-to-Consumer (B2C) Business Models
to assess the business value of a company such 3. Major Business-to-Business (B2B) Business Models
as Twitter? 4. Business Models in Emerging eCommerce Areas
• Have you used Twitter to communicate with 5. How eCommerce changes business: Strategy, Structure,
friends or family? What are your thoughts on this and Process
service?
• What are Twitter’s most important assets?
• Which of the various methods described for
monetizing Twitter’s assets do you feel might be
most successful?
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Components of eBusiness models eCommerce Business Models

• Business model
– Set of planned activities designed to result in a profit
in a marketplace

• Business plan
– Describes a firm’s business model

• eCommerce business model

– Uses/leverages unique qualities of Internet and Web

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The eight key elements of a business model
8 Key Elements of a Business Model

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1. Value Proposition 2. Revenue Model

• Why should the customer buy from you? • How will the firm earn revenue, generate profits, and
• Successful eCommerce value propositions: produce a superior return on invested capital?
– Personalization/customization • Major types:
– Reduction of product search, price discovery costs – Advertising revenue model
– Facilitation of transactions by managing product – Subscription revenue model
delivery
– Transaction fee revenue model
– Sales revenue model
– Affiliate revenue model

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 Advertising Revenue Model Subscription Revenue Model

• Web site that offers content, services and/or products • Web site that offers users content or services charges
also provides a forum for advertisements and a subscription fee for access to some or all of its
receives fees from advertisers offerings
• Example: Yahoo.com • Examples:
 Consumer Reports Online
 Yahoo! Platinum

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Ancestry.com Uses a Subscription Business Model

Transaction Fee Revenue Model

• Company that receives a fee for enabling or executing

a transaction
• Examples:
 eBay.com
 E-Trade.com

Anstry.com offers a variety of membership options for different subscription fees

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 Sales Revenue Model Amazon Uses a Sales Revenue Model

• Company derives revenue by selling goods,

information, or services to customers
• Examples:
 Amazon.com
 LLBean.com
 Gap.com

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Affiliate Revenue Model Five Primary Revenue Models

• Sites that steer business to an “affiliate” receive a referral

fee or percentage of the revenue from any resulting sales
• Example:
 MyPoints.com

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 Marketspace and Market Opportunity in the
3. Market Opportunity
Software Training Market
• 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 of market niches in which company
hopes to compete
• Market opportunity typically divided into smaller
niches

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4. Competitive Environment Competitive Environment (cont’d)

• Who else occupies your intended marketspace? • Direct competitors – companies that sell products or
– Other companies selling similar products in the same services that are very similar and into the same market
marketspace segment
– Includes both direct and indirect competitors  Example: Priceline.com and Travelocity.com
• Influenced by: • Indirect competitors – companies that may be in different
– Number and size of active competitors industries but that still compete indirectly because their
– Each competitor’s market share products can substitute for one another
– Competitors’ profitability  Example: CNN.com and ESPN.com
– Competitors’ pricing

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 5. Competitive Advantage Competitive Advantage (cont’d)

• What special advantages does your firm bring to  Asymmetries - when one participant in a market has
the marketspace? more resources than others
 First mover advantage – results from a firm being first
– Is your product superior to or cheaper to produce than into a marketplace
your competitors’?  Unfair competitive advantage – occurs when one firm
• Important concepts: develops an advantage based on a factor that other firms
– Asymmetries cannot purchase
• Companies leverage their competitive assets when they
– First-mover advantage use their competitive advantages to achieve more
– Unfair competitive advantage advantage in surrounding markets
– Leverage
– Perfect markets
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6. Market Strategy 7. Organizational Development

• How do you plan to promote your products or services to • What types of organizational structures within the firm
attract your target audience? are necessary to carry out the business plan?
– Details how a company intends to enter market and
attract customers • Describes how firm will organize work
– Best business concepts will fail if not properly – Typically divided into functional departments
marketed to potential customers
– As company grows, hiring moves from generalists to
specialists

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 8. Management Team Raising Capital

• What kinds of experiences and background should the • Seed capital

company’s leaders have? • Traditional sources
– Employees are responsible for making the business – Incubators
model work – Commercial banks
– Strong management team gives instant credibility to – Angel investors
outside investors – Venture capital firms
• A strong management team: – Strategic partners
– Can make the business model work • Crowdfunding
– Can give credibility to outside investors – JOBS Act
– Has market-specific knowledge
– Has experience in implementing business plans
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Outline
Categorizing eCommerce Business Models
1. eCommerce Business Models
• No one correct way 2. Major Business-to-Consumer (B2C) Business
• We categorize business models according to: Models
– eCommerce sector (B2C, B2B, C2C) 3. Major Business-to-Business (B2B) Business Models
– Type of eCommerce technology; i.e., m-commerce 4. Business Models in Emerging eCommerce Areas
• Similar business models appear in more than 5. How eCommerce changes business: Strategy, Structure,
and Process
one sector
• Some companies use multiple business models;
e.g., eBay

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 What is B2C eCommerce? B2C eBusiness Model

• B2C (Business-to-Consumer) is basically a concept of online marketing

and distributing of products and services over the Internet. It is a natural
progression for many retailers or marketer who sells directly to the
consumer. The general idea is, if you could reach more customers, service
them better, make more sales while spending less to do it, that would the
formula of success for implementing a B2C eCommerce infrastructure.
• For the consumer, it is relatively easy to appreciate the importance of
eCommerce. Why waste time fighting the very real crowds in
supermarkets, when, from the comfort of home, one can shop on-line at
any time in virtual Internet shopping malls, and have the goods delivered
home directly.

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B2C Business Models

Who should use B2C eCommerce?

• Manufacturers - to sell and to retail the business buyers

• Distributors - to take orders from the merchants they supply
• Publisher - to sell subscriptions and books
• Direct Sales Firms - as another channel to reach the buyers
• Entertainment Firms - to promote new products and sell copies
• Information Provider - to take payment for downloaded materials
• Specialty Retailers - Niche marketers of products ranging from candles, coffees,
specialty foods, books use it to broaden their customer reach.
• Insurance Firms - On-line rate quotes and premium payments have made it
easier for this industry to attract and retain customers. In fact, virtually any
business that can deliver its products or provide its services outside its doors is a
potential user.

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 B2C Models: Community Provider
B2C Models: E-tailer
• Online version of traditional retailer
• Provide online environment (social network) where
• Revenue model: Sales
people with similar interests can transact, share content,
• Variations: and communicate
– Virtual merchant
– Examples: Facebook, LinkedIn, Twitter, Pinterest
– Bricks-and-clicks
– Catalog merchant
• Revenue models:
– Manufacturer-direct
– Typically hybrid, combining advertising, subscriptions,
• Low barriers to entry sales, transaction fees, affiliate fees

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B2C Models: Content Provider

B2C Business Models: Portal
• Digital content on the Web • Search plus an integrated package of content and
– News, music, video, text, artwork services
• Revenue models: • Revenue models:
– Use variety of models, including advertising, – Advertising, referral fees, transaction fees,
subscription; sales of digital goods subscriptions for premium services
• Variations:
– Syndication – Variations:
– Web aggregators – Horizontal/general
– Vertical/specialized (vortal)
– Search
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 B2C Models: Transaction Broker B2C Models: Market Creator
• Create digital environment where buyers and sellers can
• Process online transactions for consumers meet and transact
– Primary value proposition—saving time and money – Examples:

• Revenue model: • Priceline

• eBay
– Transaction fees
• Industries using this model:
– Financial services • Revenue model: Transaction fees
– Travel services
– Job placement services • Sharing economy (mesh economy): platforms that allow
people to sell services

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B2C Models: Service Provider Outline

• Online services 1. eCommerce Business Models

– e.g., Google: Google Maps, Google Docs, and so on 2. Major Business-to-Consumer (B2C) Business Models
• Value proposition 3. Major Business-to-Business (B2B) Business
– Valuable, convenient, time-saving, low-cost Models
alternatives to traditional service providers 4. Business Models in Emerging eCommerce Areas
• Revenue models: 5. How eCommerce changes business: Strategy, Structure,
– Sales of services, subscription fees, advertising, sales and Process
of marketing data

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Advantages of eCommerce for B2B Businesses B2B Business Models

• Net marketplaces
– E-distributor
– E-procurement
– Exchange
– Industry consortium
• Private industrial network
– Single firm
– Industry-wide

Source: http://www.ebscohost.com/uploads/thisTopic-dbTopic-1074.pdf
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B2B Models: E-distributor

• Version of retail and wholesale store, MRO goods and

indirect goods
• Owned by one company seeking to serve many
customers

• Revenue model: Sales of goods

• Example: Grainger.com

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 B2B Models: E-procurement B2B Models: Exchanges

• Creates digital markets where participants transact for • Electronic digital marketplace where suppliers
indirect goods and purchasers conduct transactions
– B2B service providers, application service – Usually owned by independent firms whose business is making
providers (ASPs) a market
• Revenue model: – Usually serve a single vertical industry
– Service fees, supply-chain management, fulfillment
• Revenue model: Transaction, commission fees
services
• e.g., Ariba • Create powerful competition between suppliers

• Tend to force suppliers into powerful price

competition; number of exchanges has dropped
dramatically
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B2B Models: Industry Consortia Private Industrial Networks

• Industry-owned vertical digital marketplace that • Digital network used to coordinate among firms engaged
serve specific industries (e.g., automobile, in business together
chemical) • Typically evolve out of company’s internal enterprise
system
• More successful than exchanges • Example: Walmart’s network for suppliers
– Sponsored by powerful industry players • Cost absorbed by network owner and recovered through
– Strengthen traditional purchasing behavior production and distribution efficiencies
• Revenue model: Transaction, commission fees
• e.g., Exostar

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 Applications: Dell business model Applications: Dell business model
• Orders for computers are placed with Dell by telephone or through the Internet.
• Through a process just-in-time (or lean) manufacturing, waste is reduced and productivity
improved by only having the required inventory on hand when it is actually needed for
manufacturing.
• This reduces lead times and set up times for building a computer.
• Dell only orders the parts for a computer when it has a firm (and in the case of non-
corporate orders, prepaid) order.
• Dell operates with little in-process and no finished goods inventory: Products are shipped as
soon as they are manufactured.
• This approach also enables Dell to forego having brick and mortar store fronts with inventory
that must be kept on the books or that might become obsolete, thereby significantly reducing
overhead.
• Items that are not built by Dell are shipped directly to the customer by the manufacturer.
• These features help Dell to reduce the costs of production and sales.
• This process allows Dell to custom design systems for its customer within certain
parameters as well as to offer a range of items rather than a single system.

Source: http://www.ebscohost.com/uploads/thisTopic-dbTopic-1074.pdf
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Applications: Cisco business model Cisco Business Model

• This successful network communications manufacturer receives

approximately 90% of its orders over the Internet.
•
• The orders are routed to contract electronics manufacturers who build the
products to Cisco’s specifications.

• Not only are the majority of Cisco’s orders received over the web, but
70% to 80% of their customer service requests are also dealt with online.

Source: http://www.ebscohost.com/uploads/thisTopic-dbTopic-1074.pdf
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 Business Models in Emerging
Outline eCommerce Areas
• Consumer-to-consumer (C2C)
1. eCommerce Business Models – Examples: eBay, Half.com
2. Major Business-to-Consumer (B2C) Business Models
3. Major Business-to-Business (B2B) Business Models
• Peer-to-peer (P2P)
4. Business Models in Emerging eCommerce – Examples: The Pirate Bay, Cloudmark
Areas
5. How eCommerce changes business: Strategy, Structure,
and Process
• M-commerce:
– eCommerce models using wireless technologies
– Technology platform continues to evolve
– In the United States, demand still highest for digital
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eCommerce Enablers:
The Gold Rush Model

• eCommerce infrastructure companies have profited the

most:
– Hardware, software, networking, security
– eCommerce software systems, payment systems
– Media solutions, performance enhancement
– CRM software
– Databases
– Hosting services, etc.

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Mobile eCommerce
Outline

1. eCommerce Business Models

2. Major Business-to-Consumer (B2C) Business Models
3. Major Business-to-Business (B2B) Business Models
4. Business Models in Emerging eCommerce Areas
5. How eCommerce changes business: Strategy,
Structure, and Process

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How the Internet and the Web Change Business

• eCommerce changes industry structure by

changing:
– Basis of competition among rivals
– Barriers to entry
– Threat of new substitute products
– Strength of suppliers
– Bargaining power of buyers

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 Industry Value Chains

• Set of activities performed by suppliers, manufacturers,

transporters, distributors, and retailers that transform raw
inputs into final products and services
• Internet reduces cost of information and other
transactional costs
• Leads to greater operational efficiencies, lowering cost,
prices, adding value for customers

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eCommerce and Industry Value Chains

Figure 2.4, Page 100
Firm Value Chains

• Activities that a firm engages in to create final

products from raw inputs
• Each step adds value
• Effect of Internet:
– Increases operational efficiency
– Enables product differentiation
– Enables precise coordination of steps in chain

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eCommerce and Firm Value Chains
Figure 2.5, Page 101 Firm Value Webs
• Networked business ecosystem
• Uses Internet technology to coordinate the value chains
of business partners
– Within an industry

– Within a group of firms

• Coordinates a firm’s suppliers with its own production

needs using an Internet-based supply chain
management system

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Internet-Enabled Value Web

Figure 2.7, Page 105
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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 eCommerce Technology and Business Model
Disruption

• Disruptive technologies
• Digital disruption
• Sustaining technology
• Stages
– Disruptors introduce new products of lower quality
– Disruptors improve products
– New products become superior to existing products
– Incumbent companies lose market share

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