Ecommerce-Lesson 2

BIL446: E-commerce System Design
Lesson 2: E-commerce Business

Strategies
Learning Objectives
2.1 Identify the key components of e-commerce business
models.
2.2 Describe the major B2C business models.
2.3 Describe the major B2B business models.
2.4 Understand key business concepts and strategies
applicable to e-commerce.
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Coping with a Pandemic: Small
Businesses Reinvent with E-commerce
• Class Discussion
– Prior to the pandemic, did you physically shop at
small businesses in your community?
– What steps have small businesses with which you are
familiar taken to continue operating during the
pandemic?
– How likely are you to continue new consumer
behaviors instituted during the pandemic after it is
over? For instance, if you ordered groceries online,
will you continue to do so?
E-commerce 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
• E-commerce business model
– Uses/leverages 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
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
2. Revenue Model
• “How will you earn money?”
• Major types of revenue models:
– Advertising revenue model
– Subscription revenue model
 Freemium strategy
– Transaction fee revenue model
– Sales revenue model
– Affiliate revenue model
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
4. Competitive Environment
• “Who else occupies your intended marketspace?”
– 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
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
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
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
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
Raising Capital
• Seed capital
• Elevator pitch
• Traditional sources
– Incubators, angel investors
– Commercial banks, venture capital firms
– Strategic partners
• Equity crowdfunding
– JOBS Act
Insight on Business: Startups Turn to
Crowdfunding
– Would you feel comfortable investing in a startup
that raises capital using equity crowdfunding? Why
or why not?
– Why is it important to democratize access to
capital?
– What obstacles are presented in the use of
crowdfunding as a method to fund startups?
Categorizing E-commerce Business
Models
• No one correct way to categorize

• Text categorizes according to:
– E-commerce sector (e.g., B2B)
– E-commerce technology (e.g., m-commerce)
• Similar models appear in different sectors
• Companies may use multiple business models (e.g.,
eBay)
• E-commerce enablers
B2C Business Models
• E-tailer
• Community provider (social network)
• Content provider
• Portal
• Transaction broker
• Market creator
• Service provider
B2C Models: E-Tailer
• Online version of traditional retailer
• Revenue model: Sales
• Variations:
– Virtual merchant
– Bricks-and-clicks
– Catalog merchant
– Manufacturer-direct
• Low barriers to entry
B2C Models: Community Provider
• Provide online environment (social network) where
people with similar interests can transact, share
content, and communicate
– Examples: Facebook, LinkedIn, Twitter, Pinterest
• Revenue models:
– Typically hybrid, combining advertising,
subscriptions, sales, transaction fees, and so on
B2C Models: Content Provider
• Digital content on the Web:
– News, music, video, text, artwork
• Revenue models:
– Use variety of models, including advertising,
subscription; sales of digital goods
– Key to success is typically owning the content
• Variations:
– Syndication
– Aggregators
Insight on Technology: Connected Cars
and the Future of E-commerce
– How are new connected car technologies also
creating new business models?
– What is the potential impact on different forms of e-
commerce, such as the content industry?
– Why are tech companies so interested in the
connected car platform?
– Are there any issues with respect to “connected”
cars?
B2C Business Models: Portal
• Search plus an integrated package of content and
services
• Revenue models:
– Advertising, referral fees, transaction fees,
subscriptions for premium services
• Variations:
– Horizontal/general (examples: Yahoo, AOL, MSN)
– Vertical/specialized (portal) (example: Sailnet)
– Search (examples: Google, Bing)
B2C Models: Transaction Broker
• Process online transactions for consumers
– Primary value proposition-saving time and money
• Revenue model:
– Transaction fees
• Industries using this model:
– Financial services
– Travel services
– Job placement services
B2C Models: Market Creator
• Create digital environment where buyers and sellers can
meet and transact
– Examples: Priceline, eBay
– Revenue model: Transaction fees, fees to merchants
for access
• On-demand service companies (sharing economy):
platforms that allow people to sell services
– Examples: Uber, Airbnb
B2C Models: Service Provider
• Online services
– Examples: Google
 Google Maps, Gmail, and so on
• Value proposition
– Valuable, convenient, time-saving, low-cost
alternatives to traditional service providers
• Revenue models:
– Sales of services, subscription fees, advertising,
sales of marketing data
B2B Business Models
• Net marketplaces
– E-distributor
– E-procurement
– Exchange
– Industry consortium
• Private industrial network
B2B Models: E-distributor
• Version of retail and wholesale store, MRO goods, and
indirect goods
• Owned by one company seeking to serve many other
businesses
• Revenue model: Sales of goods
• Example: Grainger
B2B Models: E-procurement
• Creates digital markets where participants transact for
indirect goods
– B2B service providers, SaaS and PaaS providers
– Scale economies
• Revenue model:
– Service fees, supply-chain management, fulfillment
services
• Example: Ariba
B2B Models: Exchanges
• Independently owned vertical digital marketplace for
direct inputs
• Revenue model: Transaction, commission fees
• Create powerful competition between suppliers
• Tend to force suppliers into powerful price competition;
number of exchanges has dropped dramatically
• Example: Go2Paper
B2B Models: Industry Consortia
• Industry-owned vertical digital marketplace open to
select suppliers
• More successful than exchanges
– Sponsored by powerful industry players
– Strengthen traditional purchasing behavior
• Revenue model: Transaction, commission fees
• Example: SupplyOn
B2B Models: Private Industrial Networks
• Digital network used to coordinate among firms engaged

in business together
• Typically evolve out of large company’s internal
enterprise system
– Key, trusted, long-term suppliers invited to network
• Example: Walmart’s network for suppliers
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
• Industry structural analysis
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
Figure 2.1 E-commerce and Industry Value
Chains
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
Figure 2.2 E-commerce and Firm Value
Chains
Firm Value Webs
• Networked business ecosystem
• Uses Internet technology to coordinate the value chains
of business partners
• Coordinates a firm’s suppliers with its own production
needs using an Internet-based supply chain
management system
Figure 2.3 Internet-Enabled Value Web
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/market niche
– Customer intimacy
E-commerce 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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BIL446: E-commerce System Design

Lesson 2: E-commerce Business

• No one correct way to categorize

• Digital network used to coordinate among firms engaged

• E-commerce changes industry structure by changing:

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