Learning Objectives

2.1 Identify the key components of e-commerce business models.

Chapter 2
2.2 Describe the major B2C business models.
E-commerce Business Models
and Concepts 2.3 Describe the major B2B business models.
2.4 Understand key business concepts and strategies applicable to
e-commerce.
Instructor: Nguyen Thi Thuy Hanh, PhD
Faculty of Information Systems

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Eight Key Elements of a Business

E-commerce Business Models Model
• Business model 1. Value proposition
– Set of planned activities designed to result in a profit in a 2. Revenue model
marketplace
3. Market opportunity
• Business plan
– Describes a firm’s business model 4. Competitive environment
• E-commerce business model 5. Competitive advantage
– Uses/leverages unique qualities of Internet and Web 6. Market strategy
7. Organizational development
8. Management team

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THE EIGHT KEY ELEMENTS OF A BUSINESS MODEL

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

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2. Revenue Model 3. Market Opportunity

• “How will you earn money?” • “What marketspace do you intend to serve and what is its size?”
• Major types of revenue models: – Marketspace: Area of actual or potential commercial value in
which company intends to operate
– Advertising revenue model
– Realistic market opportunity: Defined by revenue potential in
– Subscription revenue model each market niche in which company hopes to compete
▪ Freemium strategy
– Transaction fee revenue model • Market opportunity typically divided into smaller niches
– Sales revenue model
– Affiliate revenue model

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4. Competitive Environment 5. Competitive Advantage
• “Who else occupies your intended marketspace?” • “What special advantages does your firm bring to the
– Other companies selling similar products in the same marketspace?”
marketspace – Is your product superior to or cheaper to produce than your
– Includes both direct and indirect competitors competitors’?

• Influenced by: • Important concepts:

– Number and size of active competitors – Asymmetries
– Each competitor’s market share – First-mover advantage, complementary resources
– Competitors’ profitability – Unfair competitive advantage
– Competitors’ pricing – 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 are
attract your target audience?” necessary to carry out the business plan?”
– Details how a company intends to enter market and attract • Describes how firm will organize work
customers
– Typically, divided into functional departments
– Best business concepts will fail if not properly marketed to
potential customers – As company grows, hiring moves from generalists to
specialists

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8. Management Team Raising Capital
• “What kind of backgrounds should the company’s leaders have?” • Seed capital
• A strong management team: • Elevator pitch
– Can make the business model work • Traditional sources
– Can give credibility to outside investors – Incubators, angel investors
– Has market-specific knowledge – Commercial banks, venture capital firms
– Has experience in implementing business plans – Strategic partners
• Crowdfunding
– JOBS Act

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Insight on Business: Crowdfunding Categorizing E-commerce Business

Takes off Models
• Class Discussion • No one correct way to categorize
– What types of projects and companies might be able to • Text categorizes according to:
most successfully use crowdfunding?
– E-commerce sector (e.g., B2B)
– Are there any negative aspects to crowdfunding?
– E-commerce technology (e.g., m-commerce)
– What obstacles are presented in the use of crowdfunding
as a method to fund startups? • Similar models appear in different sectors
• Companies may use multiple business models (e.g., eBay)
• E-commerce enablers

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B2C Business Models B2C Models: E-Tailer
• E-tailer • Online version of traditional retailer
• Community provider (social network) • Revenue model: Sales
• Content provider • Variations:
• Portal – Virtual merchant
– Bricks-and-clicks
• Transaction broker – Catalog merchant
• Market creator – Manufacturer-direct
• Service provider • Low barriers to entry

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B2C Models: Community Provider B2C Models: Content Provider

• Provide online environment (social network) where people with • Digital content on the Web:
similar interests can transact, share content, and communicate – News, music, video, text, artwork
– Examples: Facebook, LinkedIn, Twitter, Pinterest
• Revenue models:
• Revenue models: – Use variety of models, including advertising, subscription;
– Typically hybrid, combining advertising, subscriptions, sales, sales of digital goods
transaction fees, and so on – Key to success is typically owning the content
• Variations:
– Syndication
– Aggregators

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Insight on Technology: Connected Cars
and the Future of E-commerce B2C Business Models: Portal
• Class Discussion • Search plus an integrated package of content and services
– What is the Internet of Things (IoT)? • Revenue models:
– What value does the IoT have for businesses? – Advertising, referral fees, transaction fees, subscriptions for
– What impact does the IoT have on the content industry? premium services
– What impact does the IoT have on vehicles? • Variations:
– Are there any disadvantages to “connected” cars?
– Horizontal/general (example: Yahoo, AOL, MSN)
– Vertical/specialized (vortal) (example: Sailnet)
– Search (example: Google, Bing)

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B2C Models: Transaction Broker B2C Models: Market Creator

• Process online transactions for consumers • Create digital environment where buyers and sellers can meet
– Primary value proposition-saving time and money and transact
– Examples: Priceline, eBay
• Revenue model:
– Revenue model: Transaction fees, fees to merchants for
– Transaction fees access
• Industries using this model: • On-demand service companies (sharing economy): platforms
– Financial services that allow people to sell services
– Travel services – Examples: Uber, Airbnb
– Job placement services

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B2C Models: Service Provider B2B Business Models
• Online services • Net marketplaces
– Example: Google-Google Maps, Gmail, and so on – E-distributor
• Value proposition – E-procurement
– Valuable, convenient, time-saving, low-cost alternatives to – Exchange
traditional service providers – Industry consortium
• Revenue models: • Private industrial network
– Sales of services, subscription fees, advertising, sales of
marketing data

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B2B Models: E-Distributor B2B Models: E-Procurement

• Version of retail and wholesale store, MRO goods, and indirect • Creates digital markets where participants transact for indirect
goods goods
• Owned by one company seeking to serve many customers – B2B service providers, SaaS and PaaS providers
– Scale economies
• Revenue model: Sales of goods
• Revenue model:
• Example: Grainger
– Service fees, supply-chain management, fulfillment services
• Example: Ariba

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B2B Models: Exchanges B2B Models: Industry Consortia
• Independently owned vertical digital marketplace for direct inputs • Industry-owned vertical digital marketplace open to select
suppliers
• Revenue model: Transaction, commission fees
• More successful than exchanges
• Create powerful competition between suppliers
– Sponsored by powerful industry players
• Tend to force suppliers into powerful price competition; number – Strengthen traditional purchasing behavior
of exchanges has dropped dramatically
• Revenue model: Transaction, commission fees
• Example: Go2Paper
• Example: SupplyOn

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How E-commerce Changes

Private Industrial Networks Business
• Digital network used to coordinate among firms engaged in • E-commerce changes industry structure by changing:
business together – Rivalry among existing competitors
• Typically evolve out of large company’s internal enterprise – Barriers to entry
system – Threat of new substitute products
– Key, trusted, long-term suppliers invited to network – Strength of suppliers
• Example: Walmart’s network for suppliers – Bargaining power of buyers
• Industry structural analysis

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 Figure 5.4 E-commerce and Industry
Industry Value Chains 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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Figure 5.5 E-commerce and Firm

Firm Value Chains 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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 Figure 5.6 Internet-Enabled Value
Firm Value Webs Web
• 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

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E-commerce Technology and

Business Strategy Business Model Disruption
• Plan for achieving superior long-term returns on capital invested: • Disruptive technologies
that is, profit
• Digital disruption
• Five generic strategies
• Sustaining technology
– Product/service differentiation
– Cost competition • Stages
– Scope – Disruptors introduce new products of lower quality
– Focus/market niche – Disruptors improve products
– Customer intimacy – New products become superior to existing products
– Incumbent companies lose market share

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