P14 X: E-commerce

Google Class Code: cpqxhde

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Books:
1. KennethC. Laudon and Carol G.Traver (2015), E-commerce: business, technology,
society, ,Addison sWesley.
2. Elias.M.Awad (2019), Electronic Commerce, Prentice-Hall of India Pvt Ltd.
3. EfraimTurban, JaeLee, DavidKing, H.Michael Chung (2020), “Electronic Commerce–A
Managerial Perspective", Addison Wesley
History of E-Commerce
◦ The term e-commerce was originally conceived to describe the process of
conducting business transactions electronically using technology from the
Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT).
◦ These technologies, which first appeared in the late 1970’s, allowed for the
exchange of information and the execution of electronic transactions
between businesses, typically in the form of electronic purchase orders and
invoices.
◦ EDI and EFT were the enabling technologies that laid the groundwork for what
we now know as e- commerce.
History of E-Commerce
◦ The Boston Computer Exchange, a marketplace for used computer
equipment started in 1982, was one of the first known examples of e-
commerce.
◦ Throughout the 1980’s, the proliferation of credit cards, ATM machines and
telephone banking was the next step in the evolution of electronic
commerce.
◦ Starting in the early 90’s, e-commerce would also include things such as
enterprise resource planning (ERP), data warehousing and data mining.
◦ It wasn’t until 1994 that e-commerce (as we know it today) really began to
accelerate with the introduction of security protocols and high speed
internet connections such as DSL, allowing for much faster connection
speeds and faster online transaction capability.
◦ Industry “experts” predicted explosive growth in e- commerce related
businesses.
E-business
◦ E-business is a term that is often used interchangeably with e-commerce,
but this is not accurate.
◦ E-business uses the Internet and online technologies to create operational
efficiencies, thereby increasing value to the customer.
◦ Its focus is internal—for example, online inventory control systems;
accounting systems; procurement processes; supplier performance
evaluation processes; tools to increase supply chain efficiency; processing
requests for machine repairs; and the integration of planning, sourcing, and
manufacturing.
◦ Critical business systems are connected to critical constituencies—
customers, vendors, and suppliers—via the Internet, extranets, and intranets.
No revenue is generated, but “e-business applications turn into e-
commerce precisely when an exchange of value occurs.”
E-Business Components
◦ E-business involves several major components: business intelligence (BI),
customer relationship management (CRM), supply chain management
(SCM), enterprise resource planning (ERP), e-commerce, conducting
electronic transactions within the firm, collaboration, and online activities
among businesses.
Characteristics of E-Business
Some of the salient features/characteristics of the electronic business are
mentioned below:
◦ 24×7 Service: It is electronic business/commerce that helped to achieve
to give 24×7 service availability. It has automated the way business
enterprises give services to customers. As such customers can use
services at any time from anywhere.
◦ Non-Cash Payments: In traditional commerce, the transactions – buying
and selling of products were done in cash – in fact, this was the only way
to do it. But today to do such transactions there is no need of carrying
cash electronic business has enabled the use of credit cards, debit
cards, smart cards, electronic fund transfers via the bank’s website, and
other modes of electronic payment.
Characteristics of E-Business
◦ Improved Advertising/Marketing: E-commerce makes advertising and
marketing activities of enterprises global reach. Better marketing
management of goods and services is achieved. Online businesses can
provide value to their clients and appeal to their requirements through
individualized online experiences by using written articles, and visual,
and video content.
◦ Improved Sales: Using e-commerce, orders for the products can be
generated anytime, anywhere without any human intervention. It gives
a big boost to existing sales volumes.
◦ Support: E-commerce provides various ways to provide pre-sales and
post-sales assistance to provide better services to customers. After
buying or before buying customers can easily interact with the vendors
about the products they want to buy or have bought from companies’
websites.
Characteristics of E-Business
◦ Inventory Management: E-commerce automates inventory
management. Reports get generated instantly when required. Product
inventory management becomes very efficient and easy to maintain.
◦ Communication Improvement: E-commerce provides ways for faster,
more efficient, and reliable communication with customers and
partners. Since physical presence is not required as in traditional
commerce customers and other stakeholders are welcome to make
contact with the enterprise, and vendors from anywhere.
E-Commerce
◦ E-commerce is the marketing, selling, and buying of goods and services online.
It is a subset of e-business.
◦ It generates revenue, whereas other areas of e-business do not.
◦ E-commerce has experienced extraordinary and rapid growth and will
continue to grab more market share.
◦ The moment that an exchange of value occurs, e-business becomes e-
commerce.
◦ E-commerce is the revenue generator for businesses that choose to use the
Internet to sell their goods and services.
◦ Some small businesses rely on the Internet to grow and survive.
◦ Many small businesses also look to e-commerce for their own business needs,
such as computers and office technology, capital equipment, and supplies,
office furnishings, inventory for online sale, or other business-related goods.
◦ This is not surprising considering the pervasiveness of the Internet for business
transactions of all shapes and sizes.
Advantages of E-commerce
◦ Increases Sales and Revenue: E-commerce always helps to increase sales
and revenue as it widens the market by reaching out to new customers. It
also allows businesses to offer discounts and incentives that are not
possible in a physical store. There are also many opportunities for cross-
selling and up-selling.
◦ Reduces Costs: E-commerce also helps reduce business costs as it
eliminates the need for a physical store and sales staff. It also reduces
inventory costs and transportation costs. There are also many opportunities
for cost-saving through online auctions and supply chains.
◦ Eliminates Geographic Barriers: E-commerce also eliminates geographic
barriers, as customers can buy goods and services from anywhere in the
world. This allows businesses to sell to new markets and expand their
customer base. It may also help to reduce the cost of doing business.
Advantages of E-commerce
◦ Improves Customer services; This is because e-commerce allows businesses
to offer 24/11 customer service, which is not possible in a physical store. It
also allows customers to compare prices and products from different
retailers easily. Sometimes there are also additional services, such as
customer reviews and ratings, that are not available in a physical store.
◦ Increases Efficiency: Efficiency is increased as orders can be placed and
processed quickly and easily through an e-commerce website. This
eliminates the need for paperwork and reduces the chances of human
error. It also allows businesses to track inventory levels and sales trends in
real-time.
Disadvantages of E-commerce
◦ Lack of Social Interaction: One disadvantage is that there is
a lack of social interaction, as people cannot see or touch
the product before they buy it. This may lead to
dissatisfaction with the purchase if the product is not what
was expected.
◦ Security Risks: Another disadvantage is that there are security
risks, as sensitive financial information can be stolen by
hackers. This can result in loss of money and identity theft.
There may also be risks involved with buying and selling
products online, as there is no guarantee of product quality
or authenticity.
Disadvantages of E-commerce
◦ Difficulties with Returns: Another disadvantage is that it can
be difficult to return products that have been bought online.
This is because businesses often require the product to be
returned in its original packaging, which may not be possible
if the product has been used. There may also be shipping
costs involved in returning the product.
◦ Lack of Trust: There may be a lack of trust among consumers
when it comes to buying goods and services online. This is
because they may be afraid of being scammed or not
receiving the product that they ordered.
E-commerce Trends
There are several current trends in e-commerce, including:
◦ The Rise of Mobile Commerce: One trend is the rise of mobile
commerce, as more people are shopping on their smartphones and
tablets. This is because it is convenient and easy to use, and there are
many apps that make shopping online easier.
◦ The Emergence of Social Commerce: Another trend is the emergence of
social commerce, which involves buying and selling products through
social media platforms such as Facebook and Twitter. This allows
businesses to reach a large number of potential customers.
◦ The Growth of E-commerce in Developing Countries: A third trend is the
growth of e-commerce in developing countries, as more people have
access to the internet and are becoming comfortable with buying
goods and services online. This provides opportunities for businesses to
expand their customer base.
Difference between E-Commerce and E-Business :
S.No
E-COMMERCE E-BUSINESS
.
E-Commerce refers to the E-Business refers to
performing online commercial performing all type of
01.
activities, transactions over business activities through
internet. internet.
E-Business is a broad
E-Commerce is a narrow
concept and it is
02. concept and it is considered as
considered as a superset
a subset of E-Business.
of E-Commerce.
Commercial transactions are Business transactions are
03.
carried out in e-commerce. carried out in e-business.

In e-commerce transactions In e-business transactions

04.
are limited. are not limited.
Difference between E-Commerce and E-Business
S.No
E-COMMERCE E-BUSINESS
.
It includes activities like procurement
of raw materials/goods, customer
It includes activities like buying and
education, supply activities buying
05. selling product, making monetary
and selling product, making
transactions etc. over internet.
monetary transactions etc over
internet.
It requires the use of multiple
It usually requires the use of only a
06. websites, CRMs, ERPs that connect
website.
different business processes.
It involves mandatory use of It involves the use of internet,
07.
internet. intranet or extranet.
E-commerce is more appropriate in E-business is more appropriate in
08.
Business to Customer (B2C) context. Business to Business (B2B) context.
E-Commerce covers outward / E-Business covers internal as well as
09.
external business process. external business process/activities.
Value Chain
The value chain is a concept from business management that
was first described and popularized by Michael Porter in his
1985 best seller, Competitive Advantage: Creating and
Sustaining Superior Performance.
◦ A Value Chain is a chain of activities for a firm operating in a
specific industry.
◦ Products pass through all activities of the chain in order and at
each activity the product gains some value. The chain of
activities gives the products more added value than the sum
of the independent activities value.
Here we have shown just a basic value chain flow of an
Automobile Industry
Value Chain
◦ A diamond cutter, as a profession, can be used to illustrate the
difference of cost and the value chain. The cutting activity may
have a low cost, but the activity adds much of the value to the end
product, since a rough diamond is significantly less valuable than a
cut diamond.
◦ The value chain framework quickly made its way to the forefront of
management thought as a powerful analysis tool for strategic
planning. Value chain analysis has also been successfully used in
large Petrochemical Plant Maintenance Organizations to show how
Work Selection, Work Planning, Work Scheduling and finally Work
Execution can (when considered as elements of chains) help drive
Lean approaches to Maintenance.
Porter’s Value Chain Model
◦ The idea of the value chain is based on the process of organization,
the idea of seeing a manufacturing (or service) organization as a
system, made up of subsystems each with inputs, transformation
processes and outputs. Inputs, transformation processes, and outputs
involve the acquisition & consumption of resources- money, labour,
materials, equipment, buildings, land, administration and
management. How value chain activities are carried out determines
costs and affects profits.
◦ Most organizations engage in hundreds, even thousands of activities
in the process of converting inputs to outputs. These activities can be
classified generally as either primary or support activities that all
businesses must undertake in some form.
 According to Porter (1985), the primary
activities are:-
◦ Inbound Logistics: involve relationships with suppliers and include all the
activities required to receive, store & disseminate inputs.
◦ Operations: are all the activities required to transform inputs into outputs
(products & services).
◦ Outbound Logistics: include all activities required to collect, store &
distribute the output.
◦ Marketing & Sales: activities inform buyers about products & services,
induce buyer to purchase them and facilitate their purchase.
◦ Service: includes all the activities required to keep the product or
service working effectively for the buyer after it is sold and delivered.
Support Activities are:-
◦ Procurement: is the acquisition of inputs, or resources, for the firm.
◦ Human Resource Management: consists of all activities involved in
recruiting, hiring, training, developing, compensating and dismissing or
laying off personnel.
◦ Technological Development: pertains to the equipment, hardware,
software, procedures and technical knowledge brought to bear in the
firm’s transformation of inputs into outputs.
◦ Infrastructure: Serves the company’s needs & ties its various parts
together, it consists of functions or departments such as accounting,
legal, finance, planning, public affairs, government relations, quality
assurance & general management.
PORTER’S GENERIC VALUE CHAIN
Linked Value Chains
◦ Value chain activities are not isolated from one another. Rather, one
value chain activity often affects the cost or performance of other
ones. Linkages may exist between primary & support activities.
Interrelationships among business units form the basis for a horizontal
strategy. Such business unit interrelationships can be identified by a
value chain analysis.

Inbound Logistic- From Suppliers

Outbound Logistic- From Customers
E-Commerce enhances value chain by
providing:-
◦ Electronic Value Chain: through electronic value chain, e-commerce
enhances business by supporting:
Reduced time frame
Changed Cost Structures

◦ Re-engineered value: Re-engineered value chain, e-commerce

enhances business by supporting:
Just-in-time Manufacturing
Quick response supply
 Efficient document processing

◦ Competitive Advantage: E-Commerce supports a company for gaining

competitive advantage.
MANUFACTURING VALUE CHAIN
Competitive Advantage
◦ A firm is said to possess a competitive advantage over its rivals, if it sustains profit
that exceed the average for its industry.
◦ The goal of much of business strategy is to achieve a sustainable competitive
advantage.
◦ Michael Porter identified two basic types of Competitive advantage:
1. Cost Advantage
2. Differentiation Advantage
Cost Advantage: Cost advantage exists when the firm is able to deliver the same
benefits as competitors but at a lower cost.
Differentiation Advantage: Differentiation advantage exists when the firm is able to
deliver benefits that exceed those of competing products.
Cost and differentiation advantages are known as potential advantages since they
describe the firm’s position in the industry as a leader in either cost or differentiation.
A resource based view emphasizes that a firm utilizes its resources and capabilities to
create a competitive advantage that ultimately results in superior value creation.
◦ .
Resources & Capabilities:
According to the resource based view, in order to develop
a competitive advantage the firm must have resources and
capabilities that are superior to those of its competitors.
◦ Resources: are the firm-specific assets useful for creating a
cost or differentiation advantage and that few competitors
can acquire easily.
◦ Capabilities: refer to the firm’s ability to utilize its resources
effectively. An example of a capability is the ability to bring
a product to market faster than competitors. The firm’s
resources & capabilities together form its distinctive
competencies
Resources & Capabilities:
Model of Competitive Advantage
Value Creation: The firm creates value by performing a series of activities
that Porter identified as the value chain. Superior value is created
through lower costs or superior benefits to the customers.
◦ The Principle of Competitive Advantage : Success is based on
inventing an offering that addresses a real scarcity(lack) in the world,
charging a price for it, and inventing a way of making it available that
is cheap enough to leave a high margin.
◦ Elements of Competitive Advantage: Uniqueness - finding unique
opportunities and solutions is about imagination, insight, foresight, and
the courage to pursue it. Unique is new, different, but most important
of all, untested and unproven. By the time a unique solution is
validated as profitable, it is no longer unique for the next company.
Also, if it is a unique business model or business capability, it is likely
unapproachable, in the short-term, by competitors.
Cont..
◦ Strategic Focus - Strategic focus comes from marrying distinctive
competency and purpose to form a superior value proposition.
Strategic focus is about developing a longer view of competitive
advantage with a combination of purpose, competency, and value
proposition. This creates an internal environment that has the
confidence and implicit support to continue to perfect and develop
that focus through creating stronger competencies and further
perfecting the value proposition.
◦ Strategic Intent/Vision/BHAGs - Strategic intent challenges and guides
the organization to achieve the unachievable by having a clear focus
on outlandish objectives which require the development of new
capabilities to achieve.
Cont..
◦ Innovation - Innovation is inventiveness put into profitable practice. In
an evolving economy, the business organization must innovate at a rate
that meets or exceeds its environment in order to sustain a competitive
advantage.
◦ Continual Innovation - Making innovation as an ongoing process on all
fronts.
◦ Democratic Principles - Democratic principles are needed to fully
engage the active participation of diverse thinkers from across the
organization. Broad and diverse participation improves innovation.
◦ Strategic Management as a self-improving learning process - Strategic
management must become, amongst other things, a learning and self-
improvement process for the organization.
◦ Dynamic Capabilities - Sustainable competitive advantage is ultimately
based on dynamic capabilities, the capability to produce and utilize
new capabilities on a continuous basis.
◦ Inbound Logistics: Starbucks sources high-quality coffee beans from around the world and
transports them to its roasting facilities. The company also purchases other raw materials,
such as milk and syrups, to be used in its beverages. Focusing on quality allows them to
charge higher prices and sell the experience of visiting one of their stores.
◦ Operations: At its roasting facilities, Starbucks roasts and packages the coffee beans into
various blends and flavors. In its stores, the company prepares beverages and food items,
trains employees, and maintains equipment and facilities. These centralized facilities allow
for economies of scale without sacrificing quality.
◦ Outbound Logistics: Starbucks distributes its packaged coffee and merchandise products to
its retail stores and other distribution channels. The company also uses a network of suppliers
and distribution centers to supply its stores with raw materials and other products.
◦ Marketing and Sales: Starbucks is an excellent example of brand development utilizing
marketing efforts, including advertising, social media, and in-store promotions. Their stores
are designed to provide a unique and comfortable environment for customers. Employees
are trained to provide a particular customer service experience.
◦ Service: Starbucks places a strong emphasis on providing high-quality customer service,
including personalized interactions and customized beverage options. A loyalty program,
mobile ordering, and other services enhance the customer experience.
◦ Inbound Logistics: Amazon sources products from suppliers around the world and
transports them to its fulfillment centers. Advanced logistics and inventory
management systems optimize its inbound logistics and ensure that products are
available for sale in a timely manner.
◦ Operations: Orders are processed and prepared for shipment through Amazon’s
fulfillment centers. The company utilizes advanced automation technologies and
robotics to streamline its operations improve efficiency and reduce labor costs.
◦ Outbound Logistics: Amazon ships products to customers around the world using a
network of carriers and logistics partners. It provides fast and convenient service
through a range of delivery options.
◦ Marketing and Sales: Its website, mobile app, and social media platforms give Amazon
a variety of ways to reach customers. The company also offers personalized product
recommendations and targeted advertising to enhance the customer experience.
◦ Service: Amazon places a strong emphasis on providing high-quality customer service,
including fast and easy returns, 24/7 customer support, and a range of self-service
options. Amazon Prime is a loyalty program that provides customers with free shipping,
exclusive discounts, and other benefits in addition to supplying the company with more
revenue
◦ Inbound Logistics: Tesla sources raw materials, such as lithium and nickel, and components
from suppliers around the world and transports them to its production facilities. The company
also produces its own battery cells and modules at its Gigafactory in Nevada.
◦ Operations: At its production facilities, Tesla designs, manufactures, and assembles electric
vehicles, energy storage systems, and solar products. The company uses advanced
manufacturing technologies, such as robotics and automation, to improve efficiency and
quality.
◦ Outbound Logistics: Tesla ships its products to customers around the world using a
combination of its own logistics network and third-party carriers, though they’ve
encountered pushback from traditional car dealerships. The company also offers delivery
and installation services for its energy products.
◦ Marketing and Sales: Tesla markets and sells its products through its website, company-
owned stores, and a network of authorized dealerships. Digital marketing and social media
platforms reach customers and promote its products, and the company’s leader, Elon Musk,
has cultivated a public presence that attracts many potential buyers.
◦ Service: The company offers maintenance and repair services, over-the-air software
updates, and 24/7 roadside assistance. The company also offers a range of customer
support options, such as online chat and phone support, to enhance the customer
experience.
Porter's Five Forces Framework
◦ Porter's Five Forces is a widely used framework for analyzing
the competitive structure of an industry.
◦ It helps to identify the competitive environment and
profitability of an industry, as well as the attractiveness of the
industry for potential new entrants.
◦ The framework was introduced by Michael E. Porter, a
Harvard Business School professor, in 1979 and has since
become a cornerstone of business strategy.
Porter’s Five Forces Model
◦ Michael Porter described a concept that has become known as the “five
forces model”. This concept involves a relationship between competitors
within an industry, potential competitors, suppliers, buyers & alternative
solutions to the problem being addressed.

Porter's five forces refers to

a framework that examines
the level of competition
within an industry by
analyzing five key forces:
the threat of new entrants,
the bargaining power of
suppliers, the bargaining
power of buyers, the threat
of substitute products or
services, and the intensity
of competition.
Threat of Potential Entrants
◦ The threat of new entrants relates to the ease with which a new
company or a company in a different product area can enter a
given trade sector.
◦ Barrier to entry into a particular market include the need for capital,
knowledge and skills.
◦ The barriers to entry for e.g. to the vehicle assembly sector are
massive; to start building cars there is the need to develop a new
model range, build a car assembly plant, contract a large number of
component suppliers and sign up a dealer network.
◦ Getting into business in building personal computers is, in contrast,
much easier; the components are readily available and there is not
the same need for investment in product development or large scale
production facilities before the company makes a start.
Threat of Substitution
◦ Substitution is a threat to existing players where a new product
becomes available that supplies the same function as the existing
product or service.
◦ The classic examples are the (partial) substitution of natural fibers
such as cotton and wool by synthetic fibers or the replacement of
glass bottles by a plastic alternative in some sectors of the
packaging industry.
◦ Existing players can protect themselves by keeping their product
up-to-date.
Bargaining power of Buyers
◦ For a business to be profitable the cost of producing and distributing its
product has to be less than the price it can fetch in the market place.
◦ Where there are a number of competitors in the market or a surplus of
supply the buyer is in a strong position to bargain for a low price and
for other favorable conditions of trade.
Bargaining power of Suppliers
◦ The organization, while trying to get an adequate price from its buyers,
will be looking to get favorable terms from its own suppliers at the next
stage along the value chain.
◦ The organization’s ability to get a good deal is the mirror image of its
position with its buyers.
◦ If the supply is plentiful and/or there are several suppliers it should get a
good price.
◦ If the product is scarce or the number of suppliers that are able to
meet its need is limited then the supplier is in a more favorable position.
Competition between existing players
◦ The final force is the completion between existing players in the market.
◦ The competition is to get the buyers and to trade at a price that produces an
acceptable profit.
◦ That competition is won on the basis of the generic competitive advantage of
cost or differentiation.
◦ The competitive position of each organization is determined by the deal it is
able to make with the suppliers.
Important Points of Value Chain
1. The Organization need to establish which of its inter organizational
relationships add to its competitive advantage & which fail to
achieve appropriate levels of quality & price.
2. The Linkages in the value system have to be managed.
3. The Physical Linkage involves good handling, transport & warehousing
4. Value chain must be clear & understandable.
5. The essential stages of a value chain are: Pre-sale, Execution,
settlement & after-sales.
Porter's Five Forces Example
1. Threat of new entrants: The fast food industry has relatively low barriers
to entry, as it doesn't require significant capital investment or
technical expertise to start a fast food restaurant.
However, established players like McDonald's, Burger King, and
Wendy's have significant economies of scale and brand recognition,
which can make it difficult for new entrants to gain a foothold in the
market.
2. Bargaining power of suppliers: The fast food industry is highly
dependent on a few key suppliers, such as food distributors, meat
producers, and soft drink companies. This gives these suppliers
significant bargaining power over fast food companies.
For example, if a meat producer were to raise prices, it could
significantly impact the profitability of fast food restaurants that rely
on that supplier.
Porter's Five Forces Example
3. Bargaining power of buyers: Fast food customers have a high degree of
bargaining power, as they can easily switch to a competitor or substitute
product if they are dissatisfied with the prices or quality of the food.
Additionally, consumers are increasingly demanding healthier and more
sustainable food options, which can put pressure on fast food companies to
change their menus.
4. Threat of substitute products or services: The fast food industry faces significant
competition from other types of restaurants, such as casual dining and fast
casual restaurants. Additionally, many consumers are choosing to cook at
home or order food delivery, which can also impact the sales of fast food
companies.
5. Intensity of competitive rivalry: The fast food industry is highly competitive, with
many players vying for market share. Companies like McDonald's, Burger King,
and Wendy's engage in intense advertising and promotional campaigns to
attract customers and gain market share. Additionally, the rise of fast casual
restaurants like Chipotle and Panera Bread has increased competition in the
industry.
Strength of Porter's five forces
Porter's five forces model helps businesses see the competitive landscape of their
industry and identify potential opportunities and threats. However, like any tool, it
has its strengths and weaknesses.
◦ Comprehensive analysis: Porter's Five Forces analysis covers a wide range of
factors that impact the competitive environment of an industry.
◦ Easy to use: The model is relatively easy to use and can be applied to a wide
range of industries and businesses.
◦ Helps identify who holds the power in the industry: By analyzing the bargaining
power of suppliers and buyers, as well as the threat of new entrants and
substitutes, businesses can gain insights into who holds the power in the industry
and make more informed strategic decisions.
◦ Helps identify opportunities and threats: By analyzing the competitive dynamics
of an industry, businesses can gain insights into potential opportunities and
threats, allowing them to make more informed strategic decisions.
Weakness of Porter's five forces
◦ Limited scope: The model focuses primarily on the external factors that
impact industry and doesn't consider internal factors like company
culture, management, or resources.
◦ Static analysis: Porter's Five Forces analysis is a snapshot in time and
doesn't take into account changes in the industry or wider business
environment.
◦ Can be subjective: The analysis can be influenced by the biases and
perspectives of the person conducting the analysis, leading to
potentially inaccurate results
◦ Challenging for diversified businesses: The model is less effective for
businesses with a wide portfolio of products and services, as the
competitive dynamics can vary significantly across different segments
of the business.
Advantages Disadvantages

•Comprehensiveness •Limited scope

•Easy to use •Static analysis
•Identifies who hold the power in the •Can be subjective
industry •Challenging for businesses with a
•Identifies opportunities and threats diversified product portfolio
Porter’s Diamond Model
Porter’s Diamond Model, also known as the Diamond Theory of Competitive
Advantage, explains why some countries and industries are more
competitive than others. The model identifies four key factors that contribute
to the competitiveness of a country or industry:
1. Factor Conditions: the factors of production that are available in a
country, including labor, capital, natural resources, and infrastructure. Their
quality and availability affect competitiveness.
2. Demand Conditions: the characteristics of the domestic market, such as its
size, growth rate, and sophistication. Strong demand conditions might
motivate local companies to innovate and improve their own products
and services.
3. Related and Supporting Industries: the presence or absence of
complementary industries that support and facilitate the growth of the
industry. A strong local supplier base can help companies reduce costs,
respond to orders quicker, and improve quality.
Porter’s Diamond Model
4. Firm Strategy, Structure, and Rivalry: the domestic environment in
which companies operate, including the degree of competition, the
level of investment in innovation and technology, and the quality of
management practices. A strong domestic rivalry can stimulate
companies to innovate and improve their products and services, while
a weak rivalry can lead to complacency and decreased productivity.
According to Porter’s Diamond Model, these four factors are mutually
reinforcing and create a cycle of competitiveness. The Diamond Model is
often used by governments and businesses to identify the strengths and
weaknesses of their national or industrial competitiveness and to develop
strategies to enhance their competitive advantage.
Porter’s Four Corners Model
Porter’s Four Corners Model is based on four key factors that determine the
strategic posture of a company or industry. It’s distinct from the Diamond and Five
Forces Models, though there are some similarities. The Four Corners include:
1. The Industry’s Existing and Potential Customers: the characteristics of the
industry’s customer base, including their needs, preferences, and behavior.
2. The Industry’s Competitors: The number, size, and capabilities of the industry’s
competitors.
3. The Industry’s Suppliers: the suppliers of raw materials, components, and other
inputs to the industry.
4. The Industry’s Substitutes and Complements: the products or services that
could substitute or complement the industry’s products or services.
According to the Four Corners Model, the strategic position of a company or
industry depends on the relative strength and position of those four factors.
Businesses use the Four Corners model to identify the key drivers of competition in
their industry and develop strategies to mitigate the threats to their success.
Concept of E-Business models
◦ The E-Business model, like any business model, describes how a company
makes a plan to generate revenue and make a profit from operations. The
model includes the components and functions of the business, as well as the
revenues it generates and the expenses it incurs.
Components of E-Business models
◦ Value Proposition :- How a company’s product or services fulfills the needs of
customer.
◦ Revenue Model :- Defines how the company will generate profits.
◦ Market Opportunity :- The revenue potential within a company’s intended
market space.
◦ Competitive Environment :- Other competitors selling same product in the
same market space.
◦ Market Strategy :- How a company intends to enter a new market and attract
strategy.
◦ Competitive Advantage :- How a company will differentiate it’s business from
the
◦ competitors.
◦ Management Team :- Employees team responsible for company’s growth
Concept of E-Business models
◦ A business model is a set of planned activities (sometimes referred
to as business processes) designed to result in a profit in a
marketplace.
◦ A business model is not always the same as a business strategy,
although in some cases they are very close in so far as the business
model explicitly takes into account the competitive environment .
◦ The business model is at the center of the business plan. A business
plan is a document that describes a firm’s business model. A
business plan always takes into account the competitive
environment.
◦ An e-commerce business model aims to use and leverage the
unique qualities of the Internet, the Web, and the mobile platform.
Concept of E-Business models
◦ The E-Business model, like any business model, describes how a company makes a
plan to generate revenue and make a profit from operations. The model includes
the components and functions of the business, as well as the revenues it generates
and the expenses it incurs.
Eight Key Elements Of a Business Model
◦ If you hope to develop a successful
business model in any arena, not just e-
commerce, you must make sure that
the model effectively addresses the
eight elements listed in Figure. These
elements are:
1. Value proposition
2. Revenue model
3. Market opportunity
4. Competitive environment
5. Competitive advantage
6. Market strategy
7. Organizational development
8. Management team.
Value Proposition
◦ A company’s value proposition is at the very heart of its business model.
A value proposition defines how a company’s product or service fulfills
the needs of customers.
◦ To develop and/or analyze a firm’s value proposition, you need to
understand why customers will choose to do business with the firm
instead of another company and what the firm provides that other firms
do not and cannot.
◦ From the consumer point of view, successful e-commerce value
propositions include personalization and customization of product
offerings, reduction of product search costs, reduction of price discovery
costs, and facilitation of transactions by managing product delivery.
Value Proposition :- How a company’s product or services fulfills the needs
of customer
Revenue Model
◦ A firm’s revenue model describes how the firm will earn revenue, generate profits,
and produce a superior return on invested capital. We use the terms revenue model
and financial model interchangeably.
◦ The function of business organizations is both to generate profits and to produce
returns on invested capital that exceed alternative investments.
◦ Profits alone are not sufficient to make a company “successful” (Porter,1985). In order
to be considered successful, a firm must produce returns greater than alternative
investments. Firms that fail this test go out of existence.
◦ Although there are many different e-commerce revenue models that have been
developed, most companies rely on one, or some combination, of the following
major revenue models:
1. The advertising model,
2. The subscription model,
3. The transaction fee model,
4. The sales model,
5. The affiliate model.
Revenue model: describes how the firm will earn revenue, produce profits, and
produce a superior return on invested capital
Advertising Revenue Model
◦ In the advertising revenue model, a company that offers
content, services, and/or products also provides a forum for
advertisements and receives fees from advertisers.
◦ Companies that are able to attract the greatest viewership or
that have a highly specialized, differentiated viewership and
are able to retain user attention (“stickiness”)are able to
charge higher advertising rates.
◦ Yahoo, for instance, derives a significant amount of revenue
from display and video advertising.
◦ Advertising Revenue Model: A company provides a forum for
advertisements and receives fees from advertisers
Subscription Revenue Model
◦ In the subscription revenue model, a company that offers content or services
charges a subscription fee for access to some or all of its offerings.
◦ For instance, the digital version of Consumer Reports provides online and mobile
access to premium content, such as detailed ratings, reviews, and
recommendations, only to subscribers, who have a choice of paying a $6.95
monthly subscription fee or a $30.00 annual fee.
◦ Experience with the subscription revenue model indicates that to successfully
overcome the disinclination of users to pay for content, the content offered must
be perceived as a high-value-added, premium offering that is not readily available
elsewhere nor easily replicated. Companies successfully offering content or
services online on a subscription basis include Match.com and eHarmony (dating
services), Ancestry.com and Genealogy.com (genealogy research), Microsoft’s
Xboxlive.com (video games), Rhapsody.com (music), and Hulu.com
Subscription revenue model: A company offers its users content or services and
charges a subscription fee for access to some or all of its offerings
Table 2.1 These Major Revenue Models
◦ Table 2.1 these major revenue models. The Insight on Society case, Foursquare: Check Your
Privacy at the Door, examines some of the issues associated with Foursquare's business and
revenue model.
Transaction Fee Revenue Model
◦ In the transaction fee revenue model, a company receives a fee for enabling
or executing a transaction. For example, eBay provides an auction
marketplace and receives a small transaction fee from a seller if the seller is
successful in selling the item. E*Trade, a financial services provider, receives
transaction fees each time it executes a stock transaction on behalf of a
customer.

Transaction fee revenue model a company receives a fee for enabling or

executing a transaction
Sales Revenue Model
◦ In the sales revenue model, companies derive revenue by
selling goods, content, or services to customers. Companies
such as Amazon (which sells books, music, and other
products), LLBean.com, and Gap.com all have sales
revenue models.
Sales revenue model: A company derives revenue by selling
goods, information, or services
Affiliate Revenue Model
◦ In the affiliate revenue model, companies that steer business to an
“affiliate” receive a referral fee or percentage of the revenue from any
resulting sales.
◦ For example, MyPoints makes money by connecting companies with
potential customers by offering special deals to its members. When they
take advantage of an offer and make a purchase, members earn
“points” they can redeem for freebies, and MyPoints receives a fee.
◦ Community feedback companies such as Epinions receive much of their
revenue from steering potential customers to Web sites where they make
a purchase.

Affiliate revenue model: A company steers business to an affiliate and

receives a referral fee or percentage of the revenue from any resulting
sale.
Market Opportunity
◦ The term market opportunity refers to the company’s intended marketspace
(i.e., an area of actual or potential commercial value) and the overall potential
financial opportunities available to the firm in that marketspace.
◦ The market opportunity is usually divided into smaller market niches (places). The
realistic market opportunity is defined by the revenue potential in each of the
market niches where you hope to compete.
Market Opportunity :- The revenue potential within a company’s intended market
space.
Market opportunity: refers to the company’s intended marketspace and the overall
potential financial opportunities available to the firm in that
Marketspace: marketspace the area of actual or potential commercial value in
which a company intends to operate
Competitive Environment
◦ A firm’s competitive environment refers to the other
companies selling similar products and operating in the same
marketspace. It also refers to the presence of substitute
products and potential new entrants to the market, as well as
the power of customers and suppliers over your business. The
competitive environment for a company is influenced by
several factors:
How many competitors are active
How large their operations are, what the market share of
each competitor is
How profitable these firms are, and how they price their
products
Competitive Environment
Firms typically have both direct and indirect competitors.
◦ Direct competitors are companies that sell products and services that are very
similar and into the same market segment. For example, Priceline and Travelocity,
both of whom sell discount airline tickets online, are direct competitors because
both companies sell identical products—cheap tickets.
◦ Indirect competitors are companies that may be in different industries but still
compete indirectly because their products can substitute for one another. For
instance, automobile manufacturers and airline companies operate in different
industries, but they still compete indirectly because they offer consumers
alternative means of transportation. CNN.com, a news outlet, is an indirect
competitor of ESPN.com, not because they sell identical products, but because
they both compete for consumers’ time online.
Competitive Advantage
◦ Firms achieve a competitive advantage when they can produce a
superior product and/or bring the product to market at a lower price
than most, or all, of their competitors (Porter, 1985).
◦ Firms also compete on scope. Some firms can develop global
markets, while other firms can develop only a national or regional
market.
◦ Firms that can provide superior products at the lowest cost on a
global basis are truly advantaged.
Competitive advantage: achieved by a firm when it can produce a
superior product and/or bring the product to market at a lower price
than most, or all, of its competitors
Market strategy
◦ No matter how tremendous a firm’s qualities, its marketing strategy and execution
are often just as important. The best business concept, or idea, will fail if it is not
properly marketed to potential customers.
◦ Everything you do to promote your company’s products and services to potential
customers is known as marketing. Market strategy is the plan you put together that
details exactly how you intend to enter a new market and attract new customers.
◦ For instance, Twitter, YouTube, and Pinterest have a social network marketing
strategy that encourages users to post their content on the sites for free, build
personal profile pages, contact their friends, and build a community. In these
cases, the customer becomes part of the marketing staff!

Market strategy the plan you put together that details exactly how you intend to
enter a new market and attract new customers
Organizational development
◦ Companies that hope to grow and thrive need to have a plan for organizational
development that describes how the company will organize the work that needs to
be accomplished.
◦ Typically, work is divided into functional departments, such as production, shipping,
marketing, customer support, and finance. Jobs within these functional areas are
defined, and then recruitment begins for specific job titles and responsibilities.
◦ Typically, in the beginning, generalists who can perform multiple tasks are hired. As
the company grows, recruiting becomes more specialized.
◦ For instance, at the outset, a business may have one marketing manager. But after
two or three years of steady growth, that one marketing position may be broken
down into seven separate jobs done by seven individuals.
Organizational Development plan describes how the company will organize the work
that needs to be accomplished
Management Team
◦ Arguably, the single most important element of a business model is the
management team responsible for making the model work.
◦ A strong management team gives a model instant credibility to outside
investors, immediate market-specific knowledge, and experience in
implementing business plans.
◦ A strong management team may not be able to salvage a weak
business model, but the team should be able to change the model and
redefine the business as it becomes necessary

Management Team employees of the company responsible for making

the business model work
Types of E-Business models
E- COMMERCE MODELS
E-commerce business models can generally be categorized into the following
categories.
1. Business - to - Business (B2B)
2. Business - to - Consumer (B2C)
3. Consumer - to - Consumer (C2C)
4. Consumer - to - Business (C2B)
5. Business - to - Government (B2G)
6. Government - to - Business (G2B)
7. Government - to - Citizen (G2C)
Business - to – Business
◦ Business - to – Business: A website following the B2B business model
sells its products to an intermediate buyer who then sells the product
to the final customer outlets.
Business - to – Consumer
◦ Business - to – Consumer:A website following the B2C business model
sells its products directly to a customer. A customer can view the
products shown on the website.
Consumer - to – Consumer
◦ Consumer - to – Consumer: A website following the C2C business
model helps consumers to sell their assets like residential property,
cars, motorcycles, etc., or rent a room by publishing their information
on the website.
Consumer - to – Business
◦ Consumer - to – Business: In this model, a consumer approaches a
website showing multiple business organizations for a particular service.
The consumer places an estimate of amount he/she wants to spend
for a particular service.
Government - to – Citizen
◦ Governments use G2C model websites to approach citizen in general. Such
websites support auctions of vehicles, machinery, or any other material. Such
website also provides services like registration for birth, marriage or death
certificates. The main objective of G2C websites is to reduce the average time
for fulfilling citizen’s requests for various government services.
Business - to – Government
◦ B2G model is a variant of B2B model. Such websites are used by governments to
trade and exchange information with various business organizations. Such
websites are accredited by the government and provide a medium to
businesses to submit application forms to the government.
Government - to – Business
◦ Governments use B2G model websites to approach business organizations.
Such websites support auctions, tenders, and application submission
functionalities.