1. MGT 3225: E-Business Lecture 2: E-Commerce Business Models and Concepts
Md. Mahbubul Alam, PhD

2. E-commerce Business Models—Definitions
A set of planned activities (i.e. business processes) designed to result in a profit in a marketplace.
The business model is at the center of the business plan.
Business plan
A document that describes a firm’s business model.
It always takes into account the competitive environment.
E-commerce business model
Uses/leverages unique qualities of the Internet, the web and the mobile platform.

3. Key Elements of a Business Model

4. Key Ingredients of a Business Model

5. Value Proposition Heart of a company’s business model.
It refers to how a company’s product or service fulfills the needs of customers.
How do you analyze a firm’s value proposition?
Why will customers choose to do business with your firm instead of another?
What will your firm provide that others do not or cannot?
Successful e-commerce value propositions include:
Personalization and customization of product offerings,
Reduction of product search cost,
Reduction of price discovery costs
Facilitation of transactions by managing product delivery.
Example: Amazon.com. At past, people need to visit offline store or have to wait for a week or two for the book. But now customers can find and buy book instantly.
Amazon kindle fire makes e-book instantly available with no shipping wait.
Amazon value propositions are unparalleled selection and convenience.

6. Revenue Model
Describes how the firm will earn revenue, generate profits, and produce a superior return on invested capital.
Revenue model and financial model are used interchangeably.
Function of business organization
Generate profits
Produce returns on invested capital. Returns must be greater than alternative investment.

7. Major Types of Revenue Models
Advertising revenue model (Yahoo):
Offers content, services/products. Receives fee from advertisers.
Subscription revenue model (consumerreport.com, Match.com, eHarmony):
Charges a subscription fees. Provides detailed ratings, reviews, recommendation of customer reports.
Transaction fee revenue model (e Bay, E*Trade):
Receives a transaction fee for each successful transaction.
Sales revenue model (Amazon, Gap.com)
Selling goods, content or services to customers.
Affiliate revenue model (MyPoints, Epinions)
Earns money by connecting companies with potential customers by offerings special deals to its members. Fees for business referrals.
1. Epinions-> community feedback company.

8. Marketspaces are composed of many market segments.
Market Opportunity
Refers to the company’s intended marketplace (i.e., an area of actual or potential commercial value), and the overall potential financial opportunities available to the firm in that marketplace.
Realistic market opportunity is defined by the revenue potential in each of market niches in which company hopes to compete.
Marketspaces are composed of many market segments.
Your realistic market opportunity will typically focus on one or a few market segment.
1. Two major segments: Instructor-led training and Computer based training. Which further divided into smaller market niche. For computer based training, big firms (Fortune) has the largest marketplace so as a small start-up firm the size of the realistic market opportunity is 6 billion.
Fig. Marketspace and Market Opportunity in the Software Training Market

9. Competitive Environment
Refers to the those companies who already exist into market selling similar products and services. It also includes
Presence of substitute products
Potential new entrants to the market
Power of customers and suppliers over the business
Influenced by:
how many competitors are active
how large their operations are
the market share for each competitor
how profitable these firms are
how they price their products
Competitor: Direct competitor Vs. Indirect competitor
Direct competitor: Square Vs. Liver Brothers, Ltd.
Indirect competitor: Bangladesh Railway Vs. Bangladesh Biman, Different industry but offer customers alternative means of transportation.

10. Competitive Advantage
Unique skill which is used by firm to produce good and services (superior products, lower price) into market as compare to other competitors.
Technology, unique idea, or other skill
Types of Competitive Advantage
Asymmetry
One participation in a market has more resources than others.
First-mover advantage
Advantage that results for being the first in the marketplace.
Complementary resources
Resources & assets that directly not involved in the production of products but required for success, such as, marketing, management, financial assets, & reputations.
Unfair competitive adv.
When one firm develops an advantage based on factor that other firms cannot purchase.
Perfect market
A market in which there are no competitive advantages & asymmetries. All firms have equal access.
Leverage
When a firm uses its competitive advantages to achieve more advantages in surrounding markets.
Asymemetry: Applle iTune. At the beginning, better-than-average odds of success.
First-mover: Amazon.com
Unfair adv. : Any Brand name. Brand is developed based on trust, loyalty, reliability and quality.
Leverage: Amazon moves into the online grocery business leverages the company’s huge customer database & years of experience of e-commerce.

11. Market Strategy Marketing Strategy
Promoting company’s products/services to potential customers.
Strategy
Plan that details how a company intends to enter a new market and attract customers.
Best business concepts will fail if not properly marketed to potential customers.
Market strategy and execution, therefore, have the immense importance for business success.
e.g., YouTube, Twitter, or Pinterest
Uses social network marketing strategies that encourages users to post contents, build a community. Here, customers becomes part of the marketing staffs.

12. Organizational Development
Describes how the company will organize the work that needs to be accomplished.
Work is typically divided into functional departments.
Production, shipping, marketing, customer support & finance.
Hiring moves from generalists to specialists as company grows.

13. Management Team
Employees of the company responsible for making the business model work.
Strong management team gives instant credibility to outside investors, immediate market specific knowledge, and experiences in implementing business plans.
Strong management team may not be able to salvage a weak business model, but should be able to change the model and redefine the business as it becomes necessary.

14. Classification of E-Business Models

15. Categorizing E-commerce Business Models: Difficulties
No one correct way
We categorize business models according to e-commerce sector (B2C, B2B, C2C)
Type of e-commerce technology used and market focus can also affect classification of a business model.
e-Tailers  sales to individual customers (i.e., B2C)
e-Distributor  sales to another business (i.e., B2B)
Some companies use multiple business models, e.g.,
Amazon e-retailer, content provider, market creator, infrastructure provider.
eBay market creator in the B2C & C2C e-commerce, infrastructure provider

16. Snapshot of B2C Models

17. B2C Model: e-tailer
Online version of traditional retailer (i.e., online retail store)
Customer can shop at any hour of the day or night without leaving their home or office.
Similar to ‘bricks-and-mortar’ store, except customers only have to connect to the Internet or use their smartphones to place an order.
Types
Virtual merchants, e.g., Amazon, Blue Nile, Drugstore (No physical store)
Bricks-and-clicks, e.g., JCPenney, Walmart, Barnes & Noble
Catalog merchants, e.g., LLBean.com
Manufacturer-direct online sales, e.g., Dell.com
Revenue
Sales of goods

18. B2C Model: Community Provider
Sites that create a digital online environment where people with similar interests can transact (buy & sell), communicate, and receive interest-related information, and even play out fantasies by adopting online personalities called avatars.
Revenue:
Hybrid revenue model,
Advertising, subscription, affiliate referral fees.
Example:
iVillage
Babycenter.com (
Rightstart.com (
1. iVillage  34 million monthly visitors,

19. B2C Model: Content Provider
Information and entertainment companies that provide digital content over the Web.
Digital content: digital video, music, photos, text, & artwork.
Revenue
Subscription fee, pay for download, or advertisements.
Example
WSJ.com (Wall Street Journal online newspaper)
CNN.com
CBSSports.com
ESPN.com

20. B2C Model: Portal
Offers powerful search tools plus an integrated package of content and social network services.
Do NOT sell anything directly.
Services
News, , chat, music, video streaming, etc.
e.g., Google, Yahoo, MSN, Facebook
Revenue
Advertising, subscription fees, affiliate referral fees
May be general or specialized (Vortal)
Horizontal portal: Yahoo, MSN target all users of the Internet.
Vertical portal (Vortal): Sailnet.com target specialized customers

21. B2C Model: Transaction Broker
Companies that process transactions for consumers normally handled in person, by phone or by mail are transaction brokers.
Primary value proposition—saving time and money
Typical revenue model—transaction fee
Industries using this model include:
Financial services
Travel services
Job placement services
Example
E*Trade
Expedia
Tripadvisor (

22. B2C Model: Market Creator
Uses Internet technology to create markets that bring buyers and sellers together.
Examples:
Amazon.com
eBay.com
Revenue model:
Transaction fees

23. B2C Model: Service Provider
Companies that make money by selling users a service, rather than a product.
Value proposition
Valuable, convenient, time-saving, low-cost alternatives to traditional service providers
Revenue
Sales of services, subscription fees or one-time payment
Example
VisaNow.com
RocketLawyer

24. Snapshot of B2B Model

25. B2B Model: E-distributor
Supplies products and services directly to individual businesses.
Owned by one company seeking to serve many customers.
The more products and services a company makes available on its site, the more attractive that site is to potential customers.
Revenue
Sales of goods
Example
Grainger.com (distributor of maintenance, repair & operations)
Partstore.com

26. B2B Model: E-procurement
Single firm creating digital markets where sellers and buyers transact for indirect inputs.
Revenue
Fees for market-making services, supply change management
Application service providers
A company that sells access to Internet-based software applications to other companies.
Finding new customers for software, increasing market size and achieving scale economics.
Scale economics Efficiencies that arise from increasing the size of a business.
Example
Ariba (
Create software where large firms organize their procurement process
Creates custom-integrated online catalogs (suppliers list their offerings) for purchasing firms.
PerfectCommerce

27. B2B Model: Exchanges
Electronic digital marketplace where suppliers and commercial purchasers can conduct transactions.
Usually owned by independent firms whose business is making a market.
Usually serve a single vertical industry.
Revenue
Commission fees and transaction fees.

28. B2B Model: Industry Consortia
Industry-owned vertical marketplaces that serve specific industries, such as the automobile, aerospace, chemical, floral, or logging industries.
Horizontal marketplaces, in contrast, sell specific products and services to a wide range of industries, such as marketing-related, financial and computing services.
Example
Exostar, online trading exchange for the aerospace & defense industry.

29. B2B Business Models: Private Industrial Networks
Digital networks designed to coordinate the flow of communications among firms engaged in business together.
The network is owned by a single large purchasing firm.
Participation is by invitation only to trusted long-term suppliers of direct inputs.
e.g, Walmart
Suppliers of Walmart can monitor their products sales by using Walmart’s private network.

30. Business Models in Emerging E-commerce Areas
Consumer-to-Consumer (C2C)
Provides a way for consumers to sell to each other, with the help of an online market maker.
Peer-to-Peer (P2P)
Links users, enabling them to share files and common resources without a common server.
M-commerce
E-commerce business models that use wireless technologies.
To date, m-commerce a disappointment in the United States; however, technology platform continues to evolve.

31. E-commerce Enablers: The Gold Rush Model
Internet infrastructure companies
Provide hardware, software, networking, security, e-commerce software systems, payment systems, databases, hosting services, etc.
Business model is focused on providing the infrastructure necessary for e-commerce companies to exist, grow and prosper.
Example
Akamai (
Amazon web server

32. How the Internet & Web Change Business (Industry Structure)
E-commerce changes the nature of players in an industry and their relative bargaining power by changing:
the basis of competition among rivals
the barriers to entry
the threat of new substitute products
the strength of suppliers
the bargaining power of buyers

33. How the Internet & Web Change Business (Industry Value Chains)
Set of activities performed in an industry by suppliers, manufacturers, transporters, distributors, and retailers that transform raw inputs into final products and services.
Reduces the cost of information and other transactional costs.

34. How the Internet & Web Change Business (Firm Value Chains)
Set of activities that a firm engages in to create final products from raw inputs
Increases operational efficiency.

35. How the Internet & Web Change Business (Firm Value Webs)
Networked business ecosystem that uses Internet technology to coordinate the value chains of business partners within an industry, or within a group of firms.
Coordinates a firm’s suppliers with its own production needs using an Internet-based supply chain management system.

36. Business Strategy Generic strategies
A set of plans for achieving superior long-term returns on the capital invested in a business firm (i.e., a plan for making a profit in a competitive environment).
Profit, the difference between the price of a firm is able to charge for its products and the cost of producing & distributing goods.
Generic strategies
Differentiation, the ways producers can make their products or services unique & different to distinguish them from those of competitors. e.g., Warby Parker (eyeglasses company)
Commoditization, no difference among products or services, and the only basis of choosing is price.
Cost competition, offering products or services at a lower cost than competitors. e.g., Walmart.
Scope strategy, compete in all markets rather than just local, regional or national markets. e.g., Apple iDevices.
Focus/market niche strategy, compete within a narrow market or product segment. e.g., Bonobos.com
Customer intimacy, develop strong ties with customers in order to increase switching cost. e.g., Amazon, Netflix.

37. Question Please ?