Lecture 2: E-Business Models

Agenda Introduction Types of Business Models Storefront model Auction model Portal model Dynamic pricing model Many more models….

Introduction There are many benefits to bringing your business to the web. An e-business offer Personalized service High quality customer service & improved supply chain management An e-business is defined as a company that has an online presence. E-business has the ability to sell, trade, barter and transact over the web. The combination of a company’s policy, operations, technology and ideology define its business model.

Types of Business Models The Internet has given rise to many business models and based on this e-business applications have been developed Business models have been defined and categorized in many different ways: Storefront model Auction model Dynamic pricing model Portal model And others…

1. Storefront Model (1) Online shopping is a very popular activity The storefront model combines transaction processing, security, online payment, and information storage to enable merchants to sell their products on the web. This is a basic form of e-commerce where buyer and seller interact directly

1. Storefront Model (2) Merchants need an online catalog of products, take orders through their website, accept payments in a secure environment, send merchandise to customers and manage customer data (e.g. customer profiles) They also need to market their sites to potential customers Some of the most successful e-businesses are using the storefront model. Many of the leading storefront model companies are B2C companies. E.g. more.com, ticketmaster.com

1.1 Shopping-Cart Technology Common e-commerce enabler: Shopping-Cart This order processing technology allows customers to accumulate items they wish to buy as they continue shopping Supporting the shopping cart is the product catalog, which is hosted on the merchant server in the form of a database. The merchant server is the data storage and management system employed by the merchant. The database contains basically product information and also customer information. E.g Amazon.com

1.2 Online Shopping Malls Online shopping malls present customers with a wide selection of products and services. More convenient than searching and shopping at independent online storefronts. Customers can search and shop for a variety of products and rather than making several separate purchases, they can use the mall’s shopping cart technology to purchase items from many stores into a single transaction E.g. mall.com

2. Auction Model (1) Auction sites act as forums through which internet users can log-on and assume the role of either bidder or seller. As seller, you can post the item you wish to sell, the minimum price you require to sell your item and a deadline to close the auction. As bidder, you may search the site for availability of the item you are seeking, view current bidding activity and place a bid. Some sites will allow you to submit a maximum bidding price and will continue to bid for you. E.g. ebay.com

2. Auction Model (2) Reverse auction model allows the buyer to set a price as sellers compete to match or even beat it. E.g. liquidprice.com A faster option is when the buyer sets a reserve price A reserve price is the lowest price that the seller will accept in any type of auction Sellers can set the reserve price higher than the minimum bid If no bid meets the reserve price, the bid is unsuccessful

2. Auction Model (3) Auction sites usually require commission on sales but they are usually a forum for buying and selling No involvement in payment After auction is complete, buyer and seller are notified and method of payment and delivery is worked out between the two parties.

3. Portal Model (1) Portal sites offer various services in one place. They offer news, sports, weather as well as the ability to search the web. Search engines are horizontal portals Portals that aggregate information on a broad range of topics Vertical portals More specific Offer a great deal of information pertaining to a single area of interest Online shopping is a popular addition to the major portals Provides users with a shopping page that links them to thousands of sites carrying a variety of products E.g. yahoo.com, IMDB

3. Portal Model (2) Portals link consumers to online merchants, online shopping malls and auction sites. Portals help users collect information on the item for which they are looking and allow users to browse independently owned storefronts. Yahoo allows users to browse through a variety of sites while maintaining the convenience of paying through their Yahoo account.

4. Dynamic Pricing Models Name-Your-Price Model Comparison Pricing Model Demand-Sensitive Pricing Model Bartering Model Rebates Offering Free Products and Services

4.1 Name-Your-Price Model Empowers customers by allowing them to choose their price for products and services Many of businesses that offer this service have formed partnerships with leaders of industry such as travel, lending, retail, etc These industry leaders receive the customer’s desired price from the intermediary and decide whether to sell or not the product and service. If customer’s price is not reasonable, they will be asked to chose another price. E.g. priceline.com

4.2 Comparison Pricing Model Allows the customer to poll a variety of merchants and find a desired product or service at the lowest price These sites often get their revenue from partnerships with particular merchants Be cautious because price obtained may not be the best price available on the entire web. E.g. bottomdollar.com

4.3 Demand-Sensitive Pricing Model The concept is that the more people who buy a product in a single purchase, the lower the cost-per-person becomes. Selling products individually can be expensive because vendor must price a product so that it covers selling and overheard cost while still generating a profit. When customers buy in bulk, this cost is shared and profit margin increased. E.g. mercata.com

4.4 Bartering Model Bartering – offer an item in exchange with another. Ubarter.com is a site that allows individuals and companies wishing to sell a product to post their listings. The seller makes an initial offer with the intention of bartering to reach a final agreement with buyer. A broad range of products and services are available for barter. Examples of items bartered are overstocked inventory items, factory surplus and unneeded assets.

4.5 Rebates Help attract customers to a site Offers “everyday low prices” and specials to keep customers coming back. Normally such companies have partnerships with wholesalers and retailers who will offer discount and they passes these discount to customers in the form of rebates. E.g. ebates.com

4.6 Offering free products and services Many entrepreneurs are forming their business models around advertising-driven revenue streams. TV networks, radio stations, magazines ad print media use advertising to fund their operations and make a profit. Companies offer their products for free in the web. They form partnerships with companies to exchange products and services for advertising space. E.g. iwon.com, freelotto.com, freemerchant.com.

B2B Exchanges B2B exchanges allows businesses to buy, sell, auction, barter and distribute products and services Examples: www.ework.com (Exchange employee) www.itoi.com (Industry to Industry) www.biz2biz.com (Business to Business) www.icgcommerce.com (Deals with the supply chain)

B2B Service Providers B2B service providers make B2B transactions on the Internet easier These E-Businesses help other businesses improve policies, procedures, customer service and general operations Solutions include supply chain management, logistics, procurement. Example www.ariba.com

Online Trading and Lending Models Online trading empowers the average investor to handle their own investments Trading sites offer Research Investments analysis Stock history Simple buying and selling Online Trading sites include: E*TRADE Ameritrade Fidelity.com

Getting a Loan Online A growing segment of E-Business. Loan online at a lower rate than other traditional channels. E-loan – www.eloan.com E-credit – www.ecredit.com Clients – HP, Intel, other businesses Loan direct – www.loansdirect.com

Recruiting on the Web Resume tutorials, cover letter help, and free job searching available on the Web Employers can find new employees from a global pool of applicants Earn rewards for referring new hires to recruiters Examples: Guru.com Dice.com Refer.com Sixfigurejobs.com Monster.com

Recruiting on the Web

Online Travel Services Customers now have the power to bypass a travel agent Discounts and low fares available online Name-your-price for tickets, hotels and car rentals “Last minute” fares often lower online Examples: Expedia.com Travelocity.com Cheaptickets.com

Online Entertainment The Web is a form of entertainment Interactive television will use the Internet to offer interactivity to the world MP3 and file-transfer technology threaten copyright law Examples: MP3.com iCast.com Napster.com

Online Automotive Sales Consumers access automobile information empowering them to make an informed buying decision Dealers use the Web to showcase vehicles Online auto auctions give buyers more options Examples: Auto.com Autobytel.com Autoparts.com Ramadbk.com

Energy Online A number of companies have set up energy exchanges where buyers and sellers come to communicate, buy, sell and distribute energy. Companies sell crude oil, electricity and products and systems for distributing them Examples: Houstonstreet.com Retailenergy.com

Selling Brainpower Companies can buy patents and other intellectual property online It is often difficult for small businesses to invest time and money in research and development Hiring outside contractors or companies to complete projects and offer consulting. Contractors can find projects to match their needs on the Web Examples: Hellobrain Yet2.com

E-Learning E-Learning is growing rapidly as the number of Internet users increases. Universities and other training companies offer high quality distance education over the Web. Allows teachers and educational institutions to post their courses on the web. E.g.: www.click2learn.com www.saba.com www.online.uillinois.edu E-books – www.xlibris.com

Case Study Zopa.com SmithKline Beecham