E-COMMERCE BUSINESS MODELS AND CONCEPTS CHAPTER 2

LEARNING OBJECTIVES  Identify the key components of e-commerce business models  Describe the major B2C business models  Use an industry competition analysis framework to describe how e-commerce has impacted the level of competition in online industries  Understand key business concepts and strategies applicable to e-commerce

E-COMMERCE BUSINESS MODELS  A business model is a set of planned activities designed to result in a profit in a marketplace  An e-commerce business model aims to use and leverage the unique qualities of the Internet, the Web, and the mobile platform  There are eight key elements of a business model

KEY ELEMENTS OF A BUSINESS MODEL (FIGURE 2.1) ComponentsKey Questions Value propositionWhy should the customer buy from you? Revenue modelHow will you earn money? Market opportunityWhat marketspace do you intend to serve, and what is its size? Competitive environmentWho else occupies your intended marketspace? Competitive advantageWhat special advantages does your firm bring to the marketspace? Market strategyHow do you plan to promote your products or services to attract your target audience? Organizational developmentWhat types of organizational structures within the firm are necessary to carry out the business plan? Management teamWhat kinds of experiences and background are important for the company’s leaders to have?

REVENUE MODEL (TABLE 2.2)  A firm’s revenue model describes how the firm will earn revenue, generate profits, and produce a superior return on invested capital  Most companies rely on one, or some combination, of the following major revenue models:  Advertising (Yahoo)  Subscription (WSJ)  Transaction fee (eBay)  Sales (Amazon)  Affiliate (MyPoints)  Why may a company want more than one revenue model?

COMPETITIVE ADVANTAGE  Firms achieve a competitive advantage when they can produce a superior product and/or bring a product to market at a lower price than most, or all, of their competitors  Two of the most common forms of competitive advantage are lower costs (fixed and/or variable), or better (differentiated) products or services  What are some other sources of competitive advantage?

RAISING CAPITAL  Raising capital is one of the most important functions for a founder of a start-up business  Many entrepreneurs initially use personal funds (seed capital) to start their business  Once such funds are exhausted, if the company is not generating enough revenue to cover operating costs, additional capital will be needed  Sources of capital include:  Incubators (accelerators) – provide funding and support services  Angel investors – provide funding in exchange for an equity share in the business  Venture capital investors – invest funds they manage for other investors  Crowdfunding – using the Internet to enable individuals to contribute to a project (example crowdfunding sites include Kickstarter, Indiegogo, RocketHub, and Crowdtilt)

MAJOR B2C E-COMMERCE BUSINESS MODELS (TABLE 2.6)  E-tailer  Virtual merchant, bricks-and-clicks, catalog merchant, and manufacturer-direct  Community provider  Content provider  Portal  General portals, specialized portals, or search services  Transaction broker  Market creator  Service provider

OTHER E-COMMERCE BUSINESS MODELS  B2B e-commerce business models will be discussed later in Chapter 12  Consumer-to-consumer (C2C)  E-Commerce Enablers (infrastructure and support service providers, summarized in Table 2.5)  Server hardware and software, cloud providers, hosting services, domain name registration, content delivery, site design, mobile commerce hardware and software, multimedia, security, payment, performance management, CRM systems, fulfillment, online marketing services, customer reviews and forums, live customer service, and Web analytics

INDUSTRY STRUCTURE  Industry structure refers to the nature of the players in an industry and their relative bargaining power  When you describe an industry’s structure, you are describing the general business environment in an industry and the overall profitability of doing business in that environment  It is important for firms to assess the level of competition in their current and/or potential industries (industry structural analysis)  The best known framework for assessing the level of competition in an industry is Michael Porter’s competitive forces model

ASSESSING INDUSTRY COMPETITION  Porter’s five forces include:  The threat of entry of new competitors  The bargaining power of suppliers  The bargaining power of customers (buyers)  The threat of substitute products or services  The rivalry among existing competitors  What impact has e-commerce had on industry competition (based on each of the five forces and overall) when compared with competition levels in traditional industries?

VALUE CHAINS  While an industry structural analysis helps you understand the impact of e- commerce technology on the overall business environment in an industry, a more detailed industry value chain analysis can help identify more precisely just how e-commerce may change business operations at the industry level  A value chain is a set of activities performed in an industry or in a firm that transforms raw inputs into final products and services  Figure 2.4 shows an industry value chain  Figure 2.5 shows a firm value chain

E-COMMERCE AND INDUSTRY VALUE CHAINS (FIGURE 2.4)

E-COMMERCE AND FIRM VALUE CHAINS (FIGURE 2.5)