Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 1 Chapter 5: Business models modified for 2005  Questions answered in this chapter: What is a business model? Do firms compete on value propositions or value clusters? How does the firm develop an online offering? What is a successful, unique resource system? What are the financial models available to firms? What business classification schemes seem most appropriate for the new economy?

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 2

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 3 Do Firms Compete on value Propositions or Value Clusters?

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 4 Do Firms Compete on value Propositions or Value Clusters? (continued)  Choice of Segments Market size and growth rates Unmet or insufficiently met customer needs Week or nonexistent competitors  Choice of Focal Customer Benefits Single-benefit approach Multiple-benefit approach  Choice of Unique and Differentiating Capabilities Tangible assets Intangible assets Capabilities of the organization

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 5

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 6 Quality of a value proposition or cluster  Customer Criteria. Do target customers understand the proposition or cluster? Is it relevant to their needs? Is it perceived as unique or indistinguishable from other propositions or clusters?  Company Criteria. Will the company “rally around” the proposition or cluster? Does the company have the resources or capabilities to own this cluster?  Competitive Criteria. Are other competitors trying to hold a similar proposition or cluster? Can current or future competitors match this cluster?

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 7 How Does a Firm Develop an Online Offering?

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 8 Exhibit 4-2: Customer Decision Process — Flower Example Disposal Loyalty Satisfaction Purchase Decision Evaluation of Alternatives Information Search Problem Recognition PREPURCHASE PURCHASE POSTPURCHASE

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 9

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 10 What Is a Successful Resource System?  Modifications to the activity system logic for the online marketplace Shift from physical world to virtual and back to physical world Shift from a supply-side focus to a demand-side focus Shift from activities to capabilities Shift from single to multifirm systems

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 11 Specifying a Resource System  Step 1: Identify core benefits in the value cluster  Step 2: Identify capabilities that relate to each benefit (In ed.2 they combine call capabilities resources.) So, this is identify resources.  Step 3: Link resources to each capabilities. (In ed.1, resources was the actual systems, and they are no longer listed in ed.2.)  Step 4: Identify to what degree the firm can deliver each capability  Step 5: Identify partners who can complete capabilities

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 12 From ed.1

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 13 Online Gift Center Integrated Partner Offers Broad Assortmen t of Gifts Customer Service Wide Reach to Customers Widesprea d Easy Access Widesprea d Easy Access Multiple Contact Points Popular Website High Quality of Flowers Technology Strong Brand Name Strong Distribution Network =Resources = Core Benefits Core Benefits Exhibit 4-4: Flowers.com Resource System From ed.2

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 14 Criteria to Assess the Quality of a Resource System  Uniqueness of the system  Links between resources and benefits  Links among resources in the system  Links among resources (and supporting systems)  Links between virtual world and physical world business systems  Sustainable advantage

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 15

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 16 The Role of Partnerships  Portal agreements (AOL, Yahoo, MSN, etc.)  Anchor tenant agreements (exclusive partnerships)  Promotion agreements (cross industry promotions such as frequent-flier miles, telephone discount rates, gift certificates, etc.)

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 17 What Are the Financial Models Available to Firms?

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 18 Revenue Models  Advertising - Earning revenue through the selling of ads (banner or interstitial), site sponsorships, event underwriting, or other forms of communication  Product, Service, or Information Sales- Income generated from the sale of goods on the site  Transaction- Revenue accrued from charging a fee or taking a portion of the transaction sum  Subscription- Revenue generated through subscriber fees for magazines, newspapers, or other information/service businesses  License Fees- Revenue generated from licensing of content

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 19

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 20 Online Business Models (value models for shareholders)  Metamarket Switchboard Model  Traditional and Reverse Auction Models  Freshest-Information Model  Highest-Quality Model  Widest-Assortment Model  Lowest-Price Model  Most-Personalized Model

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 21 Exhibit 4-6: Summary of Online Business Models

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 22  Value Cluster Target segments (savvy investors, “seekers”, “dabblers”) Key benefits (up-to-the-minute information; original, in-depth analysis; personal-finance tools; multiple points of access) Supportive rationale (experienced editorial staff, multiple forms of media, CBS News and Financial Times brand names) Example: Marketwatch.com Business Model

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 23 Marketwatch.com Business Model (cont’d)  Supportive Rationale Experienced editorial staff with financial expertise Infrastructure allowing access from multiple forms of media Credibility through its association with CBS News

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 24 Marketwatch.com Business Model (continued)  Marketspace Offering Scope: The best provider of financial information and analysis across a number of media Media: Online, television, radio, wireless devices

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 25

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 26 Marketwatch.com Business Model (continued)  Resource System CBS News Financial Times Marketwatch.com BigCharts.com Content partners (Hoovers, Zacks, INVESTools, etc.) Distribution partners (Yahoo, AOL, Quicken, etc.)

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 27 Exhibit 4-8: MarketWatch.com Resource System =Core Benefits =Resources Credible Analysis and Personal Finance Tools Up-to-the- Minute Information Multiple Points of Access Distribution Partnerships Distribution Partnerships Association with CBS Association with CBS Experienced Editorial Staff Experienced Editorial Staff Partnerships with Content Providers Partnerships with Content Providers Available Infrastructure Available Infrastructure International Presence International Presence CORE BENEFITS

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 28 Old View of Resource System from ed.1

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 29 Exhibit 4-9: Partners Give / Get Matrix

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 30 Marketwatch.com Business Model (continued)  Revenue model Advertising revenue (72% in 1999) Licensing revenue (21% in 1999) Other revenue, subscription, etc. (7% in 1999)  Value model (best information)  Growth model Advanced portfolio-tracking tools International markets Services to address expanded trading hours Expand reach to wireless devices Expand TV and radio shows to more stations

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 31

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 32 Exhibit 4-10: MarketWatch.com’s Revenue Distribution

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 33 Alternative to Business Value Models: Market-wide Classification Schemes  Porter generic strategy model differentiation strategy cost strategy niche strategy  Sawhney and Kaplan model business-to-customer hubs business-to-business hubs (vertical and functional hubs)  Rayport, Jaworski, and Siegal model Forward-integrated producers Supply-side aggregators Backward-integrated user Demand-side aggregators

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 34

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 35

Modified for 2005 Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models 36