Business Models and e-Commerce Jason C.H. Chen Professor, MIS School of Business Gonzaga University Spokane, WA

TM -2 Business Models and e-Commerce; Dr. Chen Widespread Use on... Button  a 13 century invention, took 400 years Bicycle  appeared in 1818 and took 50 years to catch on Telephone  invented in 1876, needed 35 years to find the beginnings of a mass market Television  took 26 years PCs  took 16 years

TM -3 Business Models and e-Commerce; Dr. Chen Internet Society – Each Media Reach to 50 Million Radio 38 years, Television 13 years, Cable TV 10 years, Internet users only took  5 years to reach this goal.

TM -4 Business Models and e-Commerce; Dr. Chen Business Model vs. Revenue Model Business model is the architectural configuration of the components of transactions designed to exploit business opportunities. Revenue model refers to “ the specific ways in which a business model enables revenue generation. N

TM -5 Business Models and e-Commerce; Dr. Chen Business ModelRevenue Model Value creationValue appropriation It describes the way in which a company enables transactions that create value for all participants, including partners, suppliers and customers. It can be realized through a combination of - subscription fees, - advertising fees, - transactional income (e.g., fixed transactional fees, referral fees, fixed/variable commissions, etc) Business vs. Revenue Model

TM -6 Business Models and e-Commerce; Dr. Chen What is Business Modeling? Business modeling is the activity of representing aspects of or concepts from the business in a diagrammatic notation or simulation, using an abstraction to reveal only the desired elements.

TM -7 Business Models and e-Commerce; Dr. Chen Four Key Drivers 1. Efficiency 2. Complementarities 3. Lock-In 4. Novelty

TM -8 Business Models and e-Commerce; Dr. Chen 1. Efficiency Internet makes it possible to increase efficiency in several ways.  Information asymmetries between buyers and sellers sellers provide information to buyer via Internet reverse market (buyers … ) A business model can unlock hidden value by enhancing transactional efficiencies by enabling: - reduced search costs, - transaction spped, - reduced distribution costs, - reduced inventory costs, etc.

TM -9 Business Models and e-Commerce; Dr. Chen 2. Complementarities Companies can leverage value creation for their products (and services) from other suppliers  be able to play a vital part in building online virtual communities.  be able to capture the benefits from combining online with offline business

TM -10 Business Models and e-Commerce; Dr. Chen 3. Lock-in The ability to prompt users to engage in repeat transactions  creating switching costs (from loyalty programs) e.g., Amazon ’ s “ one-click ” ordering systems free services  providing transaction safety  creating the perception of trust  providing customization and personalization

TM -11 Business Models and e-Commerce; Dr. Chen 4. Novelty Innovation has always involved the introduction of novel products or services or processes.  Internet offers limitless possibilities to innovate in the manner in which transactions are enabled - by introducing new business and revenue models

Table Internet Revenue Models Revenue TypeDescription Product salesSell or license physical or information-based product AdvertisingMarket other companies ’ products or promotions Subscription feeCharge for regular receipt or product or information Membership feeCharge to belong to a private group or services Commission or transaction fee Agent, broker, or intermediary charges for service provided Service/consulting feeCharge for services provided Table Properties of Digital Information that Influence its Economic Value ReusableCan be sold without transferring ownership Can be consumed without being depleted CustomizableCan be presented in different forms (e.g., video, audio, text) Can be broken up and reconfigured Time-valuedThe inherent time value of information can be exploited Value can be degrade (or increase) over time ProductizedCan be used to create new products and services or enhance the value of existing ones.

TM -13 Business Models and e-Commerce; Dr. Chen Conclusion Companies are rapidly changing and evolving their business models in order to adapt to the rapidly changing market conditions.  Traditional or legacy firms may combine their online operations with existing offline business, are well positioned to draw liquidity (I.e., transaction volume), and take advantage of complementarities and create lock-in N