Overview of Electronic Commerce Chapter 1 Overview of Electronic Commerce

EC Business Models business model A method of doing business by which a company can generate revenue to sustain itself

EC Business Models "Whenever a business is established, it either explicitly or implicitly employs a particular business model that describes the architecture of the value creation, delivery, and capture mechanisms employed by the business enterprise. The essence of a business model is that it defines the manner by which the business enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit: it thus reflects management’s hypothesis about what customers want, how they want it, and how an enterprise can organize to best meet those needs, get paid for doing so, and make a profit".---David Teece 2010

EC Business Models Six elements of a business model include descriptions of: Customers to be served and the company’s relationships with these customers including customers’ value proposition All products and services the business will offer The business process required to make and deliver the products and services The resources required and the identification of which ones are available, which will be developed in house, and which will need to be acquired The organization’s supply chain, including suppliers and other business partners The revenues expected (revenue model), anticipated costs, sources of financing, and estimated profitability (financial viability)

Business Model 2.0 Chen (2009) pointed out that the business model in the twenty-first century has to take into account the capabilities of Web 2.0, such as collective intelligence, network effects, user generated content, and the possibility of self-improving systems.

EC Business Models revenue model Description of how the company or an EC project will earn revenue value proposition The benefits a company can derive from using EC

EC Business Models The major revenue models are: Sales Transaction fees Subscription fees Advertising fees Affiliate fees Other revenue sources

EC Business Models

Transaction fee model

Subscription model ProQuest's provides electronic and microform information products and services to academic, school, public, corporate, and government libraries around the world.

Advertisement model

Affiliate model Sites that steer business to an “affiliate” receive a referral fee or percentage of the revenue from any resulting sales.

Sales model

EC Business Models Functions of a Business Model Articulate a customer value proposition Identify a market segment Define the venture’s specific value chain structure Estimate the cost structure and profit potential Describe the venture’s positioning within the value network linking suppliers and customers Formulate the venture’s competitive strategy

EC Business Models Typical EC Business Models Online direct marketing Electronic tendering systems. Name your own price Find the best price Affiliate marketing Viral marketing Group purchasing Online auctions Product and service customization Electronic marketplaces and exchanges Information brokers (informediaries) Bartering Deep discounting Membership Value-chain integrators Value-chain service providers Supply chain improvers Social networks, communities, and blogging Direct sale by manufacturers Negotiation

EC Business Models tendering (bidding) system Model in which a buyer requests would-be sellers to submit bids; the lowest bidder wins name-your-own-price model Model in which a buyer sets the price he or she is willing to pay and invites sellers to supply the good or service at that price

EC Business Models affiliate marketing An arrangement whereby a marketing partner (a business, an organization, or even an individual) refers consumers to the selling company’s Web site viral marketing Word-of-mouth marketing in which customers promote a product or service to friends or other people

EC Business Models SMEs :Small-to-medium enterprises

EC Business Models group purchasing Quantity (aggregated) purchasing that enables groups of purchasers to obtain a discount price on the products purchased customization Creation of a product or service according to the buyer’s specifications

New models: PERSONAL SUBSCRIPTION The model is relatively simple: consumers join a monthly club, complete a personal style survey, and are then shown a selection of products each month that they can choose to buy for a flat rate. While traditional online retailers struggle to gain and retain customer mindshare, and must constantly re-engage and convert customers to stay profitable, subscription style services generate far more predictable revenue streams.

New models: Subscription retailers also capture data on the tastes and size measurements of individual customers in order to deliver personalized product selections. This not only drives greater customer loyalty, but also enables retailers to better manage inventory risk.

New models: an early subscription retail innovator, is a beauty subscription service that addresses product discovery and sampling

New models: offers personalized, stylist-selected shoes and accessories at affordable prices, delivered straight to doorsteps, and has attracted over 3 million members and over $60 million in venture capital from top tier firms.

New models: Challenges: Competition in the subscription retail space is heating up, so we might start to see increasing churn rates. While subscription services have stickier revenues, they are vulnerable to cancellations. In order to succeed over the long term, they must continue to offer products that are constantly exciting and relevant to their customers. Multiple months of disappointment will most likely result in lost customers.

New models: SOCIAL MERCHANDISING Social merchandising enables retailers to collect consumer feedback on goods prior to buying them. Typically, consumers are asked to vote, comment or curate products (sometimes through contests), indicating their preferences in a way that generates hugely useful data that retailers can leverage to more accurately predict what will sell, better aligning supply and demand. Social merchandising also engages customers and drives greater loyalty.

New models: Threadless ---One of the first online fashion retailers to let the crowd vote on their favorite t-shirt designs and determine which designs would be put into production and sold on the site.

New models: Raised $19.8 million in 2010, experimented with a successful “Be the Buyer” program, which lets consumers vote on their favorite items, generating data that informs Modcloth’s merchandising strategies.

New models: Challenges With social merchandising, timing is a challenge. What consumers want today may not be the same as what they want in a few months time. So, for these feedback loops to be most effective, short cycle production and fulfillment are essential.

Benefits and Limitations of EC Benefits to Organizations Consumers Society Limitations Technological Nontechnological

Team assignments and projects Each team will share a e-commerce business model that excites your team members. Give a brief description of the chosen business model (use the framework you learned in the class). Make a SWOT analysis about this model.