Models of E-Business ECIS560: Information Systems and E-Commerce

Properties of the Internet Mediating technology Connects people/businesses Universality Both enlarges and shrinks the world Network externalities Metcalfe’s law Distribution channel Replacement vs. extension effect Time Moderator Information Asymmetry Shrinker Infinite Virtual Capacity Low Cost Standard Paid for by the US government Creative destroyer New industries, transforming existing industries Transaction Cost Reducer

5-Cs Developing and delivering value to customers involves several activities that rely on information exchange Coordination Commerce Community Content Communication The Internet has had tremendous impacts on all five Cs.

Business Models Four decisions/choices/issues Value proposition or value cluster Online customization allows targeting multiple segments Marketspace offering Product, service, information, or combination Unique, defendable resource system A financial model

1. The Value Cluster Multiple rather than singular proposition Technology allows focus on several segments and several benefits Must identify Target Segment Market size and growth, unmet needs, weak competition Focal Customer benefits One or more benefits? Is there product commoditization on the web? Differentiating factors What is it about an online company that makes its offerings significantly better than competition?

2. Marketspace Offerings Three tasks for senior management Identify scope of offering Category-specific ( Cross-category ( Metamarkets (“customers tend to think in terms of activities while firms tend to think in terms of products” – Sawhney, 2001) –Companies sometimes called metamediaries ( Identify customer decision process Map offering to decision process

3. Defendable System Resource Choice of actions and assets used to deliver value cluster Identify core benefits in value cluster Identify capabilities needed to provide each benefit Link resources to each benefit Identify degree to which firm can deliver capability Identify partners who can complete capabilities Stress in online world is on strategic partnerships Can include –portal agreements (AOL) –anchor-tenant agreements (major provider of service for retailers) –or promotion agreements (example, frequent flier miles with purchase)

4. Financial Models Revenue Models Advertising, product sales, transaction fee, subscription Shareholder Value Company plans to increase profits over time Examples Company-derived value creation –Best information, widest assortment,lowest prices, most personalized, best experience, broadest user network… User- and company-derived value creation –Metamarket switchboards (brings buyers and sellers together based on common activity) –Traditional and Reverse Auctions –Category Switchboard

Common B2C Models Virtual Storefront Marketplace Concentrator Information Broker Transaction Broker Electronic ClearingHouse Reverse Auction Digital Product Delivery Content Provider

Internet Business Models 1. Virtual Storefront Sells physical goods or services online instead of through a physical retail outlet 2. Marketplace Concentrator Concentrates information about products and services from multiple providers at one central point

Internet Business Models 3. Information Broker Provide product, pricing, and availability information. May also facilitate transaction 4. Transaction Brokers Buyers can view information but primary goal is to complete transaction

Internet Business Models 5. Electronic Clearing Houses Auction like setting where price and availability change in response to consumer actions 6. Reverse Auction Consumers submit bid to multiple sellers to buy goods or services at a buyer-specified price

Internet Business Models 7. Digital Product Delivery Sells and delivers software, multimedia, and other digital products over the internet 8. Content Provider Creates revenue by providing content. Customer may pay to access content or revenues may be generated through ads

Other Taxonomies of e-Business Models (Rappa and Timmers 2000) Brokerage Bring buyers and sellers together Charge transaction fee Sub-types Buy/sell fulfillment Market exchange Buyer aggregator Virtual mall Metamediary Auction broker Reverse auction Distributor

More models Advertising Has a site with useful content Generates revenues through banners, buttons, etc. Sub-types Generalized portal Personalized portal Specialized portal Free model Bargain discounter

More models Infomediary Collects valuable information on consumers and then sells it to firms (data mining) Can also collect information about firms and sell to consumers Sub-types Recommender system Registration model

More models Merchant Sell goods and services over the Internet May be through list prices or auction Manufacturing Manufacturers try to bypass intermediaries and go directly to consumer Affiliate Merchant has affiliates that have a click-through to merchant site Affiliate paid a fee for every “click-through” that results in a sale

More models Community Based on community loyalty Good market target Subscription Specialized content for a price Often mixed with free content Utility Firms pay as they go Only pay for services consumed

What is B2B All About? A transaction conducted electronically between businesses over the Internet, extranets, intranets, or private networks. Spot-buying Strategic sourcing It is characterized by the attempt to automate the trading process in order to improve it.

Models of B2B transactions Company-Centric Sell-Side (one-to-many) Buy-Side (many-to-many) E-Marketplace (many-to-many) Vertical exchanges Horizontal exchanges E-Commerce Services E-infrastructure (consultants, standards developers) Web Hosting and Security E-process (payments, SC integration, etc.) E-markets (sales, advertisement, etc,) E-content (catalog management) E-service (CRM, directory services)

Company-Centric B2B : Sell Side Model

Company-Centric B2B : Buy Side Model

E-Marketplace (many-to-many)

Sell Side vs. Buy Side: Some transaction models Sell Side Forward auction Sell from own site (Covisint) Sell from intermediary (fairmarket.com) Buy Side Reverse Auction (shoppoint.co.kr) Aggregation of supplier catalogs Group purchasing plan (internal – GE, vs. external aggregations – mobshop.com) Electronic Bartering

Impact of B2B on intermediaries Disintermediation Elimination of retailer or distributor Reintermediation Changing the role of the intermediary Hypermediation Few organizations able to sell directly to consumer People want broad product variety to choose from All types of intermediaries involved Content providers, affiliate sites, search engines, portals, etc.

Advantages of B2B? Reduced Purchasing Costs (through process integration) Increased market efficiency (increased market base with lower acquisition costs) Greater market intelligence (statistical analysis of market activity) Decreased inventory levels Collaborative platform for buyers and sellers

Gains and Risks: Buyers 1-stop shopping Search and comparison shopping Huge variety Volume discounts Unlimited detailed info Access to new suppliers Status review and easy reordering Speedy delivery likely Less maverick buying Unknown Vendors Loss of customer service quality (inability to compare all services) Gains Risks

Gains and Risks: Sellers New channel for selling No physical store needed Reduced ordering errors Sell 24/7 Reach new customers at little cost Promote business via exchange Outlet for surplus inventory Easier to go global Loss of CRM, and customer experiences and practices Price wars Pay transaction fees Possible loss of customers to competitors Gains Risks

Public Policy Technical standards I-Way Infrastructure (telecom, cable, etc.) Multimedia content Messaging and Information Distribution Common business services (eg. security) Apps: PC banking, Advt., video-on-demand An Electronic Commerce Framework

Some Problems with EC Pornography Privacy Censorship Haves and have-nots Neo-luddites

Other Issues and Risks Transborder data flows Electronic fraud Hacker attacks Copyright issues Legal questions validity of electronic signatures liability legality of electronic contracts

Issues.... Public Policy role of government censorship regulations Net potatoes Quality of content Getting lost in cyberspace (info overload) Overload of networks