ELC 200 Day 4 Introduction to E-Commerce 1 Copyright, Tony Gauvin, UMFK, 2011

Agenda Questions? Finish E-commerce Business Models and Concepts Assignment 1 posted  Due By next 9:35 AM (nest class)  assignment1.pdf assignment1.pdf Assignment 2 Posted  Due Feb 21  assignment2.pdf assignment2.pdf

e-commerce Kenneth C. Laudon Carol Guercio Traver business. technology. society. eighth edition Copyright © 2012 Pearson Education, Inc.

Chapter 2 E-commerce Business Models and Concepts

Insight on Business: Class Discussion Is Groupon’s Business Model Sustainable? What is the value of Groupon to merchants? What types of merchants benefit the most?Groupon What is the value of Groupon to investors? Is Groupon overvalued ? What obstacles does Groupon face? Does Google Offers present a threat to Groupon’s business model?Google Offers Copyright © 2012 Pearson Education, Inc.Slide 2-5

Categorizing E-commerce Business Models No one correct way We categorize according to:  E-commerce sector (e.g. B2B)  E-commerce technology (e.g. m-commerce) Similar business models appear in more than one sector Some companies use multiple business models (e.g. eBay) Copyright © 2012 Pearson Education, Inc.Slide 2-6

B2C Business Models: Portal Search plus an integrated package of content and services Revenue models:  Advertising, referral fees, transaction fees, subscriptions Variations:  Horizontal/General  Vertical/Specialized (Vortal)  Search Copyright © 2012 Pearson Education, Inc.Slide 2-7

B2C Models: E-tailer Online version of traditional retailer Revenue model: Sales Variations:  Virtual merchant  Bricks-and-clicks  Catalog merchant  Manufacturer-direct Low barriers to entry Copyright © 2012 Pearson Education, Inc.Slide 2-8

B2C Models: Content Provider Digital content on the Web  News, music, video Revenue models:  Subscription; pay per download (micropayment); advertising; affiliate referral fees Variations:  Content owners  Syndication  Web aggregators Copyright © 2012 Pearson Education, Inc.Slide 2-9

B2C Models: Transaction Broker Process online transactions for consumers  Primary value proposition—saving time and money Revenue model:  Transaction fees Industries using this model:  Financial services  Travel services  Job placement services Copyright © 2012 Pearson Education, Inc.Slide 2-10

B2C Models: Market Creator Create digital environment where buyers and sellers can meet and transact Examples:  Priceline  eBay Revenue model: Transaction fees Copyright © 2012 Pearson Education, Inc.Slide 2-11

B2C Models: Service Provider Online services  e.g., Google—Google Maps, Gmail, etc. Value proposition  Valuable, convenient, time-saving, low-cost alternatives to traditional service providers Revenue models:  Sales of services, subscription fees, advertising, sales of marketing data Copyright © 2012 Pearson Education, Inc.Slide 2-12

B2C Models: Community Provider Provide online environment (social network) where people with similar interests can transact, share content, and communicate  e.g., Facebook, LinkedIn, Twitter Revenue models:  Typically hybrid, combining advertising, subscriptions, sales, transaction fees, affiliate fees Copyright © 2012 Pearson Education, Inc.Slide 2-13

Copyright © 2012 Pearson Education, Inc.Slide 1-14

Insight on Technology: Class Discussion Battle of the Titans: Music in the Cloud Have you purchased music online or subscribed to a music service? What was your experience? What revenue models do cloud music services use? Do cloud music services provide a clear advantage over download and subscription services? Of the cloud services from Google, Amazon, and Apple, which would you prefer to use and why? Copyright © 2012 Pearson Education, Inc.Slide 2-15

B2B Business Models Net marketplaces  E-distributor  E-procurement  Exchange  Industry consortium Private industrial network Copyright © 2012 Pearson Education, Inc.Slide 2-16

B2B Models: E-distributor Version of retail and wholesale store, MRO goods and indirect goods Owned by one company seeking to serve many customers Revenue model: Sales of goods e.g., Grainger.com, McMaster-CarrGrainger.com McMaster-Carr Copyright © 2012 Pearson Education, Inc.Slide 2-17

B2B Models: E-procurement Creates digital markets where participants transact for indirect goods  B2B service providers, application service providers (ASPs) Revenue model:  Service fees, supply-chain management, fulfillment services e.g., AribaAriba Copyright © 2012 Pearson Education, Inc.Slide 2-18

B2B Models: Exchanges Independently owned vertical digital marketplace for direct inputs Revenue model: Transaction, commission fees Create powerful competition between suppliers Tend to force suppliers into powerful price competition; number of exchanges has dropped dramatically Copyright © 2012 Pearson Education, Inc.Slide 2-19

B2B Models: Industry Consortia Industry-owned vertical digital marketplace open to select suppliers More successful than exchanges  Sponsored by powerful industry players  Strengthen traditional purchasing behavior Revenue model: Transaction, commission fees e.g., Exostar, CovisintExostarCovisint Copyright © 2012 Pearson Education, Inc.Slide 2-20

Private Industrial Networks Digital network Used to coordinate communication among firms engaged in business together Typically evolve out of company’s internal enterprise system e.g., Walmart’s network for suppliers Copyright © 2012 Pearson Education, Inc.Slide 2-21

Other E-commerce Business Models Consumer-to-consumer (C2C)  eBay, Craigslist Peer-to-peer (P2P)  The Pirate Bay, Cloudmark M-commerce:  Extends existing e-commerce business models to service mobile workforce, consumers  Unique features include mobility, cameras to scan product codes, GPS Copyright © 2012 Pearson Education, Inc.Slide 2-22

Insight on Society: Class Discussion Foursquare: Check In/Check Out Why should you care if companies track your location via cell phone? Are privacy concerns the only shortcoming of location-based mobile services? Should business firms be allowed to call cell phones with advertising messages based on location? Copyright © 2012 Pearson Education, Inc.Slide 2-23

E-commerce Enablers: The Gold Rush Model E-commerce infrastructure companies have profited the most:  Hardware, software, networking, security  E-commerce software systems, payment systems  Media solutions, performance enhancement  CRM software  Databases  Hosting services, etc. Copyright © 2012 Pearson Education, Inc.Slide 2-24

How the Internet and the Web Change Business E-commerce changes industry structure by changing:  Michael Porter’s Five Forces  Basis of competition among rivals  Barriers to entry  Threat of new substitute products  Strength of suppliers  Bargaining power of buyers Copyright © 2012 Pearson Education, Inc.Slide 2-25

Copyright © 2010 Pearson Education, Inc.Slide 1-26

Industry Value Chains Set of activities performed by suppliers, manufacturers, transporters, distributors, and retailers that transform raw inputs into final products and services Internet reduces cost of information and other transactional costs Leads to greater operational efficiencies, lowering cost, prices, adding value for customers Copyright © 2012 Pearson Education, Inc.Slide 2-27

E-commerce and Industry Value Chains Figure 2.4, Page 100 Copyright © 2012 Pearson Education, Inc.Slide 2-28

Firm Value Chains Activities that a firm engages in to create final products from raw inputs Each step adds value Effect of Internet:  Increases operational efficiency  Enables product differentiation  Enables precise coordination of steps in chain Copyright © 2012 Pearson Education, Inc.Slide 2-29

E-commerce and Firm Value Chains Figure 2.5, Page 101 Copyright © 2012 Pearson Education, Inc.Slide 2-30

Value Chain Primary Activities 1. Inbound logistics (get products or services) 2. Operations (make products or services) 3. Outbound logistics (deliver products or services) 4. Marketing and sales (sell products or services) 5. Service (deal with customer issues)

Value Chain Support Activities 1. Corporate infrastructure (management and support activities) 2. Human resources 3. Technology development 4. Finance & Accounting 5. Procurement (get MRO & supplies)

1-33 © 2007 Prentice-Hall, Inc

1-34© 2007 Prentice-Hall, Inc FBI Value Chain Source:

Value Chain for American Airlines

Analyzing Value Chain Activities What type of activity is being performed? Does it add value? Does it ensure the quality of other activities? How does the activity add value to the customer? Could the same activity be reconfigured or performed in a different way? What inputs are used? Is the expected output being produced? Is the activity vital? Could it be outsourced, deleted completely, or combined with another activity? How does information flow into and out of the activity? Is the activity a source of competitive advantage? Does the activity fit the overall goals of the organization?

E-commerce Value Chain The E-commerce Value Chain means identifying:  The competitive forces within the company’s e- commerce environment  The business model it will use  Identifying the value activities that help the e-commerce value chain do its homework E-commerce views information technology as part of a company’s value chain

Copyright © 2010 Pearson Education, Inc. Firm Value Webs Networked business ecosystem Uses Internet technology to coordinate the value chains of business partners  Within an industry  Within a group of firms Coordinates a firm’s suppliers with its own production needs using an Internet-based supply chain management system Slide 2-38

Copyright © 2010 Pearson Education, Inc. Internet-Enabled Value Web Figure 2.7, Page 105 Slide 2-39

Business Strategy Plan for achieving superior long-term returns on the capital invested in a business firm Four generic strategies  Differentiation  Cost  Scope  Focus Copyright © 2012 Pearson Education, Inc.Slide 2-40

Copyright © 2010 Pearson Education, Inc. Business Strategy Plan for achieving superior long-term returns on the capital invested in a business firm Michael Porter’s Generic Strategies h Four generic strategies 1. Differentiation 2. Cost 3. Scope 4. Focus Slide 2-41