Presentation on theme: "E-commerce Business Models and Concepts"— Presentation transcript:
1 E-commerce Business Models and Concepts IT 361: E-Commerce SystemsChapter 2E-commerce Business Models and ConceptsReadings: Chapter 2 - E-commerce Business Models and Concepts
2 Tweet Tweet: Twitter’s Business Model Class Discussion What characteristics or benchmarks can be used to assess the business value of a company such as Twitter?Have you used Twitter to communicate with friends or family? What are your thoughts on this service?What are Twitter’s most important assets?Which of the various methods described for monetizing Twitter’s assets do you feel might be most successful?
3 E-commerce Business Models—Definitions Business model: set of planned activities designed to result in a profit in a marketplaceBusiness plan: document that describes a firm’s business modelE-commerce business model: aims to use and leverage the unique qualities of Internet and Web
5 “Buy this product, and you will get this specific benefit” Value PropositionDefines how a company’s product or service fulfills the needs of customers“Buy this product, and you will get this specific benefit”Questions to ask:Why will customers choose to do business with your firm instead of another?What will your firm provide that others do not or cannot?Examples of successful value propositions:Personalization/customizationReduction of product search costsReduction of price discover costsFacilitation of transactions by managing product delivery
6 Example of Value propositions "You get fresh, hot pizza delivered to your door in 30 minutes or less -- or it's free.““You package absolutely, positively has to get there overnight”“The milk chocolate melts in your mouth, not in your hand”“It helps building strong bones 12 ways”
7 Approach to creating a compelling customer value proposition Know your targeted customers and both their obvious and less apparent needs and desires.Talk to current customers and understand the product's value from their perspective.Know the competition. What product performance does our offering provide that competition does not. Review existing competitive value propositions to develop an understanding of their relative strengths. Do they send a stronger message to potential customers than the proposition you are considering?Research classic customer value propositions to learn from the success and failure of other marketplace offerings.Brainstorm with both others in the company and potential customers to develop a value proposition that states your product benefits clearly and accurately and brings sustaining brand recognition to your product.Reference: Manzi, A. M. (2010). How to Write a Strong Value Proposition. Retrieved 4 22, 2010, from Helium:
8 Revenue ModelDescribes how the firm will earn revenue, generate profits, and produce a superior return on invested capitalMajor types:Advertising revenue modelSubscription revenue modelTransaction fee revenue modelSales revenue modelAffiliate revenue model
9 Market OpportunityRefers to a company’s intended marketspace and the overall potential financial opportunities available to the firm in that marketspaceMarketspace: the area of actual or potential commercial value in which a company intends to operateRealistic market opportunity is defined by revenue potential in each of market niches in which company hopes to compete
10 Competitive Environment Refers to the other companies selling similar products and operating in the same marketspaceIn addition; presence of substitute, potential of new entrants, power of customer, power of supplier (Firm’s environment).Influenced by:how many competitors are activehow large their operations arewhat is the market share for each competitorhow profitable these firms arehow they price their productsIncludes both direct competitors and indirect competitors
11 Competitive Advantage Achieved when a firm can produce a superior product and/or bring product to market at a lower price than most, or all, of competitorsFirms achieve competitive advantage when they are able to obtain differential access to the factors of production that are denied to competitors(ex. Terms from suppliers, more experience & knowledge, loyal employee, patent, network, ..)Types of competitive advantage include:First mover advantage—results from a firm being first into a marketplaceUnfair competitive advantage—occurs when one firm develops an advantage based on a factor that other firms cannot purchase
12 Competitive Advantage Perfect market: A market in which there are no competitive advantage o asymmetries because all firms have equal access to all factors of productionLeverage a competitive advantage: is when a company uses its competitive advantage to achieve more advantage in surrounding market. (brand leverage).
13 Methods for creating a sustainable competitive advantage 1. Cost leadership - Cost advantage occurs when a firm delivers the same services as its competitors but at a lower cost; 2. Differentiation - Differentiation advantage occurs when a firm delivers greater services for the same price of its competitors. 3. Focus (economics) - A focused approach requires the firm to concentrate on a narrow market niche, hoping to achieve a local rather than industry wide competitive advantage.
14 Market StrategyA plan that details how a company intends to enter a new market and attract customersBest business concepts will fail if not properly marketed to potential customers
15 Organizational Development Describes how the company will organize the work that needs to be accomplished (implement the business plan)Work is typically divided into functional departmentsMove from generalists to specialists as the company growse.g. ebay
17 Management TeamEmployees of the company responsible for making the business model workStrong management team gives instant credibility to outside investors, market-specific knowledge, and experience in implementation.A strong management team may not be able to salvage a weak business model, but should be able to change the model and redefine the business as it becomes necessary
18 How to Identify Management Team? What kind of experience do you need to manage your startup business?What technical background is desired?What kind of supervisory experience?How many years of experience?What job functions to be fulfilled?Any contacts and experience in raising finance?
20 Insight on Business: Crowdfunding Takes Off Class Discussion What types of projects and companies might be able to most successfully use crowdfunding?Are there any negative aspects to crowdfunding?What obstacles are presented in the use of crowdfunding as a method to fund start-ups?
21 Categorizing E-commerce Business Models: Some Difficulties No one correct wayWe categorize business models according to e-commerce sector (B2C, B2B, C2C)Type of e-commerce technology used can also affect classification of a business modelSome companies use multiple business models
22 B2C Business Models B2B Business Models Portal E-distributor E-tailer Content ProviderTransaction BrokerMarket CreatorService ProviderCommunity ProviderB2B Business ModelsE-distributorE-procurementExchangesIndustry ConsortiaPrivate Industrial Networks
23 B2C Business Models: Portal Offers powerful search tools plus an integrated package of content and servicesTypically utilizes a combines subscription/advertising revenues/transaction fee modelMay be general or specialized (vortal)
24 B2C Business Models: E-tailer Online version of traditional retailerTypes include:Virtual merchantsBricks-and-cricksCatalog merchantsManufacturer-direct
25 B2C Business Models: Content Provider Information and entertainment companies that provide digital content over the WebTypically utilizes a subscription, pay for download, or advertising revenue modelSyndication a variation of standard content provider model
26 B2C Business Models: Transaction Broker Processes online transactions for consumersPrimary value proposition—saving of time and moneyTypical revenue model—transaction feeIndustries using this model include:Financial servicesTravel servicesJob placement services
27 B2C Business Models: Market Creator Uses Internet technology to create markets that bring buyers and sellers togetherExamples:Priceline.comeBay.comTypically uses a transaction fee revenue model
28 B2C Business Models: Service Provider Offers services onlineValue proposition: valuable, convenient, time-saving, low-cost alternatives to traditional service providersRevenue models: subscription fees or one-time payment
29 B2C Business Models: Community Provider Sites that create a digital online environment where people with similar interests can transact, communicate, and receive interest-related information.Typically rely on a hybrid revenue modelExamples:iVillage.comFriendster.comAbout.com
31 Insight on Technology: Battle of the Titans: Music in the Cloud Class Discussion 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?
37 B2B Business Models: E-procurement Companies Create and sell access to digital electronic marketsB2B service provider is one type: offer purchasing firms sophisticated set of sourcing and supply chain management toolsApplication service providers: a subset of B2B service providersExample:Ariba
39 B2B Business Models: Exchanges An electronic digital marketplace where suppliers and commercial purchasers can conduct transactionsUsually owned by independent firms whose business is making a marketGenerate revenue by charging transaction feesUsually serve a single vertical industryNumber of exchanges has fallen to around 200 in 2005
41 B2B Business Models: Industry Consortia Industry-owned vertical marketplaces that serve specific industriesHorizontal marketplaces, in contrast, sell specific products and services to a wide range of industriesExample: Exostar
43 B2B Business Models: Private Industrial Networks Digital networks (usually, but not always Internet-based) designed to coordinate the flow of communications among firms engaged in business togetherSingle firm network: the most common form (Example: Walmart)Industry-wide networks: often evolve out of industry associations (Example: Agentrics)
44 Business Models in Emerging E-commerce Areas Consumer to Consumer (C2C): Provides a way for consumers to sell to each other, with the help of an online marketmaker such as eBay.comPeer-to-Peer (P2P): Links users, enabling them to share files and common resources without a common serverM-commerce: Takes traditional e-commerce business models and leverages emerging new wireless technologiesTo date, a disappointment in the United States; however, technology platform continues to evolve
45 E-commerce Enablers: The Gold Rush Model Internet infrastructure companies: Companies whose business model is focused on providing infrastructure necessary for e-commerce companies to exist, grow, and prosperProvide hardware, software, networking, security, e-commerce software systems, payment systems, databases, hosting services, etc.
46 How the Internet and the Web Change Business: Strategy, Structure, and Process Important to understand how Internet and Web have changed business environment, including industry structures, business strategies, and industry and firm operations
47 Industry StructureE-commerce changes the nature of players in an industry and their relative bargaining power by changing:the basis of competition among rivalsthe barriers to entrythe threat of new substitute productsthe strength of suppliersthe bargaining power of buyers
49 Industry StructureIndustry Structural Analysis is performed to check a business model and its potential long-term profitability.E-commerce can affect the structure of an industry +ve (automobile) and -ve (music, travel)Increased price competitionCreated new strategies for differentiation of products and services
50 Industry Value ChainsA set of activities performed in an industry by suppliers, manufacturers, transporters, distributors, and retailers that transform raw inputs into final products and servicesInternet may change business operation at the industry levelReduces the cost of information and other transactional costs
51 E-commerce and Industry Value Chains Figure 2.6, Page 93
52 Analysis of the efficiency of a single firm’s operation Firm Value ChainsAnalysis of the efficiency of a single firm’s operationA set of activities that a firm engages in to create final products from raw inputsInternet helped firms increases operational efficiencyOutsource activities via the internetPrecisely coordinate steps in the value chain and reduce costDifferentiate product and services
54 Firm Value WebsA networked business ecosystem that uses Internet technology to coordinate the value chains of business partners within an industry, or within a group of firmsCoordinates a firm’s suppliers with its own production needs using an Internet-based supply chain management system
56 Business StrategyA set of plans for achieving superior long-term returns on the capital invested in a business firm (i.e., a plan for making a profit in a competitive environment)Why would anyone pay for a product than it costs to produce?Four generic strategiesDifferentiation (vs. commoditization)CostScopeFocus
57 Teaching ObjectivesIdentify the key components of e-commerce business models.Describe the major B2C business models.Describe the major B2B business models.Recognize business models in other emerging areas of e-commerce.Understand key business concepts and strategies applicable to e-commerce
58 Key Terms business model business plan e-commerce business model value propositionrevenue modeladvertising revenue modelsubscription revenue modeltransaction fee revenue modelsales revenue modelaffiliate revenue modelmarket opportunitymarketspacecompetitive environmentcompetitive advantageasymmetryfirst-mover advantagecomplimentary resourcesunfair competitive advantageperfect marketleveragemarket strategyorganizational developmentmanagement teamportale-tailerbarriers to entryintellectual propertycontent providertransaction brokermarket creatorservice providercommunity providere-distributore-procurement firmB2B service providerapplication service provider (ASP)scale economiesexchangeindustry consortiaprivate industrial networksindustry structureindustry structural analysisvalue chainfirm value chainvalue webbusiness strategyprofitdifferentiationcommoditization