1. e-business models

2. Encyclopedia Britannica 1768 – first encyclopedia in the English-speaking world World’s most comprehensive and authoritative encyclopedia Aggressive sales and marketing  Target middle-income families and their aspirations for their children 1990 sales of $650 million  Dominant market share, steady growth + generous margins Since 1990, sales have collapsed by over 80%

3. What happened? Britannica viewed the CD-ROM as a toy Microsoft licensed content from Funk & Wagnalls  Third-rate content, poor quality sound and images  Not serious competition (?)

4. Britannica’s Response Britannica considered marketing the product on CD- ROM  Britannica was too large to fit on a CD-ROM  Britannica marketed text-only CD-ROM  Sales force revolted because of losses in commission  Bundled CD-ROM free with encyclopedia to avoid channel conflict  CD-ROM alone sold for $1,000 May 1995 – Britannica sold for half it’s book value

5. Britannica Market research showed that the typical encyclopedia is opened once a year Sales force played on parent’s anxieties about their children’s education  Now a PC is the most common way of easing parental guilt Incumbents are saddled with legacy assets  Sales and distribution systems, brands, core competencies Competing in the digital economy may mean cannibalising these assets or destroying them

6. Moral New Economics of Information  Evolving technological capabilities for sharing and using information can transform business definitions, industry definitions and competitive advantage e.g. Napster IT can destroy brands and businesses Britannica’s vulnerability was due to its dependence on the economics of intense personal selling (sales force)  Implications for real estate, insurance, cars, travel Evans and Wurster (1997) “Strategy and the New Economics of Information”, Harvard Business Review, Sept-Oct

7. e-Business Model Research Context MSc Research began October 2000 Dot.com “implosion” circa Spring 2000 (Howcroft, 2001)  Pure-play dot.coms e.g. Boo, eToys  Clicks and Mortar e.g. WorldOfFruit.com Initially the research focused on surveying the landscape – an empirical analysis, contrast to the mainly qualitative research available at the time

8. Electronic Business Today “e-commerce is no longer an alternative, but an imperative” Landscape “confusing” for new entrants B2B segment is considerably larger [4-13 times the size of B2C] B2B sector was expected to be worth $1.3 trillion in 2003 Coltman (2001) “hype” pre-dot.com collapse, but new era of pessimism is an overreaction

9. e-Business Model “an architecture for product, service and information flows” (Timmers, 1999) “…most discussed and least understood part of the web” (Rappa, 2000) Ticoll et al (1998): 4 models Kaplan and Sawhney (2000): 4 models Timmers: 11 models Rappa: 30 + Osterwalder (2002) – misuse of term led to loss of credibility of the concept

10. Why are e-business models important? Internet alters industry structures  Channel cannibalisation Myths that “old rules about business are obsolete” are widespread  Led to bad decisions Move from competitive advantage based on quality, service + features to competition based only on price (Porter, 2001) Need for appropriate e-business model so a firm can identify “where it is positioned in the value chain” (Rappa, 2003)

11. Boo.com: Fashion e-tailer  Strong focus on brands, not a discount seller First-mover advantage  Allowed company to raise substantial investment capital  Porter (2001) argues that this is a “myth” Launched simultaneously in a number of territories  Multiple currencies  Multiple languages  Varying tax-laws

12. Boo.com At peak in 1999, company valued at $450m Burned $200m in 18 months  major investors were JP Morgan, Goldman Sachs, and the Benetton Family Technology Problems  required Flash plug-in, did not support Macintosh users, required fast connection  systems integration problems with logistic partners (UPS and Deutsche Post)

13. Osterwalder (2002) Linder (2001) – existing frameworks insufficient to describe array of business model choices Osterwalder and Pigneur (2002) – e-business model ontology (formal specification of how to represent the objects, concepts and other entities that are assumed to exist and the relationships that hold among them)

14. What is a Business Model? (Osterwalder, 2002) It’s the business logic of how a company makes money in a sustainable way HOW? Capabilities Value Configuration Partnerships WHAT? Value Proposition WHO? Target Customers Channels Customer Relationship HOW MUCH? Cost Model Revenue Model

15. Business Models – The Missing Link (Osterwalder, 2002) GOALS SYSTEM S CEO marketingoperationsfinance STRUCTURE STRATEGY BUSINESS/ORG. TECHNOLOGY Business model

17. Planning Level Architectural Level Implementation Level Strategy Business Model Business Processes ICT Pressure e-Business opportunities & change e-Business process and adaptation Business Logic Triangle (Osterwalder et al, 2002)

18. E-business model ontology (Osterwalder et al, 2002)

19. Business Model Decision Dynamic Environment (Mintzberg, 1979)  Uncertain Supply Chain  Rapidly Changing Technology  Repeated Product Evolution Thus, organisation is unable to predict future conditions e.g. e-business model decision “wrong choices could have dire consequences…but need to act soon or risk being left behind” (Wise and Morrison, 2000)

20. Simon’s (1960) 4 Phases of Decision- Making Intelligence, Design, Choice, Review An examination of the milieu for situations in which a decision is required …[this] phase is crucial, as alternatives not considered at this stage are very unlikely to be involved in the decision scenario at a later stage…(Pomerol, 1994)

21. Malone et al. (1987) argue that the ability of Information Technology to provide cheap connectivity, will result in a lowering of coordination costs, and therefore will result in a shift from hierarchies to markets Organisational Form Production CostsCo-ordination Costs MarketsLowHigh HierarchiesHighLow Markets and Hierarchies

22. Models - Timmers

23. Models – Kaplan and Sawhney

24. Models –Ticoll et al. Open Source Supermarket Car manufacturer

25. High Customer Value Complementary Scope Control over Pricing Defensible Sources of Revenue Consistent Connected Activities Unique, Inimitable Capabilities Excellent Implementation Sustainability for the Future Low cost Correct profit site Capabilities ScopePricing Implementation Activities Revenue sources Sustainability Customervalue Cost Profit site Successful Business Model (Afuah and Tucci)

26. Five Forces Model (Porter, 1980)

27. Customer Value Differentiation  Product features, timing, location, service, product mix, linkage between functions, linkage with other firms, reputation Low Cost  Reduction in information asymmetry  Reduced transaction costs  Distribution channel

28. Scope Market Segments/Geographic Areas Business Market  Industry, Firm Size e.g. SME’s Households  Demographics e.g iVillage Universality property of internet facilitates expansion Firm must decide how much of the needs of the segment it can serve

29. Price Pricing strategy is crucial Knowledge-based products Market share and Margin  Giving away a product and charging fpr later versions  Giving away Product X and charging for related Product Y e.g. Adobe Acrobat  Pricing low to penetrate the market

30. Price Lock-In  e.g. Microsoft Windows Switching costs Network Externalities  The more users that own them, the more valuable they are to users

31. Common Internet Pricing Models Menu (fixed) One-to-One Bargaining Subscription (pay by use) Auction Reverse Auction Other Revenue Sources include Advertising Referral Links

32. The importance of Market Share (Afuah & Tucci, p58)

33. The importance of Market Size (Afuah & Tucci, p59)

34. Revenue Sources Selling Products Selling Product and Service Connected Activities  R&D, Marketing and Sales  Value Chain (value is added to materials or knowledge as it moves up the chain)

35. Synthesis of Business models

36. e-Business Model Characteristics

37. Economic Control Items derived from Porter’s Five Forces model 5-point Likert Items (Strongly Agree….Strongly Disagree)

38. Functional Integration Scale developed by adapting lists of functions from the modules of a leading ERP system “Please indicate the extent to which the following are integrated with other processes and functions in the organization.” Can “opt out” of responding to a particular item if business process/function is not relevant.

39. Functional Integration 5-point Likert items (Not at all Integrated, Partially Integrated, Average Integration, Highly Integrated, Completely Integrated)

40. Supply/Value Chain Integration Uses same list of functions as “Functional Integration” construct “Please indicate the extent to which the following are integrated with processes and functions in other firms in the supply chain (i.e. customers and suppliers).”

41. Internal Technical Innovation  25 Likert scale items (strongly disagree…strongly agree)  Constructs: relative advantage, complexity, compatability, ease of use, image, result demonstrability, visibility, trialability

42. External Technical Innovation Ability of the organisation to assimilate/adopt innovations Factors: Competitive Price Intensity, Industry Concentration, Organisational structure (degree of centralisation) 5-point Likert scale (never…frequently)

43. Sourcing Identify degree of Spot and Systematic sourcing of both direct and indirect materials

44. Operationalising the framework Scores from Likert items are used to give overall scores for each of the 5 organisational characteristics. These can then be compared with the score assigned to each business model.

45. Methodology Field Study 5 manufacturing companies Semi-structured interviews + administration of scales

46. Case: PackCo Economic Control Supply Chain Integration Functional Integration Internal Innovation External Innovation Sourcing Score80/15082/14485/15685/12520/34- RatingMedium Medium-HighMediumSystematic

47. e-Business Model Characteristics

48. PackCo Findings Business ModelPotential for the organisationFindings from Measurement instrument e-shopNone All Suitable e-mallNone e-procurementSome e-auctionSome Information BrokerageHigh Trust ServicesSome Third Party MarketplaceHighUnsuitable (Low F + SC Integration + Innovation) e-hubsSomeUnsuitable (F + SC Integration + Innovation) Virtual CommunitiesSomeUnsuitable (F +SC Integration + Innovation) VC IntegratorsSomeUnsuitable (SC Integration + Innovation) VC Service ProvidersSomeUnsuitable (Innovation) Collaboration PlatformsNoneUnsuitable (F +SC Integration + Innovation)

49. Conclusions Need for validation of scales through field study research in a larger number of organisations Need for alteration of some existing scales e.g. Supply chain integration, Internal and External Innovation Upstream and downstream issues e.g. Economic Control