1. CSC 330 E-Commerce Teacher Ahmed Mumtaz Mustehsan Ahmed Mumtaz Mustehsan GM-IT CIIT Islamabad GM-IT CIIT Islamabad CIIT Virtual Campus, CIIT COMSATS Institute of Information TechnologyT1-Lecture-11 T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-1

2. T1-Lecture-11 E Commerce Business Model and Concepts Chapter-05 Part -I For Lecture Material/Slides Thanks to: Copyright © 2010 Pearson Education, Inc T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-2

3. Objectives Identify the key components of e-commerce business models. 1.Value proposition 2.Revenue model 3.Market opportunity 4.Competitive environment 5.Competitive advantage 6.Market strategy 7.Organizational development 8.Management team Describe the major B2C business models. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-3

4. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc E-commerce Business Models Business model A business model is a set of planned activities ( also called business processes) designed to result in a profit in a marketplace. The business model is at the center of the business plan. Business plan : Describes a firm’s business model E-commerce business model ◦ A business model that aim to Use and leverages the unique qualities of Internet and World Wide Web. ◦ Eight key ingredients of Business Model 1-4

5. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc Key Ingredients of a Business Models 1-5

6. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 8 Key Elements of a Business Model 1. Value proposition 2. Revenue model 3. Market opportunity 4. Competitive environment 5. Competitive advantage 6. Market strategy 7. Organizational development 8. Management team 1-6

7. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1. Value Proposition 1. Why should the customer buy from you? 2. What will your firm provide that other firms do not and cannot? A value proposition defines how a company’s product or service fulfills the needs of customers. Successful e-commerce value propositions: ◦ Personalization/customization ◦ Reduction of product search, price discovery costs ◦ Facilitation of transactions by managing product delivery Example: Before Amezone.com ? The customers used to visit supermarket; Book shops, keep waiting for the availability of the book; keep coming back!!! 1-7

8. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 2. Revenue Model How will the firm earn revenue, generate profits, and produce a superior return on invested capital? Advertising revenue model A company provides a forum for advertisements and receives fees from advertisers. Yahoo.com, for instance, derives a significant amount of its revenue from selling advertising such as banner ads. Subscription revenue model A company offers its users content or services charges a subscription fee for access to some or all of its offerings. Yahoo, has broadened its business model to include a monthly subscription to Yahoo Platinum, which gives viewers access to CNN, NASCAR racing, ABC News, and other video feeds. 1-8

9. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 2. Revenue Model contd….. Transaction fee revenue model a company receives a fee for enabling or executing a transaction. For example, eBay.com an online auction marketplace receives a small transaction fee from a seller if the seller is successful in selling the item. E-Trade.com, an online stockbroker, receives transaction fees each time it executes a stock transaction on behalf of a customer Sales revenue model companies derive revenue by selling goods, information, or services to customers. Companies such as Amazon.com (which sells books, music, and other products), LLBean.com, and Gap.com, all have sales revenue models. 1-9

10. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 2. Revenue Model contd….. Affiliate revenue model sites that steer business to an “affiliate” receive a referral fee or percentage of the revenue from any resulting sales. For example, MyPoints.com makes money by connecting companies with potential customers by offering special deals to its members. When they make a purchase, members earn “points” they can redeem for freebies, and MyPoints.com receives a fee. Community feedback sites such as Epinions.com receive much of their revenue from steering potential customers to Web sites where they make a purchase 1- 10

11. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 2. Five Primary Revenue Model 1- 11

12. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 3. Market Opportunity What marketspace do you intend to serve and what is its size? ◦ Marketspace: Area of actual or potential commercial value in which company intends to operate ◦ Realistic market opportunity: Defined by revenue potential in each of market niches in which company hopes to compete Market opportunity typically divided into smaller niches 1- 12

13. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 4. Competitive Environment Who else occupies your intended marketspace? Other companies selling similar products in the same marketspace Includes both direct and indirect competitors Example: automobile manufacturers and airline companies operate in different industries, but compete indirectly because they offer alternative means of transportation. CNN.com and ESPN.com compete for airtime consumed by the clients. Competitive environment Influenced by: Number and size of active competitors Each competitor’s market share Competitors’ profitability Competitors’ pricing Customer buying power. 1- 13

14. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 5. Competitive Advantage What special advantages does your firm bring to the marketspace? Achieved when firm produces superior product or can bring product to market at lower price than competitors Important concepts: Asymmetries : exists whenever one participant in a market has an edge than others due to more resources such as financial backing, knowledge, information, and/or power. Example: AOL.com offered music subscription of their 250,000 songs catalog through MusicNet First-mover advantage: is a competitive market advantage for a firm that results from being the first into a marketplace with a serviceable product or service. For example Amazon.com 1- 14

15. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 5. Competitive Advantage Unfair competitive advantage: occurs when one firm develops an advantage based on a factor that other firms cannot purchase. For example, a brand name cannot be purchased and is in that sense an “unfair” advantage. brands are built upon loyalty, trust, reliability, and quality. Leverage: when a company use its competitive advantages to achieve more advantage in surrounding markets. For example Amazon.com move into the online auction arena leveraged the company’s customer database, offering one more way to buy from Amazon A perfect markets, in which there are no competitive advantages or asymmetries because all firms have access to all the factors of production 1- 15

16. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 6. Market Strategy How do you plan to promote your products or services to attract your target audience? Details how a company intends to enter market and attract customers Best business concepts will fail if not properly marketed to potential customers Example: AOL, uses sampling of millions of free CD ROMs to attract new users. AOL encloses CDs with free trial offer in magazines and newspapers across the country. This strategy has proven to be very successful for AOLs 1- 16

17. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 7. Organizational Development What types of organizational structures within the firm are necessary to carry out the business plan? Organizational development Plan that describes how the company will organize the work that needs to be accomplished. ◦ Typically divided into functional departments ◦ Hiring moves from generalists to specialists as company grows 1- 17

18. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 8. Management Team What kinds of experiences and background are important for the company’s leaders to have? Employees are responsible for making the business model work Strong management team gives instant credibility to outside investors 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 Important Questions to be answered Important Questions to be answered: What kind of technical background is desirable? What kind of supervisory experience is necessary? How many years in a particular function should be required? What job functions should be fulfilled first: marketing, production, finance, or operations? 1- 18

19. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc Categorizing E-commerce Business Models No one correct way We categorize business models according to: ◦ E-commerce sector (B2C, B2B, C2C) ◦ Type of e-commerce technology; i.e., m-commerce Similar business models appear in more than one sector Some companies use multiple business models; e.g., eBay 1- 19

20. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc B2C Business Models: Portal Offers users powerful Web search tools as well as an integrated package of content and services all in one place. Revenue models: ◦ Advertising, subscription fees, transaction fees Variations: Horizontal/General : they define their marketspace to include all users of the Internet. Examples are Yahoo, AOL, MSN, and others like them Vertical/Specialized (Vortal): attempt to provide similar services as horizontal portals, but are focused around a particular subject matter or market segment. Example sailnet.com 1- 20

21. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc B2C Models: E-tailer e-tailers, come in all sizes and shapes, from giant Amazon.com to tiny local stores that have Web sites. E-tailers Online version of traditional retailer Revenue model: Sales of products and services Variations: Virtual merchant: are subsidiaries of existing physical stores and carry the same products. Bricks-and-Mortars / Bricks-and-clicks: companies with complementary online stores. 1- 21

22. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc B2C Models: E-tailer Variations: (Continued). Catalog merchant: such as online versions of direct mail catalogs, online malls. Manufacturer-direct: Offering their products directly to consumers. Low barriers to entry: tens of thousands of small e-tail shops have sprung up on the Web as the total cost of entering (a new marketplace) into the Web e-tail market are low. 1- 22

23. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc B2C Models: Content Provider Content providers distribute information/ digital contents over the Web such as: digital news, music, photos, videos, and artwork. Retrieving and paying for content is the second largest revenue source for B2C e-commerce Revenue models: Subscription; pay per download (micropayment); advertising; affiliate referral fees Variations: Content owners: owners of copyrighted content such as publishers of books and newspapers, broadcasters of radio and television content, music publishers, and movie studios 1- 23

24. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc B2C Models: Content Provider Variations: (continued) Syndication: Some content providers, however, do not own content, but syndicate (aggregate) and then distribute content produced by others. Syndication (Web aggregators) is a major variation of the standard content provider model. 1- 24

25. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc B2C Models: Transaction Broker Process online transactions for consumers normally handled in person, by phone, or by mail Primary value proposition: saving time and money Revenue model: ◦ Transaction fees The Industries using this model: ◦ Financial services ◦ Travel services ◦ Job placement services Examples: stockbrokers such as E-Trade.com, Ameritrade.com, and Schwab.com, 1- 25

26. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc B2C Models: Market Creator Uses Internet technology to create markets that bring buyers and sellers together Examples: Priceline.com: which allows consumers to set the price they are willing to pay for various travel accommodations and other products (sometimes referred to as a reverse auction) eBay: the online auction site utilized by both businesses and consumers. At eBay, the buyers and sellers are their own agents. Each sale on eBay nets the company a fee, Revenue model: Transaction fees 1- 26

27. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc B2C Models: Service Provider Offer Online services Examples: Search engines, Google, Yahoo, Alta Vista: Location based services: Google Maps, Google Earth. Computer services: such as information storage at xDrive.com Consulting services: such as at Mybconsulting.com, where small businesses can obtain business advice Value proposition Valuable, convenient, time-saving, low-cost alternatives to traditional service providers. Revenue models: ◦ Sale of services, subscription fees, advertising, sale of customer database for marketing purpose. 1- 27

28. T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc B2C Models: Community Provider Provides online environment (social network) where people with similar interests can transact (buy and sell goods), share content, and communicate Example: Facebook, MySpace, twitter, LinkedIn Revenue models: Advertising fees, subscription fees, sales revenues, transaction fees, affiliate fees (Epinions.com, Oxygen.com, and About.com make money with affiliate relationship with retailers.) 1- 28