Overview Lecture 2 E-Commerce Business Models

Boriana Koleva bnk@cs.nott.ac.uk C54 Key components of e-commerce business models Major B2C business models Major B2B business models Business models in other emerging areas of e-commerce Benefits and Problems with E-Commerce

E-commerce Business Models

Business model set of planned activities designed to result in a profit in a marketplace Business plan document that describes a firms business model E-commerce business model aims to use and leverage the unique qualities of Internet and Web

Key Ingredients of a Business Model

Five Primary Revenue Models

Categorising 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 used can also affect classification of a business model Some companies use multiple business models

B2C Business Models

E-tailer/Storefront model Portal model Content Provider Transaction Broker Market Creator Service Provider

E-tailer/Storefront Model
The customers and the seller interact directly, e.g. amazon.com, dell.com, play.com
Organise an online catalogue of products Take orders through Web site
Shopping cart technology

Accept payments in a secure environment Send merchandise to customers Manage customer data Market Web site to potential customers

Revenue through product sales Low barriers to entry -> very competitive

Portal Model (1)

Portal sites give visitors access to a variety of information in one place
News, sport, weather, online shopping, searching

Portal Model (2)

Horizontal portals aggregate information on a broad range of topics, e.g. search engines
Yahoo! , Altavista.com, About.com

Revenue through charging advertisers and charging for premium services Charging strategies for portals:
charge merchants for a link per customer click-through reserve best areas for paying customers

Vertical portals (community sites) large amount of information in one subject area
www.webmd.com, Bolt.com, IVillage.com

Content Provider
Content providers distribute digital content (news, music, video, artwork) over the Web
WSJ.com, Rhapsody.com, CNN.com

Transaction Broker
Sites that process transactions for consumers
E-Trade.com, Ameritrade.com Monster.com

Second largest source of B2C e-commerce revenue in 2002 Revenue generates through subscription fees, pay for download, or advertising Syndication a variation of standard content provider model

Primary value proposition saving of time and money for customers Typical revenue model transaction fee
Based on frat rate or sliding scale

Industries using this model:

Financial services Travel services Job placement services

Market Creator
Uses Internet technology to create markets that bring buyers and sellers together
Where they can display products, search for products and establish prices Priceline.com (reverse austion), eBay.com

Service Provider
Offers services online
xDrive.com information storage Mybconsulting.com consulting for small businesses

Typically uses a transaction fee revenue model

Usually a commission on sales is collected and sometimes a submission fee

Value proposition valuable, convenient, timesaving, low-cost alternatives to traditional service providers Revenue models subscription fees or one-time payment Mixing services with products powerful strategy

A middleman no inventory and production costs, not involved in payment and delivery

B2C Business Models Summary B2B Business Models

E-distributor E-procurement Exhanges (B2B hubs) Industry Consortia Private Industrial Networks
Net marketplaces

E-distributor
Company that supplies products and services directly to individual businesses
Grainger.com GE Electric Aircraft Engines (geae.com)

E-procurement
Create and sell access to digital electronic markets
Ariba CommerceOne

Owned by one company seeking to serve many customers Revenue through sale of goods

B2B service provider is one type offer purchasing firms sophisticated set of sourcing and supply chain management tools Application service providers a subset of B2B service providers Revenue through fees (for market making services, supply chain management)

Exchanges
An electronic digital marketplace where suppliers and commercial purchasers can conduct transactions
Exchange.eSteel.com, GEPolymerland.com

Industry Consortia
Industry-owned vertical marketplaces that serve specific industries Horizontal marketplaces, in contrast, sell specific products and services to a wide range of industries Leading example: Covisint

Usually owned by independent firms whose business is making a market Generate revenue by charging transaction fees Usually serve a single vertical industry Number of exchanges has fallen to around 700 in 2003

Private Industrial Networks

Digital networks (usually, but not always Internet-based) designed to coordinate the flow of communications among firms engaged in business together Single firm network: the most common form (example Walmart) Industry-wide networks: often evolve out of industry associations (example WWRE)

B2B Business Models Summary

Emerging business models

Case Study (1)

New ways of pricing products and services Priceline.com (name-your-price)
Customers choose their price for products & services Partnerships with leaders of industry such as travel, lending and retail

Demand-Sensitive Pricing
Sites that allow consumers to lower the price by joining with other buyers to purchase products in bulk Consumers had difficulty understanding the concept of group buying (Mercata.com & Mobshop.co.uk shut down)

Case Study (2)

What went wrong with these business models that seemed so promising?
Financial climate Costs Extensibility Trying to change buying behavior!

Business Benefits of EC (1)

Expansion of markets
Global markets can be reached with minimal capital outlay Global partners can be located

Reduced Administration
Creation, processing, distribution, storage and retrieval of paper-based information is expensive EC can provide major cost savings

Reduced inventories
Automated supply management just-in-time manufacturing

Business Benefits of EC (2)

Just-in-time manufacturing can make customisation of products and services easy (and thus cheap) EC reduces cash-flow problems
The time between capital outlay and income is reduced

Benefits to Customers
Convenient shopping
24 hours per day, 365 days per year Any location

Choice
It is easy to select from a wide range of products from a number of vendors

Lowers telecommunication costs Improved customer services

Administrative cost savings are often passed onto consumers in the form of discounts Quick delivery
Especially with digital products

Technical Problems facing EC

Security and reliably issues Bandwidth problems Technology is rapidly changing It may be difficult to integrate legacy software systems with Internet and EX software

Other problems with EC

Cost and justification
In house development is usually very expensive Outsourcing is an option but there are complex management issues Benefits may be hard to quantify

Perceptions of security and privacy issues Lack of consumer trust Legal issues Internet access is still far from universal