Professional Documents
Culture Documents
Business Models
Structure
6.1 Introduction
Objectives
6.2 Evolution of Internet Business Models
6.3 Business Models in Practice
6.4 Business Model: The Six Components
6.5 Summary
6.6 Glossary
6.7 Terminal Questions
6.8 Answers
References
6.1 Introduction
In the previous units, you have learned that e-commerce is a business transaction
that is performed using an electronic medium. This unit discusses the types of
transactions in an e-commerce. A transaction in an electronic market describes
the number of interactions between parties, for example, ordering, making
payment, supporting delivery and of course marketing.
One must therefore have a marketing strategy for transacting commerce
through which a corporation maintains itself and generates revenue. Business
models are created for the purpose of trying to answer the following questions:
(i) How can you get competitive advantage?
(ii) Which product-market strategy should be followed?
(iii) What should be the marketing mix?
Business models are defined as, A set of shared common characteristics,
behaviour and methods of doing business that enables a firm to generate profits
through increasing revenues and reducing cost.
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Manufacturer
Business-to-Business
Distributor
Retailer
Consumer
Business-to-Business
Thus, in this unit, you will learn about the evolution of the Internet business
models and the business models that are currently in vogue. The latter is of
three types, namely business-to-business (B2B), business-to-consumer (B2C)
and consumer-to-consumer (C2C). It will also familiarize you with the six
components of a business model. This will help you to differentiate between a
business model and a revenue model. This unit will also elaborate on the role of
business models. To get value from a new product, a firm needs a proper
business model. You will learn how business models differ from business strategy,
and about entrepreneurial advantage.
Objectives
After studying this unit, you should be able to:
Discuss the evolution of Internet-based business models
Evaluate the business models in practice
Identify the components of business models
Summarize the functioning of business models vis--vis revenue models
State the role of a business model
Differentiate between business model and business strategy
Classify the advantages of entrepreneurship
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Unit 6
regular banking. Today, people have embraced the automated teller machine
(ATM) that has made banking easy. Today, millions of people rely on the Internet
banking services for their banking needs.
The fast expansion and general acceptance of online business has people
wondering as to why this e-commerce did not happen earlier. The answer is
quite simple; the technology and infrastructure needed were not there to support
e-commerce. Consider, the example of computersmany business enterprises
used large mainframe computers with private data formats. These were not
easy to share with home or office users. The ubiquitous personal computers
(PCs) were not generally available. Thus, only a few computers outside the
business circle could get that information. Even when PCs became popular,
both in offices and at homes, the ability to process business was restricted.
This was because the infrastructure needed was not available.
At the same time, to set up an online or e-commerce earlier, it required
the individual company to develop the whole technology infrastructure. It was
required to develop its own business and marketing planning. However, these
days this is not the case. Now the only problem of an e-commerce is how to
integrate its business, because now many companies have resolved the complex
work of (i) developing individual Internet-based products and (ii) services that
take care of the problems of customer and supply interactions. Nevertheless,
the real challenge is the ability to combine these technologies and services
based on solid business and marketing plans, working on a real-time basis.
Today, the growth of e-commerce is at a fast pace as both organizations
and consumers have access to the Internet, either from their homes or offices.
Thus, there is excitement and the potential for success has also grown. At the
same time, the tremendous growth of the Internet has led to challenges of
increased integration of e-commerce of all capability and capacity.
The growth of e-commerce can be studied at two phases. Companies in
the first phase set up e-commerce, when e-commerce technology was new to
the market.
The trend of companies that set up e-commerce in the first phase are as
follows:
Business organizations rushed to get an e-commerce website up.
Little or no regard was given to check how scalable or reliable the site
needed to be.
It was a matter of beating competition.
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E-Commerce
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Self-Assessment Questions
1. State whether the following statements are true or false.
(a) Today, both people and institutions use Internet technologies to
increase production and enhance communications worldwide.
(b) Companies in the first phase set up e-commerce when e-commerce
technology was in its infancy.
2. Fill in the blanks with the appropriate words.
(a) One of the drawbacks of the first-to-market consumer sites was that
there was no integration with the _________of the business.
(b) Today, the value of a company is based on its strategy, business
model and_______.
Description
Example of Website
Business-toConsumer
pets.com, edirects.com,
amazon.com, autobytel.com
Business-toBusiness
verticalnet.com,
metalsite.com,
shop2gether.com
Business-toGovernment
igov.com
Consumer-toConsumer
ebay.com, inforocket.com
Consumer-toBusiness
priceline.com
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1. Business-to-Business Model
The business-to-business (B2B) model needs two or more business
organizations that do business with each other. It entails commercial activity
among companies through the Internet as a medium. At present, there are
many types of e-commercees. The B2B e-commerce is of the following types:
(a) Supplier oriented
In this type of B2B e-commerce, a supplier establishes the electronic market
where a number of customers or buyers transact with suppliers. Generally, it is
done by a supplier which has monopoly over products that it supplies.
(b) Buyer oriented
In this type of B2B electronic commerce, big business organizations with high
volume purchase capacity creates an e-commerce marketplace for purchases
and gains by starting a site of their own. The online e-commerce marketplace is
used by buyers for placing requests for quotations and carrying out the entire
purchase process.
(c) Intermediary oriented
In this type of B2B e-commerce, a third party establishes the e-commerce
marketplace and attracts both buyers and sellers to interact with each other.
Application of B2B model
Some of the applications of B2B model are, inventory management, channel
management, distribution management, order fulfilment and delivery payment
and payment management.
2. Business-to-Consumer Model
The business to consumer model clearly concentrates on individual buyers and
is thus known as Business-to-Consumer (B2C) model. The B2C model offers
consumers the capabilities to browse, select and merchandise online from a
wider variety of sellers and at better prices. The B2C e-commerce interaction is
most appropriate for the following types of transactions:
(i) Easily transformable goods, i.e., products that are easily transformable
into digital format, such as videos, software packages, music books, and
so on
(ii) Highly rated branded items or items with return security
(iii) Items sold in packets that are not possible to open in physical stores
(iv) Items that follow standard specification
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Description
Example
B2B
metalsite.com
B2C
amazon.com
C2C
Consumer sells
consumers
directly
to
other
ebay.com
Activity 1
Research on the Net and prepare a table showing the evolution of business
models and the contributions of important personalities towards the same.
Self-Assessment Questions
3. State whether the following statements are true or false.
(a) There are four basic types of business models.
(b) In consumer to business models, consumers fix the cost of their
goods or services for other consumers.
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E-Commerce
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It also looks for other effects in the business network that might be used
to give more value to the customer.
(vi) Competitive strategy: It refers to the ways in which a business
organization tries to expand a permanent competitive benefit and utilize it
to advance the competitive situation of the company in the market.
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Technical
Inputs
Business
Model
Economic
Outputs
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Self-Assessment Questions
5. State whether the following statements are true or false.
(a) According to Rosenbloom and Chesborough, a business model has
five components.
(b) A business model enables to bring the technical experts and business
experts to the same platform.
6. Fill in the blanks with the appropriate word.
(a) The___________plans the course through which a company would
make profit.
(b) Business strategy focuses in delivering _____________to the
shareholders.
6.5 Summary
Let us recapitulate the important concepts discussed in this unit:
In a very short period since its evolution, the Internet has become integral
to the daily activities of people.
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Today, three basic types of business models are usedbusiness-tobusiness, business-to-consumer and consumer-to-consumer models.
According to Henry Chesbrough and Rosenbloom, a business model has
six components.
A business model plans the course through which a company would make
profit and also states the price of the product/service it would charge the
customers.
To really profit from an innovative product or service, a firm needs an
appropriate business model so that it is able to exploit its innovation and
be the market leader.
6.6 Glossary
E-commerce: A business interaction that is performed by using the
electronic medium
Business model: A set of shared common characteristics, behaviour
and methods of doing business that enables a firm to generate profits
through increasing revenues and reducing cost
Consumer-to-consumer: Consumers sell directly to other consumers
via online classified advertisements and auctions or by selling personal
services or expertise online
Buyer oriented business: The online e-commerce marketplace is used
by buyers for placing requests for quotations and carrying out the entire
purchase process
Intermediary-oriented: A type of B2B e-commerce, is which a third party
establishes the e-commerce marketplace and attracts both buyers and
sellers to interact with each other
Internet banking: A system allowing individuals to perform banking
activities at home, via the Internet
Digital format: Use of discrete integral numbers in a given base to
represent all the quantities that occur in a problem or calculation
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6.8 Answers
Answers to Self-Assessment Questions
1. (a) True; (b) True
2. (a) production side; (b) its ability to sell
3. (a) False; (b) True
4. (a) B2B model; (b) third party
5. (a) False; (b) True
6. (a) business model; (b) value
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Unit 6
References
1. Turban, Efraim, Jae Kuy Lee and Michael Chung. Electronic Commerce:
A Managerial Perspective. Prentice-Hall, 1999.
2. Whitley, David. E-Commerce: Strategy, Technologies and Applications.
Tata McGraw-Hill, 1998.