39048834-E-Business-Models-PPT

8/7/2019 39048834-E-Business-Models-PPT

1/53

Lecture 02Lecture 02

EE--Business ModelsBusiness Models

Jaeki SongJaeki Song


2/53

2

Learning ObjectivesLearning Objectives

Identify the key components of eIdentify the key components of e--commercecommerce

business models.business models.

Describe the major B2C business models.Describe the major B2C business models. Describe the major B2B business models.Describe the major B2B business models.

Recognize business models in otherRecognize business models in other

emerging areas of eemerging areas of e--commerce.commerce. Understand key business concepts andUnderstand key business concepts and

strategies applicable to estrategies applicable to e--commerce.commerce.


3/53

Components of eComponents of e--BusinessBusiness

ModelsModelsBusiness Model

-Customer value

- Scope

- Price

- Resources

- Capabilities

- Implementations

Environment

Internet Performance


4/53

Price CompetitionPrice Competition

Price for books and CDs sold on the Internet lessPrice for books and CDs sold on the Internet lessthan conventional channelthan conventional channel Average 9Average 9--16%16%

Price incrementsPrice increments Price change on the Internet is smaller thanPrice change on the Internet is smaller than

conventional channelconventional channel

Price dispersionPrice dispersion

Substantial differences in price across retailers on theSubstantial differences in price across retailers on theInternetInternet

Heterogeneity in consumer awarenessHeterogeneity in consumer awareness

Heterogeneity in retailer branding and trustHeterogeneity in retailer branding and trust


5/53

Driving FactorsDriving Factors

Lower buyer search costsLower buyer search costs

Promote price competitionPromote price competition

Low entry costs or low operational costsLow entry costs or low operational costs Other factorsOther factors

TaxTax

Shipping and handling feesShipping and handling fees


6/53

6

EE--Commerce Business ModelsCommerce Business Models

Business modelBusiness model

a set of planned activities designed toa set of planned activities designed to

result in a profit in a marketplaceresult in a profit in a marketplace

EE--commerce business modelcommerce business model

a business model that aims to use anda business model that aims to use and

leverage the unique qualities of theleverage the unique qualities of the

Internet and the World Wide Web.Internet and the World Wide Web.


7/53

Eight Key Ingredients of a Business ModelEight Key Ingredients of a Business Model

Key QuestionsBusiness Model

Components

Value Proposition Why should the customer buy from you?

Revenue model How will you earn money?

Market opportunity What marketspace do you intent to serve, and what is its size?

Competitive environment Who else occupies your intended marketspace?

Competitive advantage What special advantages does your firm bring to the marketspace?

Market strategy How do you plan to promote your products to attract customer?

Organizational

development

What types of organizational structures within the firm are

necessary to carry out the business plan?

Management teamWhat kinds of experiences and background are important for

the companys leaders to have?


8/53

8

Value PositionValue Position

Defines how a companys product orDefines how a companys product or

service fulfills the needs of customers.service fulfills the needs of customers.

QuestionsQuestions Why will customers choose to do business withWhy will customers choose to do business with

your firm instead of another company?your firm instead of another company?

What will your firm provide that other firms doWhat will your firm provide that other firms do

not and cannot?not and cannot?


9/53

9

Revenue ModelRevenue Model

Describes how the firm will earn revenue,Describes how the firm will earn revenue,

produce profits, and produce a superiorproduce profits, and produce a superior

return on invested capital.return on invested capital.

EE--commerce revenue models include:commerce revenue models include:

advertising modeladvertising model

subscription modelsubscription model

transaction fee modeltransaction fee model

sales modelsales model

affiliate modelaffiliate model


10/53

10


Advertising revenue modelAdvertising revenue model

a company provides a forum for advertisementsa company provides a forum for advertisements

and receives fees from advertisers (and receives fees from advertisers (YahooYahoo))

Subscription revenue modelSubscription revenue model

a company offers it users content or servicesa company offers it users content or services

and charges a subscription fee for access toand charges a subscription fee for access to

some or all of it offerings (some or all of it offerings (Consumer ReportsConsumer ReportsororWall Street JournalWall Street Journal))


11/53

11


Transaction fee revenue modelTransaction fee revenue model

a company receives a fee for enabling ora company receives a fee for enabling orexecuting a transaction (executing a transaction (eBayeBay ororEE--TradeTrade))

Sales revenue modelSales revenue model a company derives revenue by selling goods,a company derives revenue by selling goods,

information, or services (information, or services (AmazonAmazon ororDoubleClick)DoubleClick)

Affiliate revenue modelAffiliate revenue model

a company steers business to an affiliate anda company steers business to an affiliate andreceives a referral fee or percentage of thereceives a referral fee or percentage of the

revenue from any resulting sales (revenue from any resulting sales (MyPointsMyPoints))


12/53

12

Market OpportunityMarket Opportunity

Market opportunityMarket opportunity

refers to the companys intended marketspacerefers to the companys intended marketspace

and the overall potential financial opportunitiesand the overall potential financial opportunities

available to the firm in that market spaceavailable to the firm in that market space

defined by the revenue potential in each of thedefined by the revenue potential in each of the

market niches where you hope to competemarket niches where you hope to compete

MarketspaceMarketspace the area of actual or potential commercial valuethe area of actual or potential commercial value

in which a company intends to operatein which a company intends to operate


13/53

13

Competitive EnvironmentCompetitive Environment

Refers to the other companies operating inRefers to the other companies operating in

the same marketplace selling similarthe same marketplace selling similar

productsproducts

Influenced by:Influenced by:

how many competitors are activehow many competitors are active

how large are their operationshow large are their operations

the market share of each competitorthe market share of each competitor

how profitable these firms arehow profitable these firms are

how they price their productshow they price their products


14/53

14

Competitive AdvantageCompetitive Advantage

Achieved by a firm when it can produce aAchieved by a firm when it can produce a

superior product and/or bring the product tosuperior product and/or bring the product to

market at a lower price than most, or all, ofmarket at a lower price than most, or all, of

its competitorsits competitors

Achieved because a firm has been able toAchieved because a firm has been able to

obtain differential access to the factors ofobtain differential access to the factors of

production that are denied their competitorsproduction that are denied their competitors---- at least in the short termat least in the short term


15/53

15


AsymmetryAsymmetry

exists whenever one participant in a market hasexists whenever one participant in a market has

more resources than other participantsmore resources than other participants

First mover advantageFirst mover advantage

a competitive market advantage for a firm thata competitive market advantage for a firm that

results from being the first into a marketplaceresults from being the first into a marketplace

with a serviceable product or servicewith a serviceable product or service


16/53

16


Unfair competitive advantageUnfair competitive advantage

occurs when one firm develops an advantageoccurs when one firm develops an advantagebased on a factor that other firms cannotbased on a factor that other firms cannot

purchasepurchase Perfect MarketPerfect Market

a market in which there are no competitivea market in which there are no competitiveadvantages or asymmetries because all firmsadvantages or asymmetries because all firms

have equal access to all the factors ofhave equal access to all the factors ofproductionproduction

when a company uses its competitive advantagewhen a company uses its competitive advantageto achieve more advantage in surroundingto achieve more advantage in surrounding

marketsmarkets


17/53

17

Market StrategyMarket Strategy

The plan you put together that detailsThe plan you put together that details

exactly how you intend to enter a newexactly how you intend to enter a new

market and attract new customersmarket and attract new customers

Best business concepts will fail if notBest business concepts will fail if not

properly marketed to potential customersproperly marketed to potential customers


18/53

18

Organizational DevelopmentOrganizational Development

Describes how the company will organizeDescribes how the company will organize

the work that needs to be accomplishedthe work that needs to be accomplished

Work is typically divided into functionalWork is typically divided into functionaldepartmentsdepartments

Move from generalists to specialists as theMove from generalists to specialists as the

company growscompany grows


19/53

19

Management TeamManagement Team

Employees of the company responsible forEmployees of the company responsible for

making the business model workmaking the business model work

Strong management team gives instantStrong management team gives instantcredibility to outside investorscredibility to outside investors

A strong management team may not be ableA strong management team may not be able

to salvage a weak business modelto salvage a weak business model

Should be able to change the model andShould be able to change the model and

redefine the business as it becomesredefine the business as it becomes

necessarynecessary


20/53

20

Major BusinessMajor Business--toto--ConsumerConsumer

(B2C) Business Models(B2C) Business Models


21/53

21




22/53

22



PortalPortal

offers powerful search tools plus an integratedoffers powerful search tools plus an integrated

package of content and servicespackage of content and services

typically utilizes a combinestypically utilizes a combines

subscription/advertising revenues/transactionsubscription/advertising revenues/transaction

fee modelfee model

may be general or specialize (vortal)may be general or specialize (vortal)


23/53

23



EE--tailertailer

online version of traditional retaileronline version of traditional retailer

includesincludes virtual merchants (online retail store only)virtual merchants (online retail store only)

clicks and mortar eclicks and mortar e--tailers (online distributiontailers (online distribution

channel for a company that also has physical stores)channel for a company that also has physical stores)

catalog merchants (online version of direct mailcatalog merchants (online version of direct mailcatalog)catalog)

online malls (online version of mall)online malls (online version of mall)

Manufacturers selling directly over the WebManufacturers selling directly over the Web


24/53

24



Content ProviderContent Provider

information and entertainment companies thatinformation and entertainment companies that

provide digital content over the Webprovide digital content over the Web

typically utilizes an advertising, subscription, ortypically utilizes an advertising, subscription, or

affiliate referral fee revenue modelaffiliate referral fee revenue model

Transaction BrokerTransaction Broker

processes online sales transactionsprocesses online sales transactions

typically utilizes a transactions feel revenuetypically utilizes a transactions feel revenue

modelmodel


25/53

25



Market CreatorMarket Creator

uses Internet technology to create markets thatuses Internet technology to create markets that

bring buyers and sellers togetherbring buyers and sellers together

typically utilizes a transaction fee revenuetypically utilizes a transaction fee revenue

modelmodel E.g. AuctionE.g. Auction

English auctionEnglish auction

Dutch auctionDutch auction

SealedSealed--bid auctionbid auction

Double auctionDouble auction


26/53

English AuctionsEnglish Auctions

The bidders announce their bids until noThe bidders announce their bids until no

higher bid is forthcominghigher bid is forthcoming

going . . . going . . . gone!going . . . going . . . gone! AscendingAscending--price auctionsprice auctions

Typically set a closing time in advanceTypically set a closing time in advance

Minimum bid plus a reserve priceMinimum bid plus a reserve price

Early buyout priceEarly buyout price


27/53

Dutch AuctionsDutch Auctions

Bidding starts at a high price and drops untilBidding starts at a high price and drops until

a bidder accepts the pricea bidder accepts the price

Descending price auctionsDescending price auctions


28/53

SealedSealed--Bid AuctionsBid Auctions

Bidders submit their bids independently andBidders submit their bids independently and

are usually prohibited from sharingare usually prohibited from sharing

information with each otherinformation with each other

FirstFirst--price sealedprice sealed--bid auctionbid auction

The winner pays his amountThe winner pays his amount

SecondSecond--price sealedprice sealed--bid auctionbid auction

The winner pays one increment over theThe winner pays one increment over the

secondsecond--highest bid receivedhighest bid received


29/53

Double AuctionsDouble Auctions

Buyers and sellers submit bids to anBuyers and sellers submit bids to an

auctioneerauctioneer

The auctioneer matches the sellers offers toThe auctioneer matches the sellers offers tothe buyers offerthe buyers offer

E.g. New York Stock ExchangeE.g. New York Stock Exchange


30/53

30



Service ProviderService Provider

offers services onlineoffers services online

Community ProviderCommunity Providerprovides an online community of likeprovides an online community of like--mindedminded

individuals for networking and informationindividuals for networking and information

sharingsharing

revenue is generated by referral fee,revenue is generated by referral fee,advertising, and subscriptionadvertising, and subscription


31/53

ee--Business ModelsBusiness Models

Dynamic Pricing ModelsDynamic Pricing Models

NameName--YourYour--Price ModelPrice Model ComparisonComparison--Pricing ModelPricing Model

DemandDemand--Sensitive Pricing ModelSensitive Pricing Model


32/53

NameName--YourYour--Price ModelPrice Model

Allows customers to state the price they areAllows customers to state the price they are

willing to paywilling to pay

Priceline.comPriceline.com Demand collect systemsDemand collect systems

Use shopping bot that takes customers bid to theUse shopping bot that takes customers bid to the

Priceline partners to see whether they will accept thePriceline partners to see whether they will accept the

prices for the requested products/servicesprices for the requested products/services Intelligent agentsIntelligent agents


33/53

ComparisonComparison--Pricing ModelPricing Model

Allows customers to poll a variety ofAllows customers to poll a variety of

merchants and find a desiredmerchants and find a desired

product/service at the lowest priceproduct/service at the lowest price

Mysimon.comMysimon.com

Uses intelligentUses intelligent--agent technologyagent technology

Offers discussion groups, customer ratings, andOffers discussion groups, customer ratings, and

comparison shoppingcomparison shopping


34/53


Group purchasingGroup purchasing

Individual buyers to shop in large groups to obtainIndividual buyers to shop in large groups to obtain

group discountgroup discount

The more people who buy a product in a single purchase, theThe more people who buy a product in a single purchase, thelower the cost per person becomeslower the cost per person becomes

Mercata.com, mobshop.com, demandline.comMercata.com, mobshop.com, demandline.com

How it worksHow it works

Buyers create requests for quotes (RFQs)Buyers create requests for quotes (RFQs) Purchasing manager monitors all aggregated RFQsPurchasing manager monitors all aggregated RFQs

Manager negotiates through suppliers.Manager negotiates through suppliers.


35/53


Price DiscriminationPrice Discrimination

Output

Price

D1R1

Q1

P1

D2R2

Q2 Q

P2

Marginalcost


36/53


Benefits to BuyersBenefits to Buyers

Reduce product costsReduce product costs

Reduce transaction costsReduce transaction costs Benefits to SuppliersBenefits to Suppliers

Enhance revenue with a highEnhance revenue with a high--volume salesvolume sales

Reduce sales costsReduce sales costs

Improve manufacturing efficiencyImprove manufacturing efficiency


37/53

37

Major BusinessMajor Business--toto--BusinessBusiness

(B2B) Business Models(B2B) Business Models


38/53

38



B2B HubB2B Hub

also known asalso known as marketplace/exchangemarketplace/exchange

electronic marketplace where suppliers andelectronic marketplace where suppliers and

commercial purchasers can conductcommercial purchasers can conducttransactionstransactions

may be a general (horizontal marketplace) ormay be a general (horizontal marketplace) orspecialized (vertical marketplace)specialized (vertical marketplace)

EE--distributordistributor supplies products directly to individualsupplies products directly to individualbusinessesbusinesses


39/53

39



B2B Service ProviderB2B Service Provider

sells business services to other firmssells business services to other firms

MatchmakerMatchmaker links businesses togetherlinks businesses together

charges transaction or usage feescharges transaction or usage fees

InfomediaryInfomediary

gather information and sells it to businessesgather information and sells it to businesses


40/53

40

Seven Unique Feature of ESeven Unique Feature of E--

Commerce TechnologyCommerce Technology


41/53

41

Seven Unique Feature of ESeven Unique Feature of E--


UbiquityUbiquity Alters industry structure by creating new marketingAlters industry structure by creating new marketing

channels and expanding size of overall marketchannels and expanding size of overall market

Creates new efficiencies in industry operations andCreates new efficiencies in industry operations andlowers cost of firms sales operationslowers cost of firms sales operations

Enables new differentiation strategiesEnables new differentiation strategies

Global ReachGlobal Reach Changes industry structure by lowering barriers toChanges industry structure by lowering barriers to

entry, but greatly expands market at the same timeentry, but greatly expands market at the same time

Lowers cost of industry and firm operations throughLowers cost of industry and firm operations throughproduction and sales efficienciesproduction and sales efficiencies

Enables competition on global scaleEnables competition on global scale


42/53

42

Seven Unique Features of ESeven Unique Features of E--


Universal StandardsUniversal Standards Changes industry structure by lowering barriers to entryChanges industry structure by lowering barriers to entry

and intensifying competition within an industryand intensifying competition within an industry

Lowers costs of industry and firm operations byLowers costs of industry and firm operations bylowering computing and communications costslowering computing and communications costs

Enables broadEnables broad--scope strategiesscope strategies

RichnessRichness Alters industry structure by reducing strength ofAlters industry structure by reducing strength of

powerful distribution channelspowerful distribution channels

Change industry and firm operations costs by lesseningChange industry and firm operations costs by lesseningreliance on sales forcereliance on sales force

Enhances postEnhances post--sale support strategiessale support strategies


43/53

43



InteractivityInteractivity

Alters industry structure by reducing threat ofAlters industry structure by reducing threat of

substitutes through enhanced customizationsubstitutes through enhanced customization

Reduces industry and firm costs by lessening relianceReduces industry and firm costs by lessening reliance

on sales forceon sales force

Enable differentiation strategiesEnable differentiation strategies

Personalization/CustomizationPersonalization/Customization

Alters industry structure by reducing threats ofAlters industry structure by reducing threats of

substitutes, raising barriers to entrysubstitutes, raising barriers to entry

Reduces value chain costs in industry and firm byReduces value chain costs in industry and firm by

lessening reliance on sales forceslessening reliance on sales forces


44/53

44



Information DensityInformation Density

Changes industry structure by weakeningChanges industry structure by weakening

powerful sales channels, shifting bargainingpowerful sales channels, shifting bargainingpower to consumerpower to consumer

Reduces industry and firm operations costs byReduces industry and firm operations costs by

lowering costs of obtaining, processing, andlowering costs of obtaining, processing, and

distributing information about suppliers anddistributing information about suppliers and

consumersconsumers


45/53

Case StudiesCase Studies

Should we integrate our Internet businessShould we integrate our Internet business

with our traditional business or should wewith our traditional business or should we

keep the two separate?keep the two separate?


46/53

Seamless Model: Office DepotSeamless Model: Office Depot

Two reasonsTwo reasons

Existing catalogExisting catalog--sales support an Internet storesales support an Internet store

Existing information systems made it easy toExisting information systems made it easy tocoordinate online stores and physical storescoordinate online stores and physical stores

Customers BenefitCustomers Benefit

Make shopping simple and convenientMake shopping simple and convenient

Companys BenefitCompanys Benefit

Cheaper to reach customersCheaper to reach customers


47/53

Seamless Model: Office DepotSeamless Model: Office Depot

Added ValueAdded Value

Each customer has its own specialized view ofEach customer has its own specialized view of

the OfficeDepot.com sitethe OfficeDepot.com site

authorizationauthorization

Provide additional discount for largerProvide additional discount for larger

customers if they place order on onlinecustomers if they place order on online

Actually increased the traffic at its physicalActually increased the traffic at its physicaloutletoutlet


48/53

Joint Venture Model: KB ToyJoint Venture Model: KB Toy

ReasonsReasons

Dont have much experience with catalogDont have much experience with catalog

retailingretailing

Tend to focus exclusively on their physicalTend to focus exclusively on their physical

storesstores

KB Toy and Kbkids.comKB Toy and Kbkids.com

KB Toy joined with BrainPlay.com to createKB Toy joined with BrainPlay.com to createKbkids.comKbkids.com

$80 million$80 million


49/53

Joint Venture Model: KB ToyJoint Venture Model: KB Toy

OperationOperation

SeparationSeparation

Kbkids headquarter: DenverKbkids headquarter: Denver

KB Toy headquarter: MAKB Toy headquarter: MA

IntegrationIntegration

Share brand: promotionShare brand: promotion

Customer serviceCustomer service Purchasing functionPurchasing function


50/53

Virtual PartnershipVirtual Partnership

Rite Aid and Drugstore.comRite Aid and Drugstore.com

Customer benefitCustomer benefit

Customers can pick up their Drugstore.comCustomers can pick up their Drugstore.comprescriptions at their local Rite Aidprescriptions at their local Rite Aid


51/53

A Spectrum of ChoicesA Spectrum of Choices

Model Brand Management Operation

Seamless Fully integrated Fully integrated Fully integrated

Joint VentureMostly

integrated

Slightly

integrated

Moderately

integrated

Partnership SeparateSlightly

integrated

Moderately

integrated


52/53

Decision ProcessDecision Process

BrandSeparation Integration

Does the brand extend naturally

to the Internet?

Will we need to price differently?

Management

Do we have the skills and experience?

Will there be major channel conflict?

Does the Internet threaten the current

business model?


53/53

Decision ProcessDecision Process

OperationsSeparation Integration

Do our distribution systems

translate well to the Internet?

Do our information systems provide

a foundation on which to build?

Does either systems constitute a

significant competitive advantage?

39048834-E-Business-Models-PPT

Documents