Business Models 11

8/3/2019 Business Models 11

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April 22, 2004 MediaWorks 1

Business Models on

InternetAssoc. prof., dr. Rimantas Gatautis

Economics and Management FacultyKaunas University of Technology


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Business models on Internet

Agenda1. What is business model?

2. Business models classification.3. Business models components.


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What is business model?

P.Timmers (1998)

An architecture for the products, services

and information flows, including adescription of the various business actorsand their roles;

A description of the potential benefits forthe various business actors;

A description of the sources of revenues.


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Business model

J.Rayport, B.Jaworski (2000)

Value cluster

Marketspace offering

Resource system

Revenues sources


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Markets players

EnterpriseEnterprise

Governmentorganizations

Customer Customer


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Business models:

Business-to-business (B2B) refers to the fullspectrum of activities that can occur betweentwo organizations. Among other activities,B2B includes purchasing, procurement, supply

management, inventory management, channelmanagement, sales activities, paymentmanagement, services and support.

Chemdex www.chemdex.comFastParts www.fastparts.com

FreeMarkets www.freemarkets.com
http://www.chemdex.com/http://www.fastparts.com/http://www.freemarkets.com/http://www.freemarkets.com/http://www.fastparts.com/http://www.chemdex.com/


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Business-to-Consumer (B2C) refers

to exchanges between business and

consumers.

Amazon www.amazon.com

Yahoo www.yahoo.com

Schwab www.schwab.com
http://www.amazon.com/http://www.yahoo.com/http://www.schwab.com/http://www.schwab.com/http://www.yahoo.com/http://www.yahoo.com/http://www.amazon.com/http://www.amazon.com/


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Consumer-to-Consumer (C2C) exchanges

involves transaction between and amongconsumers. These exchanges may or maynot include third-party involvement as in

the case of the auction exchange eBay.Other activities include classified ads(www.numberoneclassifieds.com),

games (www.heat.net), jobs(www.monster.com), web-basedcommunications (www.isq.com) .
http://www.numberoneclassifieds.com/http://www.heat.net/http://www.monster.com/http://www.isq.com/http://www.isq.com/http://www.monster.com/http://www.heat.net/http://www.numberoneclassifieds.com/


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Government-to-Business. Thiscategory involves various

transactions between government

and business. This includes

governments information

providing and tax paying (e-tax).


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Government-to-Consumers. This

category includes interaction

between government and state

inhabitants. This category is similarto Government-to-Business

category, includes information

providing and governments

services to inhabitants.


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Other business models: Consumer-to-

Business, Government-to-

Government, Consumer-to-

Government, Business-to-Government.


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E-shop

This is Web marketing of a company or a

shop. In first instance this is done to

promote the company and its goods or services.Increasingly added is the possibility to order

and possibly to pay, often combined withtraditional marketing channels.

Fleurop (http://www.fleurop.com)

Travelocity (http://www.travelocity.com )
http://www.fleurop.com/http://www.fleurop.com/


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E-procurement

This is electronic tendering and procurement of goods

and services. Large companies or public authorities

implement some form of e-procurement on the Web.

Benefits are to have a wider choice of suppliers whichis expected to lead to lower cost, better quality,

improved delivery, reduced cost of procurement.

Electronic negotiation and contracting and possibly

collaborative work in specification can further

enhance time- and cost saving and convenience.


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E-mallAn electronic mall, in its basic form, consists of a collection of e-shops,

usually enhanced by a common umbrella, for example of a well-known brand. It might be enriched by a common guaranteed

payment method.Benefits for the customer (real or hoped for) are the benefits for each

individual e-shop with additional convenience of easy access toother e-shops and ease of use through a common user inter-face.When a brand name is used to host the e-mall, this should lead to

more trust, and therefore increased readiness to buy.Benefits for the e-mall members (the e-shops) are lower cost and

complexity to be on the Web, with sophisticated hosting facilitiessuch as electronic payments and additional traffic generated fromother e-shops on the mall, or from the attraction of the hosting

brand.Electronic Mall Bodensee www.emb.ch

Industry.Net www.industry.net
http://www.emb.ch/http://www.industry.net/http://www.industry.net/http://www.emb.ch/


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Third party marketplace

The model that is suitable in case companies wish to leavethe Web marketing to a 3rd party (possibly as an add-onto their other channels). They all have in common that

they offer at least a user interface to the suppliers productcatalogues. Several additional features like branding,

payment, logistics, ordering, and ultimately the full scaleof secure transactions

Revenues can be generated on the basis of one-off

membership fee, service fees, transaction fee, orpercentage on transaction value.

TradeZone tradezone.onyx.net


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Virtual communities

The ultimate value of virtual communities is coming

from the members (customers or partners), who add

their information onto a basic environment provided

by the virtual community company.

The membership fees as well as advertising generate

revenues.


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Value chain service provider

M.Porter value chain conception

Primary activities: Inbound logistics

Operations

Outbound logistics

Marketing and sales

Services

Support activities:

Technology development

Procurement

Human resources management Company infrastructure


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Value chain service provider

These specialize on a specific function for the value chain,such as electronic payments or logistics, with the

intention to make that into their distinct competitive

advantage.

A fee- or percentage based scheme is the basis for revenues.

Examples of value chain service providers are the FedEx orUPS www.ups.com Web-based package shipping

support.
http://www.ups.com/http://www.ups.com/


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Value chain integrators

These focus on integrating multiple steps of the valuechain, with the potential to exploit the information

flow between those steps as further added value.

Revenues are coming from consultancy fees or possibly

transaction fees.


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Information brokerage, trust and other services

A whole range of new information services are emerging, to add value

to the huge amounts of data available on the open net-works or

coming from integrated business operations, such as information

search, e.g. Yahoo www.yahoo.com , customer profiling, business

opportunities brokerage, investment advice, etc.

Usually information and consultancy have to be directly paid for either

through subscription or on a pay-per-use basis, although

advertising schemes are also conceivable.

A special category is trust services, as provided by certification

authorities and electronic notaries and other trusted third parties.

Subscription fees combined with one-off service fees as well as

software sales and consultancy are the sources of revenue.

Search engines are a special category of information services, with the

public Internet facility (rather then intranet versions) usually based

on advertising as a source of revenue.
http://www.yahoo.com/http://www.yahoo.com/http://www.yahoo.com/


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Components of business model

J.Rayport, B.Jaworski (2001)

Value cluster


Resource system

Financial model


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Value proposition or value

cluster for targeted customers

The first step in the articulation ofthe business models is to clearly

specify the value proposition of

the business.


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Value proposition or value

cluster for targeted customers

Choice of target segment:

Market analysis and segmentation, market size and growth

rates, unmet or insufficiently met customers needs, weak or

nonexistent competitors.

Choice of the focal customer benefits:

Quality, low price, additional services, etc

Choice of unique and differentiating

capabilities.

Why online firm can provide a single benefit (or multiple

benefits) significantly better then competitors?- brand

name, skills of organization.


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PC Flowers and Gifts serves special occasions

segment (target segment) with fresh flowers,complementary gifts, and lover prices (the three key

benefits) because of their accumulated online

experience and knowledge since 1989 and their

unique, broad product line of complimentary gifts(the two key differentiating capabilities)

Proflowers serves the price-sensitive and

convenience oriented customers with the freshest

flowers at a competitive price because of theirunique sourcing and FedEx shipping arrangements


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How does the firm develop an

online offering for customers?


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Scope of offering

The scope refers to the number of categories of products

and services that are offered in the site.

The problem which combination of offers is optimal?

Category specific dominance refers to companies that focus

exclusively on one product category, such as flowers, candy,gifts. However it is increasingly difficult to isolate firms that are

focusing only on one category.

Cross-Category dominance. The extension of product offerings from

the single category to the additional product categories. Themost well known example is Amazons initial domination of the

book market and subsequent extension to CDs, videos, toys,

auctions.


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Customer decision processFlower purchase example

Problem recognition

Information searchPrepurchase

Evaluation of alternatives

Purchase Purchase decision

Satisfaction

Postpurchase Loyalty

Disposal


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Offerings mapping

The third step in the construction of the offering

involves products and services mapping onto

Customers Decisions Process. The idea is that

website should walk the customer through the

entire purchase decision cycle and should encourage

the customer to continually revisit the cycle.


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1-800 Flowers.com offering mapping

Need recognition

Gift reminder service, holiday special, celebrations suggestions,

special occasions suggestionsSearch for ideas and information

Ideas: floral, garden, home, gift, recommendation by the budget,

best sellers

Gift recommendation: gift guru, favourite gifts, etc.

Evaluation of alternatives

Product price, product picture, description, delivery information

Purchase decisionShopping basket, transaction

Postsales support and Education on flowers

FAQ, Discounts, special events and educational workshops


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Resource system

The value proposition and offering

specification are critical steps in the

business model formulation, because

they dictate the resource system of the

company.

The company design the selection of

capabilities and activities that uniquelydeliver value proposition.


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Key issues

Shift from the physical world to theVirtual and Physical world;

Shift from supply side focus to ademand side focus.

Shift from activities to capabilities.

Shift from single to Multifirm

system.


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Specifying the resource system

1. Identify core benefits in the value cluster.

2. Identify capabilities that relate to the each benefit.

3. Link resources to the each capability.

4. Identify to what degree firm can deliver each capability.

5. Identify partners who can complete capabilities.


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1-800-Flowers.com

Benefits: broad assortment of gifts, higher quality of flowers,good customer service, widespread, easy access.

Capabilities: strong brand name, technology, integrated

partners offers, online gift center, strong distribution

network, wide reach to customer, multiple contacts points

Activities and resources:

wide reach to customer: partnering with MSN, AOL,

Starmediamultiple contacts points: telephone, online store, catalog,

affiliates, franchise store


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Criteria to assess the quality of a resource system

Uniqueness of the system

How different are benefits, capabilities and activities relative to

competitors?Links between capabilities and benefits

Does each of the capabilities support the delivery of a customer benefit?

Links among capabilities in the system

How well do the capabilities and activities complement and support oneanother?

Links among resources

Are the specific resource mutually reinforcing? Are they complimentary?

Are the consistent with the various benefits?

Links between virtual world and physical world business systems

Does the online resource system support/conflict with the offline system?

Sustaining advantage

Is the resource system difficult to replicate?


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Revenue models

Advertising

Product, service or

information sale

Transaction

Subscription


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More information:

Affua-Tucci. Internet business models and strategies

M.Rappa. Managing digital enterprise: Business Models

P.Timers. Business Models for Electronic Markets J.Rayport, B.Jaworski. E-commerce

J.Rayport, B.Jaworski. Introduction to E-commerce

Eissenman. Business models on Internet


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Thank you for your

attention!

Business Models 11

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