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Page 1: Ebusinessmodelsppt

E-Business ModelsE-Business Models

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Learning ObjectivesLearning Objectives

Identify the key components of e-commerce Identify the key components of e-commerce 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 other Recognize business models in other

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

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

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Components of e-Business Components of e-Business ModelsModels

Business Model-Customer value- Scope- Price- Resources- Capabilities- Implementations

Business Model-Customer value- Scope- Price- Resources- Capabilities- Implementations

EnvironmentEnvironment

InternetInternet PerformancePerformance

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Price CompetitionPrice Competition

Price for books and CDs sold on the Internet less Price for books and CDs sold on the Internet less than conventional channelthan conventional channel– Average 9-16%Average 9-16%

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

conventional channelconventional channel Price dispersionPrice dispersion

– Substantial differences in price across retailers on the Substantial differences in price across retailers on the InternetInternet

– Heterogeneity in consumer awarenessHeterogeneity in consumer awareness– Heterogeneity in retailer branding and trustHeterogeneity in retailer branding and trust

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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

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E-Commerce Business ModelsE-Commerce Business Models

Business modelBusiness model– a set of planned activities designed to a set of planned activities designed to

result in a profit in a marketplaceresult in a profit in a marketplace E-commerce business modelE-commerce business model

– a business model that aims to use and a business model that aims to use and leverage the unique qualities of the leverage the unique qualities of the Internet and the World Wide Web.Internet and the World Wide Web.

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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?

Organizationaldevelopment

What types of organizational structures within the firm arenecessary to carry out the business plan?

Management teamWhat kinds of experiences and background are important for the company’s leaders to have?

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Value PositionValue Position Defines how a company’s product or Defines how a company’s product or

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

Why will customers choose to do business with Why 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 do What will your firm provide that other firms do not and cannot?not and cannot?

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Revenue ModelRevenue Model Describes how the firm will earn revenue, Describes how the firm will earn revenue,

produce profits, and produce a superior produce profits, and produce a superior return on invested capital.return on invested capital.

E-commerce revenue models include:E-commerce revenue models include: advertising modeladvertising model subscription modelsubscription model transaction fee modeltransaction fee model sales modelsales model affiliate modelaffiliate model

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Revenue ModelRevenue Model Advertising revenue modelAdvertising revenue model

a company provides a forum for advertisements a company provides a forum for advertisements and receives fees from advertisers (and receives fees from advertisers (Yahoo))

Subscription revenue modelSubscription revenue model a company offers it users content or services a company offers it users content or services

and charges a subscription fee for access to and charges a subscription fee for access to some or all of it offerings (some or all of it offerings (Consumer Reports or or Wall Street Journal))

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Revenue ModelRevenue Model Transaction fee revenue modelTransaction fee revenue model

a company receives a fee for enabling or a company receives a fee for enabling or executing a transaction (executing a transaction (eBay or or E-Trade))

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 (Amazon or or DoubleClick)

Affiliate revenue modelAffiliate revenue model a company steers business to an affiliate and a company steers business to an affiliate and

receives a referral fee or percentage of the receives a referral fee or percentage of the revenue from any resulting sales (revenue from any resulting sales (MyPoints))

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Market OpportunityMarket Opportunity Market opportunityMarket opportunity

refers to the company’s intended marketspace refers to the company’s intended marketspace and the overall potential financial opportunities and 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 the defined 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 value the area of actual or potential commercial value

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

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Competitive EnvironmentCompetitive Environment Refers to the other companies operating in Refers to the other companies operating in

the same marketplace selling similar the 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

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Competitive AdvantageCompetitive Advantage Achieved by a firm when it can produce a Achieved by a firm when it can produce a

superior product and/or bring the product to superior product and/or bring the product to market at a lower price than most, or all, of market at a lower price than most, or all, of its competitorsits competitors

Achieved because a firm has been able to Achieved because a firm has been able to obtain differential access to the factors of obtain differential access to the factors of production that are denied their competitors production that are denied their competitors -- at least in the short term-- at least in the short term

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Competitive AdvantageCompetitive Advantage AsymmetryAsymmetry

exists whenever one participant in a market has exists 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 that a competitive market advantage for a firm that

results from being the first into a marketplace results from being the first into a marketplace with a serviceable product or servicewith a serviceable product or service

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Competitive AdvantageCompetitive Advantage

Unfair competitive advantageUnfair competitive advantage occurs when one firm develops an advantage occurs when one firm develops an advantage

based on a factor that other firms cannot based on a factor that other firms cannot purchasepurchase

Perfect MarketPerfect Market a market in which there are no competitive a market in which there are no competitive

advantages or asymmetries because all firms advantages or asymmetries because all firms have equal access to all the factors of have equal access to all the factors of productionproduction

when a company uses its competitive advantage when a company uses its competitive advantage to achieve more advantage in surrounding to achieve more advantage in surrounding marketsmarkets

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Market StrategyMarket Strategy The plan you put together that details The plan you put together that details

exactly how you intend to enter a new exactly how you intend to enter a new market and attract new customersmarket and attract new customers

Best business concepts will fail if not Best business concepts will fail if not properly marketed to potential customersproperly marketed to potential customers

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Organizational DevelopmentOrganizational Development Describes how the company will organize Describes how the company will organize

the work that needs to be accomplishedthe work that needs to be accomplished Work is typically divided into functional Work is typically divided into functional

departmentsdepartments Move from generalists to specialists as the Move from generalists to specialists as the

company growscompany grows

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Management TeamManagement Team Employees of the company responsible for Employees of the company responsible for

making the business model workmaking the business model work Strong management team gives instant Strong management team gives instant

credibility to outside investorscredibility to outside investors A strong management team may not be able A 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 and Should be able to change the model and

redefine the business as it becomes redefine the business as it becomes necessarynecessary

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Major Business-to-Consumer Major Business-to-Consumer (B2C) Business Models(B2C) Business Models

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Major Business-to-Consumer Major Business-to-Consumer (B2C) Business Models(B2C) Business Models

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Major Business-to-Consumer Major Business-to-Consumer (B2C) Business Models(B2C) Business Models

PortalPortal offers powerful search tools plus an integrated offers powerful search tools plus an integrated

package of content and servicespackage of content and services typically utilizes a combines typically utilizes a combines

subscription/advertising revenues/transaction subscription/advertising revenues/transaction fee modelfee model

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

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Major Business-to-Consumer Major Business-to-Consumer (B2C) Business Models(B2C) Business Models

E-tailerE-tailer online version of traditional retaileronline version of traditional retailer includes includes

virtual merchants (online retail store only)virtual merchants (online retail store only) clicks and mortar e-tailers (online distribution clicks and mortar e-tailers (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 mail catalog merchants (online version of direct mail

catalog)catalog) online malls (online version of mall)online malls (online version of mall) Manufacturers selling directly over the WebManufacturers selling directly over the Web

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Major Business-to-Consumer Major Business-to-Consumer (B2C) Business Models(B2C) Business Models

Content ProviderContent Provider information and entertainment companies that information and entertainment companies that

provide digital content over the Webprovide digital content over the Web typically utilizes an advertising, subscription, or typically 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 revenue typically utilizes a transactions feel revenue

modelmodel

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Major Business-to-Consumer Major Business-to-Consumer (B2C) Business Models(B2C) Business Models

Market CreatorMarket Creator uses Internet technology to create markets that uses Internet technology to create markets that

bring buyers and sellers togetherbring buyers and sellers together typically utilizes a transaction fee revenue typically utilizes a transaction fee revenue

modelmodel E.g. AuctionE.g. Auction

English auctionEnglish auction Dutch auctionDutch auction Sealed-bid auctionSealed-bid auction Double auctionDouble auction

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English AuctionsEnglish Auctions

The bidders announce their bids until no The bidders announce their bids until no higher bid is forthcominghigher bid is forthcoming– ‘‘going . . . going . . . gone!’going . . . going . . . gone!’– Ascending-price auctionsAscending-price 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

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Dutch AuctionsDutch Auctions

Bidding starts at a high price and drops Bidding starts at a high price and drops until a bidder accepts the priceuntil a bidder accepts the price– Descending price auctionsDescending price auctions

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Sealed-Bid AuctionsSealed-Bid Auctions

Bidders submit their bids independently and Bidders submit their bids independently and are usually prohibited from sharing are usually prohibited from sharing information with each otherinformation with each other

First-price sealed-bid auctionFirst-price sealed-bid auction– The winner pays his amountThe winner pays his amount

Second-price sealed-bid auctionSecond-price sealed-bid auction– The winner pays one increment over the The winner pays one increment over the

second-highest bid receivedsecond-highest bid received

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Double AuctionsDouble Auctions

Buyers and sellers submit bids to an Buyers and sellers submit bids to an auctioneerauctioneer

The auctioneer matches the seller’s offers to The auctioneer matches the seller’s offers to the buyer’s offerthe buyer’s offer– E.g. New York Stock ExchangeE.g. New York Stock Exchange

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Major Business-to-Consumer Major Business-to-Consumer (B2C) Business Models(B2C) Business Models

Service ProviderService Provider offers services onlineoffers services online

Community ProviderCommunity Provider provides an online community of like-minded provides an online community of like-minded

individuals for networking and information individuals for networking and information sharingsharing

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

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e-Business Modelse-Business Models

Dynamic Pricing ModelsDynamic Pricing Models– Name-Your-Price ModelName-Your-Price Model– Comparison-Pricing ModelComparison-Pricing Model– Demand-Sensitive Pricing ModelDemand-Sensitive Pricing Model

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Name-Your-Price ModelName-Your-Price Model

Allows customers to state the price they are Allows 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 customer’s bid to the Use shopping bot that takes customer’s bid to the Priceline partners to see whether they will accept the Priceline partners to see whether they will accept the prices for the requested products/servicesprices for the requested products/services

– Intelligent agentsIntelligent agents

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Comparison-Pricing ModelComparison-Pricing Model

Allows customers to poll a variety of Allows customers to poll a variety of merchants and find a desired merchants and find a desired product/service at the lowest priceproduct/service at the lowest price

Mysimon.comMysimon.com– Uses intelligent-agent technology Uses intelligent-agent technology – Offers discussion groups, customer ratings, and Offers discussion groups, customer ratings, and

comparison shoppingcomparison shopping

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Demand-Sensitive Pricing ModelDemand-Sensitive Pricing Model

Group purchasingGroup purchasing– Individual buyers to shop in large groups to obtain Individual buyers to shop in large groups to obtain

group discountgroup discount» The more people who buy a product in a single purchase, the The more people who buy a product in a single purchase, the

lower 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.

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Demand-Sensitive Pricing ModelDemand-Sensitive Pricing Model

Price DiscriminationPrice Discrimination

Output

Price

D1R1

Q1

P1

D2R2

Q2 Q

P2

Marginalcost

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Demand-Sensitive Pricing ModelDemand-Sensitive Pricing Model

Benefits to BuyersBenefits to Buyers– Reduce product costsReduce product costs– Reduce transaction costsReduce transaction costs

Benefits to SuppliersBenefits to Suppliers– Enhance revenue with a high-volume salesEnhance revenue with a high-volume sales– Reduce sales costsReduce sales costs– Improve manufacturing efficiencyImprove manufacturing efficiency

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Major Business-to-Business Major Business-to-Business (B2B) Business Models(B2B) Business Models

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Major Business-to-Business Major Business-to-Business (B2B) Business Models(B2B) Business Models

B2B HubB2B Hub also known as also known as marketplace/exchangemarketplace/exchange electronic marketplace where suppliers and electronic marketplace where suppliers and

commercial purchasers can conduct commercial purchasers can conduct transactionstransactions

may be a general (horizontal marketplace) or may be a general (horizontal marketplace) or specialized (vertical marketplace)specialized (vertical marketplace)

E-distributorE-distributor supplies products directly to individual supplies products directly to individual

businessesbusinesses

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Major Business-to-Business Major Business-to-Business (B2B) Business Models(B2B) Business Models

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

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Seven Unique Feature of E-Seven Unique Feature of E-Commerce TechnologyCommerce Technology

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Seven Unique Feature of E-Seven Unique Feature of E-Commerce TechnologyCommerce Technology

UbiquityUbiquity Alters industry structure by creating new marketing Alters 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 and Creates new efficiencies in industry operations and

lowers 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 to Changes 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 through Lowers cost of industry and firm operations through

production and sales efficienciesproduction and sales efficiencies Enables competition on global scaleEnables competition on global scale

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Seven Unique Features of E-Seven Unique Features of E-Commerce TechnologyCommerce Technology

Universal StandardsUniversal Standards Changes industry structure by lowering barriers to entry Changes 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 by Lowers costs of industry and firm operations by

lowering computing and communications costslowering computing and communications costs Enables broad-scope strategiesEnables broad-scope strategies

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

powerful distribution channelspowerful distribution channels Change industry and firm operations costs by lessening Change industry and firm operations costs by lessening

reliance on sales forcereliance on sales force Enhances post-sale support strategiesEnhances post-sale support strategies

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Seven Unique Features of E-Seven Unique Features of E-Commerce TechnologyCommerce Technology

InteractivityInteractivity Alters industry structure by reducing threat of Alters industry structure by reducing threat of

substitutes through enhanced customizationsubstitutes through enhanced customization Reduces industry and firm costs by lessening reliance Reduces 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 of Alters industry structure by reducing threats of

substitutes, raising barriers to entrysubstitutes, raising barriers to entry Reduces value chain costs in industry and firm by Reduces value chain costs in industry and firm by

lessening reliance on sales forceslessening reliance on sales forces

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Seven Unique Features of E-Seven Unique Features of E-Commerce TechnologyCommerce Technology

Information DensityInformation Density Changes industry structure by weakening Changes industry structure by weakening

powerful sales channels, shifting bargaining powerful sales channels, shifting bargaining power to consumerpower to consumer

Reduces industry and firm operations costs by Reduces industry and firm operations costs by lowering costs of obtaining, processing, and lowering costs of obtaining, processing, and distributing information about suppliers and distributing information about suppliers and consumersconsumers

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Case StudiesCase Studies

Should we integrate our Internet business Should we integrate our Internet business with our traditional business or should we with our traditional business or should we keep the two separate?keep the two separate?

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Seamless Model: Office DepotSeamless Model: Office Depot

Two reasonsTwo reasons– Existing catalog-sales support an Internet storeExisting catalog-sales support an Internet store– Existing information systems made it easy to Existing information systems made it easy to

coordinate online stores and physical storescoordinate online stores and physical stores Customers’ BenefitCustomers’ Benefit

– Make shopping simple and convenientMake shopping simple and convenient Company’s BenefitCompany’s Benefit

– Cheaper to reach customers Cheaper to reach customers

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Seamless Model: Office DepotSeamless Model: Office Depot

Added ValueAdded Value– Each customer has its own specialized view of Each customer has its own specialized view of

the OfficeDepot.com sitethe OfficeDepot.com site» authorizationauthorization

– Provide additional discount for larger Provide additional discount for larger customers if they place order on onlinecustomers if they place order on online

Actually increased the traffic at its physical Actually increased the traffic at its physical outletoutlet

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Joint Venture Model: KB ToyJoint Venture Model: KB Toy

ReasonsReasons– Don’t have much experience with catalog Don’t have much experience with catalog

retailingretailing– Tend to focus exclusively on their physical Tend to focus exclusively on their physical

storesstores KB Toy and Kbkids.comKB Toy and Kbkids.com

– KB Toy joined with BrainPlay.com to create KB Toy joined with BrainPlay.com to create Kbkids.comKbkids.com

» $80 million$80 million

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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

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Virtual PartnershipVirtual Partnership

Rite Aid and Drugstore.comRite Aid and Drugstore.com Customer benefitCustomer benefit

– Customers can pick up their Drugstore.com Customers can pick up their Drugstore.com prescriptions at their local Rite Aidprescriptions at their local Rite Aid

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A Spectrum of ChoicesA Spectrum of Choices

Model Brand Management Operation

Seamless Fully integrated Fully integrated Fully integrated

Joint VentureMostly

integratedSlightly

integratedModerately integrated

Partnership SeparateSlightly

integratedModerately integrated

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Decision ProcessDecision ProcessBrand

Separation Integration

Does the brand extend naturallyto 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 currentbusiness model?

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Decision ProcessDecision Process

OperationsSeparation Integration

Do our distribution systems translate well to the Internet?

Do our information systems providea foundation on which to build?

Does either systems constitute a significant competitive advantage?