Lecture 3

eCommerce Lecture SerieseCommerce Lecture Series

KeeranKeeran JamilJamil

Lecture 3Lecture 3E-Commerce & E-Business

Models

Learning objectivesLearning objectives

• Understand the e-Business environment• Understand the e-Commerce models and

Categories• Be able to discuss dis-intermediation and re-

intermediation• Be able to understand and define various

business models

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The eThe e--business environmentbusiness environment

•The environment in which e-business services are provided•3

Environment constraints and Environment constraints and opportunitiesopportunities

• Customers – which services are they offering via their web site that your organization could support them in?

• Competitors – need to be benchmarked in order to review the online services they are offering – do they have a competitive advantage?

• Intermediaries – are new or existing intermediaries offering products or services from your competitors while you are not represented?

• Suppliers – are suppliers offering different methods of procurement to competitors that give them a competitive advantage?

• Macro-environment• Society – what is the ethical and moral consensus on holding personal

information?• Country specific, international legal – what are the local and global legal

constraints for example on holding personal information, or taxation rules on sale of goods?

• Country specific, international economic – what are the economic constraints of operating within a country or global constraints?

• Technology – what new technologies are emerging by which to deliver online services such as interactive digital TV and mobile phone-based access?

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EE--Commerce ModelsCommerce Models

• According to Afuah, Allan and Tucci(2000) these are the most popular e-Commerce models are:– Merchant– Brokerage– Advertising– Mixed– Informediary– Subscription

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The Merchant & Brokerage ModelThe Merchant & Brokerage Model

• Merchant model – transferring of an old retail model to e-commerce world using the Internet

• Brokerage Model is all about bringing sellers and buyers together and collect commission on transactions

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Sales Revenue Model• Company derives revenue by selling

goods, information, or services to customers

• Examples:Amazon.comLLBean.comGap.com

•www.wiley.com/go/ebusiness •8

Amazon Uses a Sales Revenue Model

Transaction Fee Revenue Model

• Company that receives a fee for enabling or executing a transaction

• Examples:eBay.comE-Trade.com

Advertising, Mixed, Advertising, Mixed, InformediaryInformediary and and Subscription ModelsSubscription Models

• Advertising model is an extension of traditional advertising media

• Mixed model generates revenue both from advertising and subscription

• Informediary is all about collecting information about consumers and then selling the information

• Subscription is about selling digital products through subscription

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Advertising Revenue Model• Web site that offers content, services

and/or products also provides a forum for advertisements and receives fees from advertisers

• Example: Yahoo.com

Subscription Revenue Model• Web site that offers users content or

services charges a subscription fee for access to some or all of its offerings

• Examples: Consumer Reports OnlineYahoo! Platinum

•www.wiley.com/go/ebusiness •13

Yahoo Uses a Subscription Business Model for Yahoo Platinum Affiliate Revenue Model

• Sites that steer business to an “affiliate”receive a referral fee or percentage of the revenue from any resulting sales

• Example:MyPoints.com

Categories of ECategories of E--CommerceCommerce

• Categories of e-Commerce in use today are classified based on the nature of the transactions. These include:

• Business to Consumer (B2C)• Business to Business (B2B)• Consumer to Consumer (C2C)• Consumer to Business (C2B)• Nonbusiness and Government• Organisational (Intra Business)

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B2B and B2C modelsB2B and B2C models

•B2B and B2C interactions between an organization, its suppliers and its customers •16

Business to Consumer (B2C)Business to Consumer (B2C)

• In the B2C type of e-Commerce activity businesses sell their products or services directly to consumers. Amazon.com is a good example of this type of e-Commerce activity

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Business to Business (B2B)Business to Business (B2B)

• We have already talked about EDI in the previous lecture. B2B is also all about electronic transactions among and between businesses. A good example of B2B is auto exchange formed by Ford, Daimler Chrysler and General Motors(www.covisint.com)

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Consumer to Consumer (C2C)Consumer to Consumer (C2C)

• C2C type of e-Commerce activity is all about consumers / individuals selling goods and services to one another using the Internet and Web technologies

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Consumer to Business (C2B)Consumer to Business (C2B)

• C2B type of eCommerce activity is all about consumers selling goods and products to businesses. (web designers advertising their services to businesses is a good example of this type of e-Commerce acitivity)

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NonBusinessNonBusiness and Governmentand Government

• The e-Commerce activity amongst governmental and non-business organisations are on the rise. Most government agencies have e-Procurement guidelines (many published on the Web) and are using the web channel for their procurement activity

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EE--procurement applicationsprocurement applications

1. Product selection from available

catalogues

2. Purchase request is performed by employees

via a Web interface

3. Order approvation compliant to company

standards and procedures

4. Purchase order is electronically placed

5. Order is fulfilled by the supplier

6. Product delivery

7. Product receipt

8. Payment requestelectronically forwarded

Indirect goods eIndirect goods e--procurementprocurement

Organisational and IntraOrganisational and Intra--businessbusiness

• This type of e-Commerce activity is all about electronic commerce transactions that takes place within an organisation.

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Transaction alternatives between Transaction alternatives between businesses and consumersbusinesses and consumers

•Summary of transaction alternatives between businesses and consumers•24

B2B and B2C characteristicsB2B and B2C characteristicsCharacteristic B2C B2BProportion of adopters with access

Low to medium High to very high

Complexity of buying decisions

Relatively simple –individual and influencers

More complex – buying process involves users, specifiers, buyers, etc.

Channel Relatively simple – direct or from retailer

More complex, direct or via wholesaler, agent or distributor

Purchasing characteristics Low value, high volume or high value, low volume. May be high involvement

Similar volume/value. May be high involvement. Repeat orders (rebuys) more common

Product characteristic Often standardized items Standardized items or bespoke for sale

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B2C EB2C E--Commerce CycleCommerce Cycle

• The B2C E-Commerce Cycle can be summarised as:

• Information Sharing• Ordering• Payment• Fulfilment• Service and Support

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Write the advantages and advantages and disadvantages of B2C disadvantages of B2C

applicationsapplications

B2C applications:B2C applications:advantages and disadvantages advantages and disadvantages

• Advantages:– Allow company to extend existing services to

customers– Allow company to increase its customers– Offer a wider choice and allow cheaper prices – May give to the company a worldwide visibility– Online shops are accessible 24h a day

• Disadvantages:– Low order conversion rates– High risk (Cyberphobia)

Order conversion ratesOrder conversion rates

• Defined as:– # of orders / # of contacts– By month or year, four-month periods, etc.

• Measure the capability of a certain B2C application to convert an user into a buyer

• A survey carried out in August 2000 showed that order conversion rates in USA were of 1.9% (Boston Consulting Group and Shop.org)

Cyberphobia and the .com Cyberphobia and the .com crashcrash

Jan-Apr 6 220 66

2000 2001 2002

Source:Webmergers.com

•“Cyberphobia” is the market’s irrational fear of the Internet due to the several bankruptcies occured in the past years

•B2C represent 75% of bankruptciesInternet shutdowns

Major Models of B2B EMajor Models of B2B E--CommerceCommerce

• B2B is the fastest growing segment of the e-Commerce applications. The literature identifies 3 types of B2B e-Commerce models depending who controls the marketplace. These are:

• Seller-controlled • Buyer-controlled• Third party exchange

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SellerSeller--controlled B2Bcontrolled B2B

• This is the most popular B2B model for both consumers and businesses. Businesses and consumers use sellers catalogue to order products.

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BuyerBuyer--controlled B2Bcontrolled B2B

• Larger corporations (like General Electric or Boeing) with significant buying power use this model. In this model a buyer or group of buyers set up and electronic market place and invite sellers to bid on announced products

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Third Party ExchangeThird Party Exchange

• A third party market place is not controlled by buyers or sellers, but rather by a third party.

• The marketplace generates fees from matching buyers and sellers

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Support Tools for B2B ESupport Tools for B2B E--Commerce Commerce

• With the growth of B2B e-Commerce the need for appropriate technologies to support B2B has gained importance.

• Over the past decade Intranets and Extranets technologies have been used in the e-Commerce environment and their popularity is on the rise

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• If Buyers and Sellers are Fragmented, Independent Intermediaries are likely to be successful.

• If Sellers are Concentrated, Sellers are likely to dominate.

• If Buyers are Concentrated, Buyers are likely to dominate.

B2B Applications Write the advantages and advantages and disadvantages of B2B disadvantages of B2B

applicationsapplications

B2B applications:B2B applications:advantages and disadvantagesadvantages and disadvantages

• Advantages:– Help to automate communications between

companies making them easier and quicker– Allow to cut prices drastically– Help in reducing mistakes

• Disadvantages:– Often need legacy integration

IntranetsIntranets

• What is a Intranet?• How are they useful?• Technology behind Intranets• Typical Usage of Intranets within

organisations

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Intranets ContinuedIntranets Continued

•41•From: www.skullbox.net/intranet.php

ExtranetsExtranets

• What is a Extranet?• How are they useful?• Technology behind Extranets• Typical Usage of Extranets between

organisations

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Extranets ContinuedExtranets Continued

•43•From: www.sonicwall-solutions.com/

Channel Structures: DisintermediationChannel Structures: Disintermediation

•Disintermediation of a consumer distribution channel showing (a) the original situation, (b) disintermediation omitting the wholesaler, and

(c) disintermediation omitting both wholesaler and retailer•46

Example Example –– VauxhallVauxhall

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ReintermediationReintermediation

•Reintermediation process: (a) original situation, (b) reintermediation contacts•48

Example - Kelkoo

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CountermediationCountermediation

• Creation of a new intermediary• Example:

– B&Q www.diy.com– Opodo www.opodo.com– Boots www.wellbeing.com www.handbag.com– Ford, DaimlerChrysler (www.covisint.com)

• Partnering with existing intermediary –Mortgage broker Charcol and Freeserve

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OrganisationalOrganisational IssuesIssues• The vertical bureaucratic structure in a firm is built on

the assumption that concentrating similar activities within functions, and thus separating activities which are not similar,would result in economies of scale.

• The internet and related technologies reduce coordination costs and transaction costs.

• Traditional business models focused on creating value at the line-of-business level while the new business models focus on the customers and creating value at the relationship level across products and channels.

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Traditional Organisational Traditional Organisational StructureStructure

• Vertical and hierarchical• Function-based• Product-based• Geography-based• Matrix-based• High coordination costs (costs of sending,

storing and retrieving information)• Seller- or product-driven, aiming to generate

value at the of line-of -business level

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New Organisational StructureNew Organisational Structure

• Hierarchical, procedural and other new coordination mechanisms which leads to network based business models.

• Team-based structure.• Customer focused: value is generated at the

relations level, across products and channels.• Creation of internet based business models (5

Business models Classifications)

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5 Business Models 5 Business Models ClassificationsClassifications

• Internet-enabled• Value-web• E-business enabled• Market participant • Cyber-intermediary

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Internet Internet Enabled Enabled Business modelsBusiness modelsP. P. TimmersTimmers (1998)(1998)

• E-shop

• E-procurement

• E-auction

• E-mall

• Third party marketplace

• Virtual communities

• Value chain service provider

• Value chain integrator

• Collaboration platform

• Information brokerage, trust

and other services

• Trust services

ValueValue--web Business Modelweb Business Model• Value-web business model: A conception of an emerging

form of a fluid and flexible organization.• Value-web brokers: Having the central value web

function of coordinator, integrator and interface.• Consisting of several key building blocks:

– Markets– Hierarchies– Networks– Information Technology– New-old business models

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ProducersProducers DistributorsDistributors

FocusseddistributorsFocussed

distributors PortalsPortals

MarketplacesMarketplaces AggregatorsAggregatorsExchangesExchanges

RetailersRetailers InfomediariesInfomediaries

HorizontalHorizontal

VerticalVertical

AffinityAffinity

InternetInternetProducersProducers DistributorsDistributors

FocusseddistributorsFocussed

distributors PortalsPortals

MarketplacesMarketplaces AggregatorsAggregatorsExchangesExchanges MarketplacesMarketplaces AggregatorsAggregatorsExchangesExchanges

RetailersRetailers InfomediariesInfomediariesRetailersRetailers InfomediariesInfomediaries

HorizontalHorizontal

VerticalVertical

AffinityAffinity

InternetInternetInternetInternet

The Market Participants Business Model

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CybermediariesCybermediaries Business ModelBusiness Model

• Eleven models are proposed:1. Directories2. Search Services3. Malls4. Virtual Resellers5. Web Site Evaluators6. Publishers7. Auditors8. Forums9. Financial Intermediaries10.Spot Market Makers11.Intelligent Agents

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Online AuctionsOnline Auctions

• Why are they important?• An overview of how it works• Auction Terminology• Types of Auctions• Managing online auctions

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Online Auctions• Auctions help to determine the price of goods

and services for which there is no predetermined price.

• An online auction is a straightforward yet revolutionary business concept.

• It brings traditional auctions to the Web by providing services to a geographically dispersed customer base and thus increases significantly the number of goods and services auctioned.

• Based on the brokerage business model, auctions bring the buyers and sellers together in a virtual marketplace.

• Usually consumers participate in auctions for two specific reasons:

1. To buy an item for personal use, such as buying a piece of jewelry

2. To buy an item for resale, such as antiques

BASIC AUCTION TERMINOLOGY• Bidding. The act of placing a bid on an item that is being auctioned.• Bid cancellation. The cancellation of a bid by a seller or a buyer. • Bid increment. The predetermined amount by which a bid will be

raised, based on the current high bid. This amount depends on the price of the product or service being auctioned.

• Minimum bid. The lowest amount that can be entered as a bid for a specific auction.

• Relisting. Relisting is when an item has not sold and the seller wishes to list it again.

• Close date. Depending on a specific auction site, listings close at the hour specified by the seller.

• Bid history. The list of bidders and activities for the item, including the customer, the bidder ID, bid amount, quantity won, bid date, as well as the status of each bidder, winning or losing.

Types of AuctionsTypes of Auctions• Consumer Auctions : Online consumer auctions

offer buyers the opportunity to purchase products or services that are not easily available at a fair price.

• Business to Business auctions : As opposed to consumers, corporations use B2B auctions. A very creative B2B model is the one used by FreeMarkets.com

• English Auctions : open-outcry, or open auctions, the bidder openly offers a price and the maximum bid wins. In this type of auction, usually there is a minimum bid •63

• Dutch Auctions : (also called descending-price auction), usually more than one item is up for bid at a time. The winning bidder pays the same price for all the items, which is the lowest winning bid on the items. In contrast with the English auction, the Dutch auction starts at a specific price and goes down.

• Example #1: Single item requested: If 40 bids were made for 20 items, each bidder is bidding for one item, and the 20th highest bid was $65, all 20 high bidders will pay $65—even if the highest bidder bid was $95.

• Sealed Bid Auctions : Using sealed-bid auctions the bidder submits only one bid, and the bid is kept secret from the other bidders. The bidder with the highest bid wins and pays his or her bid.

• Double Auctions : Using double auctions both sellers and buyers submit bids, which are then ranked from highest to lowest to generate demand-and-supply profiles. From the profiles, the maximum quantity exchanged can be determined by matching selling offers (starting with the lowest price and moving up) with demand bids (starting with the highest price and moving down).

• Second-Price or Vickery Auctions :named after William Vickrey, winner of the 1996 Nobel Prize in Economic Sciences. Similar to sealed-bid auctions, the bids are sealed, and each bidder is unaware of other bids. The item is awarded to the highest bidder at a price equal to the second-highest bid (or highest losing bid). In other words, a winner pays less than the highest bid.

Portal Services and Revenue ModelsPortal Services and Revenue Models

• What are “Portals”?• Type of Portals

– Access portal : Empower users in their decision-making process. – Horizontal or functional portal : These are web portals which

focus on a wide array of interests and topics – Vertical portal : These are web portals which focus only on one

specific industry, – Geographical : Enable a geographically dispersed workforce to

interact around projects and business-as-usual tasks through a common access.

– Market place : Marketspace portals exist to support the business-to-business and business-to-customer e-commerce

– Media : Bringing together email, voice, mobile, web feeds etc

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Commercial Arrangements for Commercial Arrangements for TransactionsTransactions

• Traditional arrangements vs. new approaches

• Types of CATs– Negotiated deals– Brokered deals– Auctions– Fixed price sales– Pure markets– Barter : An equal exchange

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