CHAPTER 6

A TAXONOMY /CLASSIFICATION OF BUSINESS MODELS

• Explore 7 major business models• Analyse the components to know which business

model will succeed• what about open source?

Summary of Business Model Taxonomy

1. Commission 2. Advertising3. Mark-up4. Production5. Referral6. Subscription7. Fee-for-service

1. COMMISSION-BASED

• Fee that is levied/charged on a transaction by third party

• Rely on commissions as a basis of business• E.g. buying land through a broker. E*Trade• eBay, company receive commission based on

amount of sale

2. ADVERTISING-BASED

• The owner of website provides to end users subsidized or free content, services or even product that attract end-user visitors

• Refers to advertising as a source of revenue for itself, charging advertisers fees for banners, permanent buttons, & pop-up windows

• Yahoo!, Excite@Home & AltaVista• Yahoo! Starts as search engine became personalized

portal. Hence attract large volume of visitors & user which will be charge to the advertiser premium price.

Top 5 search engine

3. MARKUP-BASED

• Refers to value added in sales than production• Used by wholesalers & retailers• Company bought finished goods from

manufacturer & sold them to the public or to other firm

• Amazon. COM• Key here is distribution efficiency/marketing

muscle

Markup-model example

PRODUCT XBought from ManufacturePrice RM50

Sold productTo customerPrice RM100

Markup ProfitRM50

Amazon comes in.

4. PRODUCTION-BASED

• Manufacturer tries to reach customers or end user through the Internet

• This can save cost, & serve the customer better• Hardware & software supplier uses this model

Variant of the model

1. Manufacturer-direct- manufacturer sells directly to end user- DELL

2. Content producer- firms produce entertainment, information, art & sell to customer-SONY

3. E-Procurement-companies tender & procure goods & services over the Web-FORD

5. REFERRAL-BASED

• Firms rely on fees steering visitors to another company

• A percentage of revenue of the eventual sale but can also be a flat fee, fees collected if order been made- ‘PORN’ sites

• ‘Affiliate model’• Lead-generator-company collect data about

customers & uses the data to steer business towards customers

6. SUBSCRIPTION-BASED

• Company charges a flat rate on a periodic basis that qualifies user service

• User pays subscription fee whether or not service is actually used

1. ISP-provides internet access2. Last-Mile Operator-local loop, local phone company3. Content operator-info & entertainment offered to

user-CNN

7. FEE-FOR-SERVICE-BASED

• Firms pay as the service goes, fees charge as the user used their service

• Pay only for service used• Customers paying ASP for renting application

Variants/alternatives

1. Service provider-makes money by selling services than products

2. B2B service provider-support business by selling service to other business

3. Value chain service provider-FEDEX4. Value chain integrator-exploiting integration create

value chain-EDS5. Collaboration platform provider6. ASP7. Audience broker- collect information on consumers &

uses info to help advertisers (double-click)

Which model to use?

Firm should try to understand the strength of its components of the business model against its competitors to determine which business model is viable. (table 6.2 pg 113)

CHAPTER 41. PROFIT SITE2. CUSTOMER VALUE3. SCOPE4. PRICE5. REVENUE SOURCES6. CONNECTED

ACTIVITIES7. IMPLEMENTATION8. CAPABILITIES9. SUSTAINABILITY10. COST STRUCTURE