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Instructor: Wei Ding
E-commerce BusinessModels and Concepts
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Online Groceries: Up from the Embers
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Online Groceries: Up from the
Embers Failure of Webvan.com raised serious questions
about online groceries as viable business model
However, by 2003, some online grocers areexperiencing 40% annual growth rates
Traditional firms experiencing success:
Safeway Stores
Royal Ahold (Stop & Shop; Peapod.com)
Tesco
FreshDirect: Focuses on fresh (perishable), high-quality items at 25% below NYC grocer prices. Valueproposition convenience and time savings, and alsohigh quality at lower prices
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E-commerce Business ModelsIntroduction
Business model set of planned activitiesdesigned to result in a profit in a marketplace
Business plan document that describes afirms business model
E-commerce business model aims to use
and leverage the unique qualities of Internetand Web
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Key Ingredients of a Business Model
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Value Proposition Defines how a companys product or service fulfills
the needs of customers
Questions to ask:
Why will customers choose to do business withyour firm instead of another?
What will your firm provide that others do not orcannot?
Examples of successful value propositions include:
Personalization/customization Reduction of product search costs
Reduction of price discover costs
Facilitation of transactions by managing productdelivery
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Revenue Model Describes how the firm will earn revenue, generate
profits, and produce a superior return on investedcapital
Terms financial model and revenue model often usedinterchangeably
Major types:
Advertising revenue model
Subscription revenue model
Transaction fee revenue model
Sales revenue model
Affiliate revenue model
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Advertising Revenue Model
Web site that offers content, services and/orproducts also provides a forum foradvertisements and receives fees fromadvertisers
Example: Yahoo.com
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Subscription Revenue Model
Web site that offers users content or servicescharges a subscription fee for access to someor all of its offerings
Examples:
Consumer Reports Online
Yahoo! Platinum
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Yahoo Uses a SubscriptionBusiness Model for Yahoo Platinum
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Transaction Fee Revenue Model
Company that receives a fee for enabling orexecuting a transaction
Examples:
eBay.com
E-Trade.com
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Sales Revenue Model
Company derives revenue by selling goods,information, or services to customers
Examples:
Amazon.com
LLBean.com
Gap.com
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Amazon Uses a Sales Revenue Model
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Affiliate Revenue Model
Sites that steer business to an affiliatereceive a referral fee or percentage of therevenue from any resulting sales
Example:
MyPoints.com
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Five Primary Revenue Models
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Market Opportunity
Refers to a companys intended marketspaceand the overall potential financialopportunities available to the firm in thatmarketspace
Marketspace the area of actual or potentialcommercial value in which a companyintends to operate
Realistic market opportunity is defined byrevenue potential in each of market niches inwhich company hopes to compete
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Marketspace and Market Opportunity in
the Software Training Market
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Competitive Environment Refers to the other companies selling similar
products and operating in the samemarketspace
Influenced by:
how many competitors are active
how large their operations are
what market share for each competitor is
how profitable these firms are
how they price their products
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Competitive Environment (contd)
Direct competitors companies that sell products orservices that are very similar and into the samemarket segment
Example: Priceline.com and Travelocity.com
Indirect competitors companies that may be indifferent industries but that still compete indirectlybecause their products can substitute for one another
Example: CNN.com and ESPN.com
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Competitive Advantage
Achieved when firm can produce a superiorproduct and/or bring product to market at alower price than most, or all, of competitors
Firms achieve competitive advantage whenthey are able to obtain differential access tothe factors of production that are denied tocompetitors
Asymmetry when one participant in amarket has more resources than others
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Competitive Advantage (contd)
Types of competitive advantage include:
First mover advantage results from a firmbeing first into a marketplace
Unfair competitive advantage occurswhen one firm develops an advantagebased on a factor that other firms cannotpurchase
Companies leverage their competitive assets
when they use their competitive advantagesto achieve more advantage in surroundingmarkets
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Market Strategy
A plan that details how a company intends toenter a new market and attract customers
Best business concepts will fail if not properlymarketed to potential customers
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Organizational Development
Describes how the company will organize thework that needs to be accomplished
Work is typically divided into functionaldepartments
Move from generalists to specialists as thecompany grows
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Management Team
Employees of the company responsible formaking the business model work
Strong management team gives instantcredibility to outside investors
A strong management team may not be ableto salvage a weak business model, but
should be able to change the model andredefine the business as it becomesnecessary
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Categorizing E-commerce Business
Models: Some Difficulties No one correct way
We categorize business models according toe-commerce sector (B2C, B2B, C2C)
Type of e-commerce technology used canalso affect classification of a business model
Some companies use multiple businessmodels
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B2C Business Models
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Insight on Technology: Google: In
Search of Profits, Accepts Paid Listings Founded in 1998 by 2 Stanford grad students
Focused solely on search engine business in contrastto Yahoo, MSN, AOL
Almost missed major market shift in way companiesadvertise on Web paid search listings, pioneered byGoTo.com (now Overture.com) in 1999
2000, introduced tiny paid advertising boxes on theright of Search Results page; Feb 2002, began toallow firms to bid for placement and added sponsored
links at top of Search Results page 2003, Yahoo buys Inktomi and Overture (which owns
AltaVista) new questions as to whether Google willremain the leading search engine
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Insight on Technology: Google: InSearch of Profits, Accepts Paid Listings
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B2B Business Models
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Insight on Business: C02E.com:Global Pollution Market
Kyoto Protocol includes provisions for use of marketsto trade pollution rights as one means to reduceemissions
C02e.com is one of the markets that has beencreated in response is a worldwide global tradingplatform for greenhouse gas pollution rights
Chicago Climate Exchange is another example So far, about $200 million tons of greenhouse gas
rights have been traded on various B2B exchanges,and volumes are growing about 50% a year/
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C02E.com: Global Pollution Market
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Business Models in Emerging E-commerce Areas
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How the Internet and the Web Change
Business: Strategy, Structure, andProcess
Important to understand how Internet andWeb have changed business environment,including industry structures, businessstrategies, and industry and firm operations
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Industry Value Chains
A set of activities performed in an industry bysuppliers by suppliers, manufacturers,transporters, distributors, and retailers thattransform raw inputs into final products andservices
Reduces the cost of information and other
transactional costs
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E-commerce and Industry Value Chains
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Firm Value Chains
A set of activities that a firm engages in tocreate final products from raw inputs
Increases operational efficiency
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E-commerce and Firm Value Chains
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Firm Value Webs
A networked business ecosystem that usesInternet technology to coordinate the valuechains of business partners within anindustry, or within a group of firms
Coordinates a firms suppliers with its ownproduction needs using an Internet-basedsupply chain management system
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Internet-Enabled Value WebFigure 2.5, Page 101
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Business Strategy
A set of plans for achieving superior long-term returns on the capital invested in abusiness firm (i.e, a plan for making a profit ina competitive environment)
Four generic strategies
Differentiation
Cost Scope
Focus
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Case Study: Priceline.com: Can
This Business Model Be Saved?
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Case Study: Priceline.com CanThis Business Model Be Saved?
Priceline.com one of Webs most well-knowncompanies
What went wrong with a business model that seemedso promising?
Financial climate
Costs
Extensibility
New strategy: select expansion with stringentfinancial controls; refocus on core business
Strategic moves appear to have shored up corebusiness, but questions about future still exist travelindustry declines due to terrorism, severe competition
