In this chapter students will be able to: Identify the key components of e-commerce business models: value proposition, revenue model, market opportunity, competitive environment, competitive advantage, market strategy, organizational development, management team; describe the major B2C business models.
CSC 330 E-Commerce Teacher Ahmed Mumtaz Mustehsan GM-IT CIIT Islamabad Virtual Campus, CIIT COMSATS Institute of Information Technology T1-Lecture-11 T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-1 T1-Lecture-11 E Commerce Business Model and Concepts Chapter-05 Part -I For Lecture Material/Slides Thanks to: Copyright © 2010 Pearson Education, Inc T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-2 Objectives Identify the key components of e-commerce business models Value proposition Revenue model Market opportunity Competitive environment Competitive advantage Market strategy Organizational development Management team Describe the major B2C business models T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-3 E-commerce Business Models Business model A business model is a set of planned activities ( also called business processes) designed to result in a profit in a marketplace The business model is at the center of the business plan Business plan : Describes a firm’s business model E-commerce business model ◦A business model that aim to Use and leverages the unique qualities of Internet and World Wide Web ◦Eight key ingredients of Business Model T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-4 Key Ingredients of a Business Models T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-5 Key Elements of a Business Model T1-Lecture-11 Value proposition Revenue model Market opportunity Competitive environment Competitive advantage Market strategy Organizational development Management team Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-6 Value Proposition Why should the customer buy from you? What will your firm provide that other firms not and cannot? A value proposition defines how a company’s product or service fulfills the needs of customers Successful e-commerce value propositions: ◦Personalization/customization ◦Reduction of product search, price discovery costs ◦Facilitation of transactions by managing product delivery Example: Before Amezone.com ? The customers used to visit supermarket; Book shops, keep waiting for the availability of the book; keep coming back!!! T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-7 Revenue Model How will the firm earn revenue, generate profits, and produce a superior return on invested capital? Advertising revenue model A company provides a forum for advertisements and receives fees from advertisers Yahoo.com, for instance, derives a significant amount of its revenue from selling advertising such as banner ads Subscription revenue model A company offers its users content or services charges a subscription fee for access to some or all of its offerings Yahoo, has broadened its business model to include a monthly subscription to Yahoo Platinum, which gives viewers access to CNN, NASCAR racing, ABC News, and other video feeds T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-8 Revenue Model contd… Transaction fee revenue model a company receives a fee for enabling or executing a transaction For example, eBay.com an online auction marketplace receives a small transaction fee from a seller if the seller is successful in selling the item E-Trade.com, an online stockbroker, receives transaction fees each time it executes a stock transaction on behalf of a customer Sales revenue model companies derive revenue by selling goods, information, or services to customers Companies such as Amazon.com (which sells books, music, and other products), LLBean.com, and Gap.com, all have sales revenue models T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-9 Revenue Model contd… Affiliate revenue model sites that steer business to an “affiliate” receive a referral fee or percentage of the revenue from any resulting sales For example, MyPoints.com makes money by connecting companies with potential customers by offering special deals to its members When they make a purchase, members earn “points” they can redeem for freebies, and MyPoints.com receives a fee Community feedback sites such as Epinions.com receive much of their revenue from steering potential customers to Web sites where they make a purchase T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 110 Competitive Advantage What special advantages does your firm bring to the marketspace? Achieved when firm produces superior product or can bring product to market at lower price than competitors Important concepts: Asymmetries : exists whenever one participant in a market has an edge than others due to more resources such as financial backing, knowledge, information, and/or power Example: AOL.com offered music subscription of their 250,000 songs catalog through MusicNet First-mover advantage: is a competitive market advantage for a firm that results from being the first into a marketplace with a serviceable product or service For example Amazon.com T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 114 Competitive Advantage Unfair competitive advantage: occurs when one firm develops an advantage based on a factor that other firms cannot purchase For example, a brand name cannot be purchased and is in that sense an “unfair” advantage brands are built upon loyalty, trust, reliability, and quality Leverage: when a company use its competitive advantages to achieve more advantage in surrounding markets For example Amazon.com move into the online auction arena leveraged the company’s customer database, offering one more way to buy from Amazon A perfect markets, in which there are no competitive advantages or asymmetries because all firms have access to all the factors of production T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 115 Market Strategy How you plan to promote your products or services to attract your target audience? Details how a company intends to enter market and attract customers Best business concepts will fail if not properly marketed to potential customers Example: AOL, uses sampling of millions of free CD ROMs to attract new users AOL encloses CDs with free trial offer in magazines and newspapers across the country This strategy has proven to be very successful for AOLs T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 116 Organizational Development What types of organizational structures within the firm are necessary to carry out the business plan? Organizational development Plan that describes how the company will organize the work that needs to be accomplished ◦Typically divided into functional departments ◦Hiring moves from generalists to specialists as company grows T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 117 Management Team What kinds of experiences and background are important for the company’s leaders to have? Employees are responsible for making the business model work Strong management team gives instant credibility to outside investors Strong management team may not be able to salvage a weak business model, but should be able to change the model and redefine the business as it becomes necessary Important Questions to be answered: answered What kind of technical background is desirable? What kind of supervisory experience is necessary? How many years in a particular function should be required? What job functions should be fulfilled first: marketing, production, finance, or operations? T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 118 Categorizing E-commerce Business Models No one correct way We categorize business models according to: ◦E-commerce sector (B2C, B2B, C2C) ◦Type of e-commerce technology; i.e., m-commerce Similar business models appear in more than one sector Some companies use multiple business models; e.g., eBay T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 119 B2C Business Models: Portal Offers users powerful Web search tools as well as an integrated package of content and services all in one place Revenue models: ◦Advertising, subscription fees, transaction fees Variations: Horizontal/General : they define their marketspace to include all users of the Internet Examples are Yahoo, AOL, MSN, and others like them Vertical/Specialized (Vortal): attempt to provide similar services as horizontal portals, but are focused around a particular subject matter or market segment Example sailnet.com T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 120 B2C Models: E-tailer e-tailers, come in all sizes and shapes, from giant Amazon.com to tiny local stores that have Web sites E-tailers Online version of traditional retailer Revenue model: Sales of products and services Variations: Virtual merchant: are subsidiaries of existing physical stores and carry the same products Bricks-and-Mortars / Bricks-and-clicks: companies with complementary online stores T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 121 B2C Models: E-tailer Variations: (Continued) Catalog merchant: such as online versions of direct mail catalogs, online malls Manufacturer-direct: Offering their products directly to consumers Low barriers to entry: tens of thousands of small e-tail shops have sprung up on the Web as the total cost of entering (a new marketplace) into the Web e-tail market are low T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 122 B2C Models: Content Provider Content providers distribute information/ digital contents over the Web such as: digital news, music, photos, videos, and artwork Retrieving and paying for content is the second largest revenue source for B2C e-commerce Revenue models: Subscription; pay per download (micropayment); advertising; affiliate referral fees Variations: Content owners: owners of copyrighted content such as publishers of books and newspapers, broadcasters of radio and television content, music publishers, and movie studios T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 123 B2C Models: Content Provider Variations: (continued) Syndication: Some content providers, however, not own content, but syndicate (aggregate) and then distribute content produced by others Syndication (Web aggregators) is a major variation of the standard content provider model T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 124 B2C Models: Transaction Broker T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 125 B2C Models: Market Creator Uses Internet technology to create markets that bring buyers and sellers together Examples: Priceline.com: which allows consumers to set the price they are willing to pay for various travel accommodations and other products (sometimes referred to as a reverse auction) eBay: the online auction site utilized by both businesses and consumers At eBay, the buyers and sellers are their own agents Each sale on eBay nets the company a fee, Revenue model: Transaction fees T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 126 B2C Models: Service Provider Offer Online services Examples: Search engines, Google, Yahoo, Alta Vista: Location based services: Google Maps, Google Earth Computer services: such as information storage at xDrive.com Consulting services: such as at Mybconsulting.com, where small businesses can obtain business advice Value proposition Valuable, convenient, time-saving, low-cost alternatives to traditional service providers Revenue models: ◦Sale of services, subscription fees, advertising, sale of customer database for marketing purpose T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 127 B2C Models: Community Provider Provides online environment (social network) where people with similar interests can transact (buy and sell goods), share content, and communicate Example: Facebook, MySpace, twitter, LinkedIn Revenue models: Advertising fees, subscription fees, sales revenues, transaction fees, affiliate fees (Epinions.com, Oxygen.com, and About.com make money with affiliate relationship with retailers.) T1-Lecture-11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 128 ...T1 -Lecture- 11 E Commerce Business Model and Concepts Chapter- 05 Part -I For Lecture Material/Slides Thanks to: Copyright © 2010 Pearson Education, Inc T1 -Lecture- 11 Ahmed Mumtaz... Describe the major B2C business models T1 -Lecture- 11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-3 E-commerce Business Models Business model A business model is a set of planned... Education, Inc 1-4 Key Ingredients of a Business Models T1 -Lecture- 11 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-5 Key Elements of a Business Model T1 -Lecture- 11 Value proposition