Business Models

BUSINESS MODELS

A. E-Commerce Business Models
A business model is a set of planned activities designed to result in a marketplace. The business model is at the center of the business plan. Business plan is a document that describes a firm’s business model

EIGHT KEY INGREDIENTS OF A BUSINESS MODEL
To develop a successful business model in any arena, we must make sure that the model effectively addresses the eight elements. These elements are :
1. Value Proposition
    Is defines how a company’s product or service fulfills the needs of customers.
2. Revenue Model
    Is describes how the firm will earn revenue, produce profits, and produce a superior return on     invested capital.
3. Market Opportunity
    Is the area of actual or potential commercial value in which a company intends to operate.
4. Competitive Environment
    Refers to the other companies operating in the same marketspace selling similar products.
5. Competitive Advantage
    Achieved by a firm when it can produce a superior product and/or bring the product to     market at a lower price than most, or all, of its competitors.
6. Market Strategy
    The plan you put together that details exactly how you intend to enter a new market and     attract new customers.
7. Organizational Development
    Development plan that describes how the company will organize the work that needs to be     accomplished.
8. Management Team
    Employees of the company responsible for making the business model work.

B.  MAJOR BUSINESS TO CONSUMER (B2C) BUSINESS MODEL
Business to consumer (B2C) e-commerce, in which online business seek to reach individual consumers, is the most well known and familiar type of e-commerce. The major business models utilized in the B2C arena :
1. Portal
    Offers users powerful web search tools as well as an integrated package of content and     services all in one place
2. E-Tailer
    Is online retail store, come in all sizes and shape, from giant Amazon.com to tiny local stores     that have Web sites.
3. Content Provider
    Distributes information content, such as digital news, music, photos, video, and artwork over     the web.
4. Transaction Broker
    Site that processes transactions for consumers that are normally handled in person, by phone,     or mail.
5. Market Creator
    Builds a digital environment where buyers and sellers can meet, display product, search for     products, and establish a price for product.
6. Service Provider
    Service provider offers services online. Some charge a fee, while others generate revenue from     other sources, such as through advertising and by collecting personal information that is useful     in direct marketing.
7. Community Provider
    Sites that create a digital online environment where people with similar interest can transact,     communicate with like minded people, and receive interest related information.

C.  MAJOR BUSINESS TO BUSINESS (B2B) BUSINESS MODEL
Major business models that utilized in the B2B arena :
1. E-Distributor
    A company that supplies products and services directly to individual business.
2. E-Procurement
    B2B e-procurement firms create and sell access to digital electronic market. Sells business     services to other firms.
3. Exchanges (B2B Hubs)
    A digital electronic marketplace where suppliers and commercial purchasers can conduct    transactions.
4. Industry Consortia
    Industry owned vertical marketplaces that serve specific industries.
5. Private Industrial Networks
    Digital networks designed to coordinate the flow of communications among firms engaged in     business together.

D. BUSINESS MODELS IN EMERGING E-COMMERCE AREAS
1. Consumer to Consumer (C2C) Business Models
    Helps consumers connect with other consumers to conduct business.
2. Peer to Peer (P2P) Business Models
   Technology enabling consumers to share files and services via the web,without common     servers.
3. M-Commerce Business Models
    Extending business applications using wireless technology.

E.  HOW THE INTERNET AND THE WEB CHANGE BUSINESS : STRATEGY,      STRUCTURE, AND PROCESS

1. Industry structure
    Refers to the nature of the players in an industry and their relative bargaining power. An     effort to understand and describe the nature of competition in an industry, the nature of     substitute products, the barriers to entry, and the relative strength of consumers and     suppliers, is called industrial structural analysis.
2. Industry value chain
    The set of activities performed in an industry or in a firm that transforms raw inputs into final     products and services.
3. Firm Value Chain
    The set of activities a firm engages in to create final products from raw inputs.
4. Firm Value Webs
    Networked trans-business system that coordinates the value chains of several firms.
5. Business strategy
    Is a set of plans for achieving superior long term returns on the capital invested in a business     firm.

e-Commerce : THE REVOLUTION IS JUST BEGINNING

1.1 E-Commerce : The Revolution is Just Beginning
In 1994, e-commerce as we know it did not exist. In 2003, around 75 million american consumers are expected to spend about $95-100 billion purchasing product and services on internet World Wide Web (Johnson,2002;eMarketer,2002;US Cencus Bureu,2003). From a standing start in 1995, this type of commerce, called electronic commerce or e-commerce, experienced growth rates of well over 100% a year, although the rate has slowed and is now growing at over 30% year. These development have created the first widespread digital electronic marketplaces.
Although the terms Internet and World Wide Web are often used interchangeably, they actually two difference things: the internet is the worldwide network of computer network, and the world wide web is one of the internet most popular services, providing access to ever 6 billion web pages.
It is important to realize that the rapid growth and change that has occurred in the first eight years of e-commerce represents just the beginning-what we could be called the first thirty seconds of the e-commerce revolution. The twenty first century will barely perceive at this time. It appears likely that e-commerce will eventually impact nearly all commerce, or that most commerce will be e-commerce by the year 2050.

WHAT IS e-Commerce
E-commerce is the use of the internet and the web to transact business. More formally, digitally enabled commercial transactions between and among organizations and individuals.


THE DIFFERENCE BETWEEN E-Commerce AND E-BUSINESS
Some argue that e-commerce encompasses the entire world of electronically based organizational activities that support a firm’s market exchanges-including a firm’s entire information system’s infrastructure (Rayport and Jaworski, 2003). Other argue, on the other hand, that e-business encompasess the entire world of internal and external electronically based activities, including e-commerce (Kalakota and robinson,2003).
For the most part, e-business does not include commercial transactions involving an exchange of value across organizational boundaries. It is true, however, that a firm’s e-business infrastructure provides support for online e-commerce exchanges; the same infrastructure and skill sets are involved in both e-business and e-commerce. E-commerce and e-business system blur together at the business firm boundary, at the point where internal business systems link up with suppliers or customers, for instance.

WHY STUDY e-Commerce ?
Prior to the development of e-commerce, the process of marketing and selling goods was a mass marketing and sales force-driven process. Consumers were considered to be trapped by geographical and social boundaries, unable to search widely for the best price and quality. Information about prices, costs and fees could be hidden from the consumer, creating profitable “information asymmetries” for the selling firm. Information asymmetry refers to any disparity in relevant market information among parties in a transaction.
E-commerce has challenged much of this traditional business thinking. There’s seven unique features of e-commerce technology that both challenge traditional business thinking and explain why we have so much interest in e-commerce.


Seven Unique Features of E-Commerce Technology
1. Ubiquity
E-Commerce is ubiquitous, meaning that is it available just about everywhere, at all times
2. Global Reach
E-commerce technology permits commercial transactions to cross cultural and national boundaries far more conveniently and cost effectively than is true in traditional commerce. As a result, the potential market size for e-commerce merchants is roughly equal to the size of world’s online population (over 500 million in 2003, and growing rapidy, according to the Computer Industry Almanac)
3. Universal Standards
One strikingly unusual feature of e-commerce technologies is that the technical standards of the Internet, and therefore the technical standards for conducting e-commerce, are universal standards-they are shared by all nations around the world. In contrast, most traditional commerce technology differ from one nation to the next.
4. Richness
Information richness refer to the complexity and the content of a message (Evan and Wurster, 1997; 1999). The richness of traditional markets make them a powerfull selling or commercial environtment. Prior to the development of the Web, there was a trade-off between richness and rich: the larger the audience reached, the less rich the message.
5. Interactivity
E-commerce technologies are interactive, meaning they allow for two-way communication between merchant and consumer. Interactivity allows an online merchant to engage a consumer in ways similar to a face-to-face experience, but on a much more massive, global scale.
6. Information Density
The Internet and the Web vastly increase information density-the total amount and quality of information available to all market participants, consumers, and merchant alike. E-commerce technologies reduce information collection, storage, processing, and communication costs. At the same time, these technologies increase greatly the currency, accuracy, and timeliness of information-making information more useful and important than ever. As a result, information becomes more plentiful, cheaper, and of higher quality.
7. Personalization/Customization
E-commerce technologies permit personalization: Merchant can target their marketing messages to specific individuals by adjusting the message to a person’s name, interests, and past purchases. The technology also permits customization-changing the delivered product or service based on a user’s preferences or prior behavior. Given the interactive nature of e-commerce technology, a lot of information about the consumer can be gathered in the marketplace at the moment of purchase. With the increase in information density, a great deal of information about the consumer past purchases and behavior can be stored and used by online merchants.

TYPES OF e-Commerce
There are a variety of different types of e-commerse and many different types of e-commerce and many different ways to characterize these types. For the most part, we distinguish different types of e-commerce by the nature of the market relationship-who is selling to whom. The exceptions are P2P and m-commerce, which are technology based distinctions.
1. Business to Consumer (B2C) e-commerce
The most commonly discussed type of e-commerce, in which online businesses attempt to reach individual consumers.
2. Business to Business (B2B) e-commerce
In which business focus on selling to other businesses, is the largest form of e-commerce, with about $800 billion in transactions in the US for 2002.
3. Consumer to Consumer (C2C) e-commerce
Provides a way for consumers to sell to esch other, with the help of an online market maker such as the auction site and eBay.
4. Peer to Peer (P2P) e-commerce
Use of peer to peer technology, which enables internet users to share files and computer resources directly without having to go through a central Web server, in e-commerce.
5. Mobile commerce (m-commerce)
Refers to the use of wireless digital devices to enable transactions on the Web.


GROWTH OF THE INTERNET AND THE WEB
The technology juggernaut behind e-commerce is the internet and the World Wide Web. The internet is a worldwide network of computer networks built on common standards. The internet links businesses, educational institutions, government agencies, and individuals together, and provides users with services sucs as e-mail, document transfer, newsgroups, shopping, research, instant messaging, music, videos, and news. The web provides access to an estimated 6 billion pages or documents created in a language called HTML (Hyper Text Markup Language). These HTML pages contain information, including text, graphics, animations, and other objects, made available for public use.

1.2 E-COMMERCE I AND II
E-commerce I is a period of explosive growth in e-commerce, beginning in 1995 and ending in 2000.
E-commerce II is the current era of e-commerce, beginning in 2001

THE VISIONS AND FORCES BEHIND e-Commerce I
For computer scientists, e-commerce was part of their vision of a universal communications and computing environment that everyone on earth could access with cheap, inexpensive computers.
For economists, e-commerce raised the realistic prospect of a perfect Bertrand market-where price, cost, and quality information are equally distributed-and friction-free commerce.
For merchants, the cost of searching for customers would also fall, reducing the need for wasteful advertising.
For real world entrepreneurs, their financial backers, and marketing professionals in the e-commerce I period, the idea of friction free commerce was far from their own visions.
Thus, the E-commerce I period was driven largely by vision of profiting from new technology, with the emphasis on quickly achieving very high market visibility.

e-Commerce II 2001-2007
The crash in stock market values for E-commerce I companies throughout 2000 is a convenient market for ending the period. There were a number of reasons for the crash.
- The simple change from year 1999 to 2000 was believed to be a major threat to corporate systems. Once these system were rebuilt, this information technology capital expenditure declined, sending the earnings forecasts of technology companies down.
- Second, in early 2000, it became clear that the telecommunication industry had built excess capacity in high speed fiber optic networks.
- Third, the 1999 e-commerce Christmas season provided less sales growth than anticipated, and more important, demonstrated that e-commerce was not easy.
- Fourth, perhaps more important, the valuations of dot.com and technology companies had risen so high that even supporters were questioning whether earning of these companies could ever grow fast enough to justify the prices of the shares.


1.3 UNDERSTANDING e-Commerce : ORGANIZING THEMES

It is useful to think about e-commerce as involving three broad interrelated themes : technology, business and society

TECHNOLOGY : INFRASTRUCTURE
E-commerce is above all else a technologically driven phenomenon that relies a host of information technologies as well as fundamental concepts from computer science developed over a 50-year period.

E-commerce relies on all these basic technologies, not just the internet. The internet, while representing a sharp break from prior corporate computing and communications technologies, is nevertheless just the latest development in the evolution of corporate computing and part of the continuing chain of computer based innovations in business.

BUSINESS : BASIC CONCEPT
While the technology provides the infrastructure, it is the business applications, the potential for extraordinary returns on investment, that create the interest and excitement in e-commerce. New technologies change the strategies or plans existing firms : Old strategies are made obsolete and new ones need to be invented.

SOCIETY : TAMING THE JUGGERNAUT
Since the internet and the web are exceptionally adept at tracking the identity and behavior of individuals online, e-commerce raises difficulties for preserving privacy, the ability of individuals to place limits on the type and amount of information collected about them, and to control the uses of their personal information. The global nature of e-commerce also posses public policy issues of equity, equal access, content regulation, and taxation.

ACADEMIC DISCIPLINES CONCERNED WITH e-Commerce
The phenomenon of e-commerce is so broad that a multidisciplinary is perspective required. There are two primary approaches to e-commerce : technological and behavioral.
a. Technical approaches
Computer sciencetists are interested in e-commerce as an exemplary application of Internet technology. They are concerned with the development of computer hardware, software, and telecommunication systems, as well as standards, encryption, and database design and operation.
b. Behavioral approaches
In the behavioral sector, information systems researchers are primarily interested in e-commerce because of its implications for firm and industry value chain, industry structure, and corporate strategy.

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