Introduction &

Business Models

MITC 210 IT Enabled Business

What is e-Commerce?
 The sale and procurement of supplies and
services using information technology.
(NoWeGa)
 The buying and selling of products or
services over electronic systems such as
the Internet and other computer networks.
(Wikipedia)
 The buying and selling of products and
services by businesses and consumers
over the internet. (webfocus.ph)
Different Perspectives
Development of e-Commerce
 Put marketing information on the web
 Allow online order taking
 Construct electronic exchanges
e-Commerce Dev’t (at large)

Internet Browsers Search Content Shops Market-

Engines places
e-Commerce Dev’t (at a company)

Marketing Order Electronic

information taking exchanges
Terminologies
 e-Business
 Generic term for all internal and external
business processes of a company.
 Coined by IBM in 1999.
 Structured into e-commerce, e-cooperation and
e-information.
 e-Commerce
 Electronic marketing and trading of goods and
services over the Internet.
 Within e-business, e-commerce is the driving
force.
Terminologies
 e-cooperation:
 business models that support the cooperation
of business partners, e.g. virtual
 enterprises, supply chain management (SCM)
and customer relationship management (CRM).
 e-information:
 Mainly addresses the procurement and delivery
of information (e.g. digital libraries and web
portals).
Terminologies
 e-procurement:
 Electronic purchase of raw materials, semi-
finished goods and components (normally in
large quantities).
 Requires an integration of company’s ERP
system with suppliers’ ERP systems.
 Part of e-cooperation.
Terminologies
 e-government:
 Provision of governmental and official
processes over the Internet for residents,
usually administrative processes, e.g. tax
return, change of address.
 Exchange of electronic data between different
authorities for the acceleration of official
processes.
Commercial Opportunities on the
Internet
 Effects of the Internet On Commerce:
 Disintermediation / Reintermediation
 Frictionless Commerce
 Dynamic Pricing
 Personalized Marketing
Disintermediation
 Shortening the value chain, especially concerning
soft-goods (music,software, ...) [Merz99].
  is the removal of intermediaries in a supply
chain: "cutting out the middleman.“
 Instead of going through traditional distribution
channels, which had some type of intermediate
(such as a distributor, wholesaler, broker, or
agent), companies may now deal with every
customer directly, for example via the Internet.
 Lowers customer prices: Get products cheaper.
 Reduces costs for producers and customers.
Disintermediation
Reintermediation
 Adding trading partners (brokers) to a
value chain as filters / selectors.
 Brokers select products / producers: Find
better / more suitable products.
 occurred due to many new problems
associated with the e-commerce
disintermediation concept, largely centered
on the issues associated with the direct-to-
consumers model.
 Increases quality of service.
Reintermediation
Frictionless Commerce
 Causes for friction in traditional commerce
are costs:
 Costs of finding partners
 Costs of gathering information
 Costs of establishing trust
 In a frictionless economy everyone has
perfect information at any time (e.g. about
all potential trading partners, products,
offers, etc ).
 NOTE: This is a claim of economical theory!
Dynamic Pricing
 also known as time-based pricing or third-degree
price discrimination
 Prices adjust to exactly balance supply & demand
(can be realized in e.g. auctions)
 occurs when customers are divided into two or more
groups with separate demand curves, and different
prices are charged to each group.
 gives firms the possibility of charging prices based
on consumer history and profiling.
Personalized Marketing
 also called personalization/one-to-one marketing
 Any seller’s offers, ads, incentives are
customized and personalized to each customer
 single seller – single buyer relationship.
 Seller is supported by Customer-Relationship-
Management Software (CRM)
 Whereas product differentiation tries to
differentiate a product from competing ones,
personalization tries to make a unique product
offering for each customer.
Virtual Communities
 (Global / local) communities of people who share an
interest or get together to act as a single economical
player.
 Communities of Interest
 Buyer Communities (get reduced prices by ordering
large quantities of products)
  is a social network of individuals who interact through
specific social media, potentially crossing geographical
and political boundaries in order to pursue mutual
interests or goals.
 One of the most pervasive types of virtual community
include social networking services, which consist of
various online communities.
e-Commerce Reference Model
e-Commerce Transaction 4-Phase
Model
e-Commerce Transaction 4-Phase
Model
 1st phase: Customer finds a business
partner
 2nd phase: Customer and performer
negotiate and finally commit transaction
details (products, quantity,
quality);commit might include payment
 3rd phase: Performer carries out the
service / manufactures and delivers the
goods
e-Commerce Transaction 4-Phase
Model
 4th phase: Customer gives feedback; pays
for the service / for the goods Feedback is
important for long-term positive customer
relationship
 Payment: Depending on the business
model, payment might be moved to end of
2nd phase (pay before performance) or to
the end of 4th phase (pay after delivery)
e-Commerce Transaction 4-Phase
Model
Business to Customer (B2C)
 Examples:
 Online – Shops (Amazon, BOL, etc.)
 Local services (e.g. traffic information service)
 News, publication services
Business to Business (B2B)
 Examples:
 Supply chain
 Electronic procurement
 Vertical industry tendering and bidding systems (e.g. in
the maritime industry)
Business / Customer to
Administration (B2A / C2A)
 Examples:
 Paying taxes & fees
 Change of address
 Licenses
Electronic Payment
 Payment: Typical clearing and settlement
process between a customer, performer
and the customer‘s bank.
EC from a Business Perspective
Business Models
 Is the method of doing business by which
a company can sustain itself, that is to
generate revenue.
 The business model spells-out how a
company makes money by specifying
where it is positioned in the value chain.
Business Models
 Advertising Model
 Affiliate Model
 Broker / Brokerage Model
 Community Model
 Infomediary Model
 Manufacturer Model
 Merchant Model
 Subscription Model
 Utility Model
Advertising Model
 Extension of the traditional media
broadcasting model
 The broadcaster, in this case, a web site, provides
content (usually, but not necessarily, for free) and
services (like e-mail, chat, forums) mixed with
advertising messages in the form of banner ads.
 The banner ads may be the major or sole source
of revenue for the broadcaster. The broadcaster
may be a content creator or a distributor of
content created elsewhere. The advertising model
only works when the volume of viewer traffic is
large or highly specialized.
Advertising Models
 Portals:
 Generalized Portal
 Personalized Portal
 Specialized Portal
 Classifieds
 Query-based Paid Placement
 Contextual Advertising
 Bargain Discounter
Advertising Model: Generalized
Portals
 High-volume traffic, typically tens of
millions of visits per month, driven by
generic or diversified content or services.
 Competition for volume has led to the
packaging of free content and services,
such as e-mail, stock portfolio, message
boards, chat, news, and local information.
Examples
 Search engines and Web catalogs like
 Excite (www.excite.com), AltaVista
(www.altavista.com), Yahoo!
(www.yahoo.com).
 Content driven sites like AOL
(www.aol.com).
 The high volume makes advertising
profitable and permits further
diversification of site services.
Advertising Model: Personalized
Portal
 The generic nature of a generalized portal
undermines user loyalty. This has led to
the creation of personalized portals that
allow customization of the interface and
content.
 This increases loyalty through the user's
own time investment in personalizing the
site.
Advertising Model: Personalized
Portal
 The profitability of this portal is based on
volume and possibly the value of
information derived from user choices.
 Personalization can support a "specialized
portal" model.
 Examples:
 My.Yahoo!(my.yahoo.com),
 My.Netscape (my.netscape.com).
Advertising Model: Specialized
Portal
 Also called a "vortal" (i.e., vertical portal).
 Here volume is less important than a well-
defined user base (perhaps 0.5 - 5 million
visits per month).
 For example, a site that attracts only young
women, or home buyers, or new parents, can
be highly sought after as a venue for certain
advertisers who are willing to pay a premium
to reach that particular audience.
 Example: iVillage.com
Advertising Model: Classifieds
 List items for sale or wanted for purchase.
 Listing fees are common, but there also
may be a membership fee.
 Examples:
 Monster.com (www.monster.com) and
 Match.com (www.match.com).
Advertising Model: Query-based
Paid Placement
 Sell favorable link positioning (i.e.,
sponsored links) or advertising keyed to
particular search terms in a user query,
such as Overture's trademark "pay-for-
performance" model.
 Examples:
 Google (www.google.com),
 Overture (www.overture.com).
Advertising Model: Registered
Users
 Content-based sites that are free to access
but require users to register (other
information may or may not be collected).
 Registration allows inter-session tracking
of users' site usage patterns and thereby
generates data of greater potential value
in targeted advertising campaigns.
 Example:
 NYTimesDigital (www.nytimes.com).
Advertising Model: Contextual
Advertising
 Freeware developers which bundle ads with
their product.
 For example, a browser extension that
automates authentication and form fill-ins, also
delivers advertising links or pop-ups as the
user surfs the web.
 Contextual advertisers can sell targeted
advertising based on an individual user's
surfing behavior.
 Example: Gator (www.gator.com), eZula
(www.ezula.com).
Advertising Model: Bargain
Discounter
 The most notable example is Buy
(www.buy.com), which sells its goods
typically at or below cost, and seeks to
make a profit largely through advertising.
Business Models: Affiliate Model
 It provides purchase opportunities
wherever people may be surfing.
 It does this by offering financial incentives
(in the form of a percentage of revenue)
to affiliated partner sites.
 The affiliates provide purchase-point click-
through to the merchant.
 It is a pay-for-performance model -- if an
affiliate does not generate sales, it
represents no cost to the merchant.
Business Models: Affiliate Model
 The affiliate model is inherently well-
suited to the web, which explains its
popularity.
 Variations include, banner exchange, pay-
per-click, and revenue sharing programs.
Potential problems loom ahead that may
inhibit the diffusion of the affiliate model
due to the granting of a broad patent to
Amazon.com.
Business Models: Brokerage Model
 Brokers are market-makers: they bring
buyers and sellers together and facilitate
transactions.
 Those can be business-to-business (B2B),
business-to-consumer (B2C), or
consumer-to-consumer (C2C) markets.
 A broker makes its money by charging a
fee for each transaction it enables.
Brokerage models can take a number of
forms.
Business Models: Brokerage Model
 Auction Broker, Reverse Auction (Demand Collection
System)
 Marketplace Exchange
 Buyer Aggregator
 Search Agent
 Business Trading Community or Vertical Web Community
 Virtual Mall
 Buy/Sell Fulfillment
 Distributor
 Bounty Broker
 Transaction Broker
End