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Copyright © 2010 Pearson Education, Inc. 3
Chapter 2
E-commerce Business Models
and Concepts

Copyright © 2010 Pearson Education, Inc.
E-commerce Business Models
■ Business model
❖ Set of planned activities designed to result in a
profit in a marketplace
■ Business plan
❖ Describes a firm’s business model
■ E-commerce business model
❖ Uses/leverages unique qualities of Internet and
Web
4

8 Key Elements of a Business Model
5
1. Value proposition
2. Revenue model
3. Market opportunity
4. Competitive environment
5. Competitive advantage
6. Market strategy
7. Organizational development
8. Management team

1. Value Proposition
■ Why should the customer buy from you?
■ Successful e-commerce value
propositions:
❖ Personalization/customization
❖ Reduction of product search, price discovery costs
❖ Facilitation of transactions by managing product delivery
6

2. Revenue Model
■ How will the firm earn revenue, generate
profits, and produce a superior return on
invested capital?
■ Major types:
❖ Advertising revenue model
❖ Subscription revenue model
❖ Transaction fee revenue model
❖ Sales revenue model
❖ Affiliate revenue model
7

3. Market Opportunity
■ What marketspace do you intend to serve
and what is its size?
❖ Marketspace: Area of actual or potential commercial value
in which company intends to operate
❖ Realistic market opportunity: Defined by revenue potential
in each of market niches in which company hopes to
compete
■ Market opportunity typically divided into
smaller niches
8

4. Competitive Environment
■ Who else occupies your intended
marketspace?
❖ Other companies selling similar products in the same
marketspace
❖ Includes both direct and indirect competitors
■ Influenced by:
❖ Number and size of active competitors
❖ Each competitor’s market share
❖ Competitors’ profitability
❖ Competitors’ pricing
9

5. 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
❖ First-mover advantage
❖ Unfair competitive advantage
❖ Leverage
1

6. Market Strategy
■ How do 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
1

7. Organizational Development
■ What types of organizational structures
within the firm are necessary to carry out
the business plan?
■ Describes how firm will organize work
❖ Typically divided into functional departments
❖ Hiring moves from generalists to specialists as company
grows
12

8. 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
1

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
14

B2C Business Models: Portal
■ Search plus an integrated package of content
and services
■ Revenue models:
❖ Advertising, subscription fees, transaction fees
■ Variations:
❖ Horizontal/General
❖ Vertical/Specialized (Vortal)
❖ Pure Search
15

B2C Models: Content Provider
■ Digital content on the Web
❖ News, music, video
■ Revenue models:
❖ Subscription; pay per download (micropayment);
advertising; affiliate referral fees
■ Variations:
❖ Content owners
❖ Syndication
❖ Web aggregators
16

B2C Models: Transaction Broker
■ Process online transactions for consumers
❖ Primary value proposition—saving time and money
■ Revenue model:
❖ Transaction fees
■ Industries using this model:
❖ Financial services
❖ Travel services
❖ Job placement services
17

B2C Models: Market Creator
■ Uses Internet technology to create
markets that bring buyers and sellers
together
■ Examples:
❖ Priceline
❖ eBay
■ Revenue model: Transaction fees
18

B2C Models: Service Provider
■ Online services
❖ e.g., Google: Google Maps, Google Docs, and so on
■ Value proposition
❖ Valuable, convenient, time-saving, low-cost alternatives to
traditional service providers
■ Revenue models:
❖ Sales of services, subscription fees, advertising, sales of
marketing data
1

B2C Models: Community Provider
■ Provides online environment (social
network) where people with similar
interests can transact, share content, and
communicate
❖ E.g., Facebook, MySpace, LinkedIn
■ Revenue models:
❖ Advertising fees, subscription fees, sales revenues,
transaction fees, affiliate fees
2

B2B Business Models
■ Net marketplaces
❖ E-distributor
❖ E-procurement
❖ Exchange
❖ Industry consortium
■ Private industrial network
❖ Single firm
❖ Industry-wide
21

B2B Models: E-distributor
■ Supplies products and services directly to
individual businesses
■ Owned by one company seeking to serve
many customers
■ Revenue model: Sales of goods
■ Example: Grainger.com
22

B2B Models: E-procurement
■ Creates and sells access to digital
electronic markets
❖ Includes B2B service providers, application service
providers (ASPs)
■ Revenue model:
❖ Transaction fees, usage fees, annual licensing fees
■ Example: Ariba
2

B2B Models: Exchanges
■ Electronic digital marketplace where suppliers and
purchasers conduct transactions
❖ Usually owned by independent firms whose business is making a
market
❖ Usually serve a single vertical industry
■ Revenue model: Transaction, commission fees
■ Create powerful competition between suppliers
■ Number has dropped dramatically
24

B2B Models: Industry Consortia
■ Industry-owned vertical marketplaces that
serve specific industries (e.g., automobile,
chemical)
■ More successful than exchanges
❖ Sponsored by powerful industry players
❖ Strengthen traditional purchasing behavior
■ Example: Exostar
25

Private Industrial Networks
■ Designed to coordinate flow of communication
among firms engaged in business together
❖ Electronic data interchange (EDI)
■ Single firm networks
❖ Most common form
❖ Example: Wal-Mart’s network for suppliers
■ Industry-wide networks
❖ Often evolve out of industry associations
❖ Example: Agentrics
26

Business Models in Emerging
E-commerce Areas
■ Consumer-to-consumer (C2C)
❖ Examples: eBay, Half.com
■ Peer-to-peer (P2P)
❖ Examples: The Pirate Bay, Cloudmark
■ M-commerce:
❖ E-commerce models using wireless technologies
❖ Technology platform continues to evolve
❖ In the United States, demand still highest for digital content
like ring tones
27

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