E-Business Models
MBAA 609
R. Nakatsu
What is an E-Business Model?
“They are, at heart, stories—stories that explain how
enterprises work.”

Who is the customer?
 What does the customer value?
 How do we make money in this business?
 What is the underlying economic logic of this
business?
Assessing the viability of the Business Model:
Does it meet the narrative test? Does it pass the P&L
test?
Electronic Business
E-Business are all business activities that use
Internet technologies. Three most common
categories are:
 B2C (business-to-customer): consumer shopping
on the Web.
 B2B (business-to-business): transactions
conducted between businesses on the Web.
 Business processes in which companies and
organizations use the Internet to support selling,
purchasing, and other business activities.
Other categories include C2C (consumer-to-consumer) and B2G (business
to government).
B2B Marketplaces
Some web sites are online marketplaces for
businesses to buy and sell goods and services
from other businesses.
Two questions:
What are some examples of B2B web sites?
How do B2B web sites differ from B2C web sites?
Pure Play or Hybrid?
Pure Play: an Internet company devoted
primarily to its online business.
Click-and-Mortar: a company that not only has
a Web presence, but also has a physical
storefront.
What are the advantages of each approach?
Combining Marketing Channels
Marketing Channel: a way to reach customers
(e.g. retail store, web site, mailed catalogs)
1.
2.
A problem with having multiple marketing
channels is channel conflict and
cannibalization. How do companies manage
channel conflict?
Some companies combine marketing
channels to their benefit. What are some
examples? (Home Depot and Talbots)
Seven Revenue Models
1.
2.
3.
4.
5.
6.
7.
Commission
Advertising
Markup
Manufacturer
Referral
Subscription
Utility Model
Source: Afuah and Tucci (2002) and Rappa (2010)
1. Commission (Brokerage Model)
A commission is a fee that is levied on a transaction by
a third party.
Brokers are market makers: they bring together buyers
and sellers
Examples:
 Ebay (auction broker model)
 E*Trade (financial brokerage model)
 Travelocity (marketplace for travel)
2. Advertising
Some Web companies earn revenue primarily by selling
advertising. Two general strategies:
General interest strategy: Advertisers pay low
rates to reach large numbers of undifferentiated
visitors.
2. Targeted strategy: Advertisers pay high rates to
reach small numbers of visitors with specific interests
either (a) related to the theme of the site or (b)
related to specific pages or searches.
1.
What are some examples of each approach?
Advertising (Continued)
How does Google advertising work?
What are the advantages and disadvantages
of Web advertising (compared to traditional
media like radio and television)?
% of Media Time Spent on
Mobile Devices
45%
41%
40%
34%
35%
30%
25%
20%
16%
15%
10%
5%
0%
Millennials
35 to 54
55 and older
3. Markup (Merchant Model)
Markup refers to the amount added to the cost of
producing a product or service in order to create a
profit. This model is traditionally used by
wholesalers and retailers
Examples:
 Amazon.com (pure play)
 Barnes & Noble (click and mortar)
 Overstock.com
 Target.com
Question: What is the downside to this model?
4. Manufacturer (Direct Seller Model)
Manufacturers and producers try to reach customers
directly through the Internet. Benefits: efficiency,
lower cost, better understanding of customer
preferences.
Examples:
 Dell and other PC manufacturers
 Levi’s jeans
 Car manufacturers (What are the problems with this
model?)
Direct Seller Model: Disintermediation
Manufacturers or producers can sell their products
and services directly to customers, bypassing
intermediaries such as distributors or retail
outlets.
A distribution channel can have several intermediary
layers.
Manufacturer->Distributor->Retailer->Cust.
Manufacturer->Retailier->Cust.
Manufacturer->Cust.
5. Referral (Affiliate Model)
A web site receives a fee for steering visitors to another
web site. Variations of this model include banner
exchange, pay-per-click, and revenue sharing (i.e, a
web site receives a percentage of sales).
Examples:
 Amazon Associates program
 Google’s AdSense program
The disadvantages of this model are similar to the
advertising model. What are they?
6. Subscription
Users are charged a periodic—daily, monthly or
annual—fee to subscribe to a service (unlimited
usage for a period of time).
Examples:
 Wall Street Journal, NY Times
 Netflix
 Online dating services
 LexisNexis
Question for discussion:
What are some problems with this model?
7. Utility Model
Two Models:
(a) Activities are metered and users pay for their actual
usage (“pay as you go” approach).
(b) One-time usage fee for a service
Examples:
 Users pay for metered Internet service
 Users “rent” a video and pay a one-time fee
What are some other examples of this model?
The disadvantages of this model are similar to the
subscription model.
C2C Business Models
Business models in the twenty-first century have to
take into account the capabilities of Web 2.0, such
as collective intelligence, network effects, user
generated content, and the possibility of selfimproving systems.1
A good example is Waze. How does it work?
Source: Chen, T. F. 2009. Building a platform of Business Model 2.0 to creating real business value with
Web 2.0 for web information services industry. International Journal of Electronic Business
Management 7 (3) 168-180.
Community Model
This model involves building community with users.
Revenue can based on the sale of products and
services, voluntary contributions, advertising, or
subscriptions for premium services.
Examples:
 Open source (software developed collaboratively by
a global community of programmers—e.g., Linux)
 Open content (content developed by a global
community of contributors—e.g. Wikipedia)
 Social networking (sites that provide individuals
with the ability to connect with other individuals—
e.g., Facebook, LinkedIn, Vine)
Pricing Model
How do you price your product or service?





Fixed pricing (e.g., Amazon)
Dynamic pricing (e.g., Uber)
Auction (e.g., Ebay)
Reverse auction (see next slide)
Free (Question: How can we make the free
model a viable business model? What do we
mean by “Free for many, fee for few”?)
Online Auctions
Example: Ebay.com
People can make online bids for items such as
computer equipment, antiques, jewelry.
The system evaluates the bids and notifies
the highest bidder.
How does a reverse auction differ? Can you
think of an example?