Internet Business Models
Hung, Chia-Linag
2006, Spring
Objectives
• Internet commerce patterns
• Business models
• E-business models
• Survival indicators
Internet commerce linkage
• B2B
– Business hub (exchange) for equipments, material,
operation, maintenance, etc., on the Internet
• B2C
– Direct sale to customer over Internet
• C2C
– Customer community for information/product
exchange
• C2B
– Actively queried by demanders and response from
business suppliers
– Reverse auction, e.g., priceline.com
Classifying B2B e-Hub
What business buy
Operating inputs
Manufacturing inputs
Systematic
Spot sourcing
sourcing
How Business Buy
MRO Hubs
Ariba, WW Crainger,
MRO.com
BizBuyer.com
Yield Managers
Employease
Adauction.com
CapacityWeb.com
Catelog Hubs:
Chemdex,
SciQuest.com
PlasticsNet.com
Exchanges
E-steel, Altra Energy
PaperExchange.com
IMX Exchange
Emergence of aggregator—the
forward aggregator
Large
suppliers
E-hub
Distributors
Compaq
IBM
Cisco
Microsoft
Ingram
Micro
Fulfillment
Call center
Financing
Configurators
Direction of aggregation
Buyers
Emergence of aggregator—the
reverse aggregator
Large
suppliers
Distributors
E-hub
Dupont
Dow
FOB.com
Ashland
3M
Fulfillment
Inspection
Receivables
Financing
Direction of aggregation
Small
buyers
B2C e-commerce
• Internet direct sale
– Migration from physical enterprise to virtual
web—Dell
– Pure virtual e-commerce—Amazon.com,
• Cooperate with physical retailer
• Internet intermediary
– Information aggregator—104.com
C2C e-commerce
• Community
– Information portal/exchange centers,
pchome.com, Yahoo!
– Interest clubs, iVillage.com, youthwant.com
• Auction
– Used product bazaar, eBay.com, uBid.com
• P2P
– Napster, Gnutella, etc.
What is the so-called business
model?
A business model depicts the
content, structure, and governance
of transactions designed so as to
create value through the exploitation
of business opportunities.
Amit & Zott (SMJ, 2001, p.511)
The Content of Business Model
• The good or information that are being
exchanged
• The resources and capabilities that are
required to enable the exchange
• E.g., transparency of transaction, vertical
& horizontal expansion of product/service,
the degree of customization, technologies
of transaction
The Structure of Business
Model
• The parties that participate in the exchange
• The ways in which these parties are linked
• The order process and the adopted
exchange mechanism
• E.g., the providers of complementary
assets, transaction speed, mode, simplicity,
safety & reliability, integration of online &
offline supply chains
The Governance of Business
Model
• The ways in which flows of information,
resources, and goods are controlled by
the relative parties
• The incentives for the participants in
transactions
• E.g.,cooperative and shared incentive
among allied partners, commitment and
investment of co-specialized assets,
loyalty maintenance
E-business Models
A description of roles and relationships
among a firm’s consumers, customers,
allies, and suppliers that identifies the
major flows of product, information, and
money, and the major benefits to
participants, almost, over Internet .
(Weill & Vitale, Place to Space, 2001, p.34)
Operational Internet business
models
• Brokerage model—virtual mall, exchange hub,
media packager, smart agent, catalogue
• Advertising model—ads banner on portal, virtual mall
• Infomediary model—recommender/registration
system
• Merchant model—catalogue, virtual retailer
• Manufacturing model—online sales by physical
vendors
• Affiliate model—click-through model
• Community model—loyalty programs
• Subscription model—versioning contents with
discrimination
• Utility model—customized add-on functions
Indicators of survival business
model
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Customer value—segmentation, value proposition
Scope—core or by-products
Pricing—attractive willingness-to-pay prices
Revenue sources—exploitation & leverage of
complements
Connected activities—the complete value chain
Construction—IT infrastructure, organization, and
key champion
Capability—acquisition of necessary competence
Sustainability—setup firewall to prevent imitation
Customer value
• Differentiation
– Functional property,
– Time/place convenience,
– Completeness of service,
– Product proliferation,
– Reputation,
– Relatedness
• Cost advantage
• Niche—distinctiveness
Scope
• The profitable targeting
– Geography
– Demographics
– Product lines
– Segments
– Diversification
– Focus
Pricing
• Calculate the average cost, marginal cost,
fixed cost
• Market share vs. profit margin vs. growth
rate
• Lock-in effects & switching costs
• Menu price, 1-1 bargaining, auction,
reverse auction, barter
Revenue sources
• Analysis of the whole process of service or
product usage
• Complements provision for utility
enhancement
• Enablers for facilitating transactions
• Incentive mechanism for increasing
demander exclusiveness & rivalry
• Measurement criteria for profit evaluation
Connected activities
• R&D, product design, manufacturing, testing,
marketing, service, etc., that is the value chain
• Coherent objective
• Mutual reinforcement
• Cost-benefit analysis
• Spill-over of core competence
• Innovative arrangement for distinctiveness
• Coordination of scheduling and deployment
• Life cycle management
Construction
• IT infrastructure—Internet & MIS
• Functional organization structure—work,
task, job, and project
• System—information flow/gatekeeper,
decision delegation, incentive/motivation
mechanism
• Context & culture—innovation climate, e.g.,
Sony’s “neyaka”, an optimistic guy with
open mind and broad interests, a generalist
not a specialist
Capability
• Resources—tangible, intangible, and
human assets
• Competencies—monopolistic, scalability
• Competitive advantage—irreversibility, the
case of path dependence, the case of
specificity
Sustainability
• Block/deterrence strategy
– Private/public court protection
• Run strategy
– Pioneer, leadership
• Team-up strategy
– Embrace and extend
– Co-option & co-optition
– Leverage between co-specialized assets
Further thinking
• Why does AOL want to merger TimeWarner?
• Why does Amazon install her own
warehouse and logistics?
• Why had Yahoo! transform from a search
engine into a media portal?
• Why does Disney still survive in the
Internet era?
Dis-integration & reconfiguration of
electronic channels
• Open Internet platform
– Decreasing switching cost
– Shifting lock-in value layers
– Emerging digital channel—substitution or supplements?
• E-Stamp—online stamp printing from personal printers
• Vstore.com—online selling personal preferences as a new
business
• Where is the sticky value?
– ISPs or ICPs
– The sources of appropriability
– The valuable content generators
The evolution of Yahoo! Business
model
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Searching engine website
Content packager website
Sticky/personal content website
Communication portal website
Commerce portal website
Media convergence website
Clicks & bricks
• Internet extension
– Merrill Lynch, Charles Schwab, Toys ‘R’ Us,
Wal-Mart, B&N bookstore, etc.
• Amazon + Toys ‘R’ Us—combination into
the whole product, & complete service
• Integration between virtual clicks and
supporting bricks
– Dinners by parcel post?
– E.g., Webvan, HomeGrocer
• Survivability? Sustainability?
Digital information products
• The impact of digitalized content delivered
through Internet
– Bypassing the traditional channels
– Versioning the digital products
– Bundling & unbundling products
– E.g., MP3, MP3.com
• The emerging P2P business model
– Direct interaction among customer
communities
– Napster.com
The emerging services of
information flow management
• Akamai—Internet flow management
– Optimizing response and continuous
accessibility
– Necessary decentralized proxy servers
• Inktomi—fast cache management
– Decreasing redundancy
– Increasing response
• Exodus—outsourcing management
– Server housing and sharing
– Enhancing the web reliability