Classification of E-Commerce
Firms
Professor Joshua Livnat, Ph.D., CPA
311 Tisch Hall
New York University
40 W. 4th St.
NY NY 10012
Tel. (212) 998-0022 Fax (212) 995-4230
jlivnat@stern.nyu.edu
Web page: www.stern.nyu.edu/~jlivnat
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Classifications
• Classification by seller/buyer
• Classification by product or activity
• Classification by sources of revenues
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Classification by seller/buyer
• Business to Consumer (B to C)
– Southwest Airlines generates over 15% of its
revenues from its online site.
http://www.southwestairlines.com/
• Business to Business (B to B)
– Automobile manufacturers organizing an
exchange to buy components from suppliers.
http://www.generalmotors.com/cgi-bin/pr_display.pl?1202
• Consumers to Consumers (C to C)
– Auctions sites like E-Bay. http://www.ebay.com/
• Consumers to Business (C to B)
– Selling information to businesses like gorefer.
http://www.gorefer.com/
– http://www.mercata.com/
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Classification by product or activity
Media Metrix Report - Dec 1999
Category
SEARCH ENGINE
COMMERCIAL ONLINE
MARKETING/CORPORATE
WEB SERVICES
SHOPPING
NEWS INFO/ENTERTAINMENT
DIRECTORIES
INTERNET SERVICE PROVIDER
ADULT CONTENT
TRAVEL/TOURISM
GOVERNMENT
EDUCATION
All Other
AIRLINE SITES
Domain
YAHOO.COM
MSN.COM
MICROSOFT.COM
GEOCITIES.COM
BLUEMOUNTAINARTS.COM
ABOUT.COM
INFOSPACE.COM
EARTHLINK.NET
PORNCITY.NET
MAPQUEST.COM
NASA.GOV
BERKELEY.EDU
DASH.COM
AA.COM
Digital Media Reach %
52.6
47.3
36.8
31.1
26.1
15
10
6.7
5.1
5
3.3
2.4
2
1.7
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Classification by Revenue Sources
• Revenues from selling products or services
– Traditional sales http://www.amazon.com
– Commissions http://www.priceline.com/
– Per-transaction fees http://www.nytimes.com/
• Advertising revenues - See Appendix A
• Referral fees: See Appendix B
– per referral
– fixed amount
– percentage of transaction
• Market creation fees http://www.ebay.com/
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Advantages of Classifications
• Classifications by seller/buyer emphasize
the markets in which the firm operates.
• Classifications by product/activity
emphasize the nature of the business.
• Classifications according to revenue sources
focus on the underlying business model.
• An E-Commerce company is likely to be in
more than one category.
• The analysis of categories helps in profiling
the business (segments).
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Warning
• The Following Definitions of Various
Business Models are not mine.
• They were developed by Professor Michael
Rappa:
• http://ecommerce.ncsu.edu/business_models.html
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Brokerage
• Bringing buyers and sellers together
– Buy/sell fulfillment
• Online stock trading
– Market exchange
• B2B (metals exchange)
– Virtual mall
• Internet fashion mall
– Auction broker
• E-Bay
– Search agent
• My Simon, Dealtime
• Fee per transaction
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Advertising
• Free content or services to users. Content
(service) providers get advertising revenues.
• Model in existence for radio and TV.
• Need very high volume or very specialized
audience.
–
–
–
–
–
Generalized portals.
Personalized and specialized portals.
Attention/incentive marketing.
Free products or services.
Bargain discounters.
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Infomediary
• Collecting and selling data about
consumers, interests and buying habits.
• Sharing information among consumers
– Book reviews on Amazon
• Registration
– Collecting information on users in exchange for
access to content (newspapers, free phone
services).
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Merchants
• Wholesalers and retailers on the Web.
– Web-based only, with no brick and mortar
operations.
– Catalog services
• New form of direct mail
– B&M on the Web
• Staples
– Digital content
• Music
• Software
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Manufacturer
• Manufacturer bypasses the wholesaler to
reach final customer.
– Dell
• Personalization
– Flowerbud
• Faster delivery
• May cause distribution channel conflicts
– Airlines and travel agents
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Affiliate
• Referring to other sites
• Similar to Yellow Pages or referral fees for
lawyers.
• Hitting the customer when the purse is
open.
• Using information on current purchases to
induce further purchases of complementary
products and services.
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Community
• Creating a community of similar users.
– Soliciting donations from users and foundations
• Creating knowledge networks
– Collection of experts who can respond to
questions
– Sometimes experts get paid directly per
question.
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Subscription
• Pay for content
• General reluctance to pay for content on the
Web.
• Exceptions:
– Wall Street Journal
– Premium content (detailed stock research
reports)
– Archived information
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Utility
•
•
•
•
Pay per use or per time
Similar to Pay Per View movies
Renting software and applications
Payment per data extracted
– Credit reports
– Retrieving old publications
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Mixture of Business Models
• Most E-Commerce firms have a mixture of
business models
– Community and advertising
– Merchant and affiliate
• Business models change and continue to
evolve
– The environment is very dynamic
– The need to remain flexible
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The Business Model
• Identify the value drivers:
– Number of visitors
– Number of members
– Number of transactions
• Assess the required long-term volume to
make a profit
• Assess the reasonableness of the required
volume and costs to achieve it.
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Sources of Information
• Forms filed with the SEC (http://www.sec.gov :
/)
–
–
–
–
–
Registration statement
Form 10-K
Form 10-Q
Proxy statement
Special reports
Company’s own Web site http://www.aol.com/
http://www.corp.aol.com/
• Investment research
• Tracking organizations http://www.mediametrix.com
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Long-Term Business Models
• Surviving advertising models
– High volume free content services
• The broadcasting model
– Personalized and specialized content services
• Free tourist guides
– Interactive models
• Surviving community models
– Right demographics
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Long-Term Business Models
• Surviving brokerage models
– Only if B&M do not offer their own services
• Merchants
– Only if reduces transaction costs or increases
the “pie”
• Affiliates
– Will it be pay per referral? Pay per listing (like
Yellow Pages)?
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Long-Term Survival
• Depends on the long-term tradeoff between
revenues and costs.
• Cheap initial financing masks true longterm costs.
• The recent decline in prices of Internet
stocks can force people to think through
more carefully of the long-term viability of
the business model.
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Summary
• Classifications help think about the business
model.
• Classifications also help in assessing the
long-term viability of the business.
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