E-commerce
Business Models
Business models—a method of doing
business by which a company can
generate revenue to sustain itself
Examples:
Name your price
Find the best price
Dynamic brokering
Affiliate marketing
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E-commerce
Business Plans and Cases
Business plan: a written document that
identifies the business goals and outlines
the plan of how to achieve them
Business case: a written document that is
used by managers to garner funding for
specific applications or projects; its major
emphasis is the justification for a specific
investment
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Structure of Business Models
Business model: A method of
doing business by which a
company can generate revenue to
sustain itself
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Structure of Business Models (cont.)
Revenue model: description of how
the company or an EC project will earn
revenue
Sales
Transaction fees
Subscription fees
Advertising
Affiliate fees
Other revenue sources
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Structure of
Business Models (cont.)
Value proposition: The benefits a
company can derive from using EC
search and transaction cost efficiency
complementarities
lock-in
novelty
aggregation and interfirm collaboration
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Exhibit 1.4: Common
Revenue Models
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The EC Framework,
Classification, and Content
Two major types of e-commerce:
business-to-consumer (B2C) : online
transactions are made between
businesses and individual consumers
business-to-business (B2B):
businesses make online transactions with
other businesses
intrabusiness EC: EC conducted inside an
organization (e.g., business-toemployees B2E)
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The EC Framework,
Classification, and Content (cont.)
Computer environments
Internet: global networked environment
Intranet: a corporate or government
network that uses Internet tools, such as
Web browsers, and Internet protocols
Extranet: a network that uses the
Internet to link multiple intranets
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EC Framework
EC applications are supported by
infrastructure and by five support
areas:
People
Public policy
Marketing and advertising
Support services
Business partnerships
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Exhibit 1.2: A Framework for
Electronic Commerce
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Classification of EC by
Transactions or Interactions
business-to-consumer (B2C) : online
transactions are made between
businesses and individual consumers
business-to-business (B2B):
businesses make online transactions
with other businesses
e-tailing: online retailing, usually B2C
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Classification of EC by
Transactions or Interactions (cont.)
business-to-business-to-consumer (B2B2C):
e-commerce model in which a business
provides some product or service to a client
business that maintains its own customers
consumer-to-business (C2B):
e-commerce model in which individuals use
the Internet to sell products or services to
organizations or individuals seek sellers to
bid on products or services they need
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Classification of EC by
Transactions or Interactions (cont.)
consumer-to-consumer (C2C):
e-commerce model in which consumers sell
directly to other consumers
peer-to-peer (P2P): technology that enables
networked peer computers to share data
and processing with each other directly; can
be used in C2C, B2B, and B2C e-commerce
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Classification of EC by
Transactions or Interactions (cont.)
mobile commerce ((m-commerce):
e-commerce transactions and activities
conducted in a wireless environment
location-based commerce (l-commerce):
m-commerce transactions targeted to
individuals in specific locations, at
specific times
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Classification of EC by
Transactions or Interactions (cont.)
intrabusiness EC: e-commerce category that
includes all internal organizational activities
that involve the exchange of goods,
services, or information among various units
and individuals in an organization
business-to-employees (B2E): e-commerce
model in which an organization delivers
services, information, or products to its
individual employees
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Classification of EC by
Transactions or Interactions (cont.)
collaborative commerce (c-commerce):
e-commerce model in which individuals or
groups communicate or collaborate online
e-learning: the online delivery of
information for purposes of training or
education
exchange (electronic): a public electronic
market with many buyers and sellers
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Classification of EC by
Transactions or Interactions (cont.)
exchange-to-exchange (E2E): e-commerce
model in which electronic exchanges
formally connect to one another the
purpose of exchanging information
e-government: e-commerce model in which
a government entity buys or provides
goods, services, or information to
businesses or individual citizens
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Typical Business Models
in EC
1. Online direct marketing
2. Electronic tendering systems
tendering (reverse auction): model in which
a buyer requests would-be sellers to submit
bids, and the lowest bidder wins
3. Name your own price: a model in which a
buyer sets the price he or she is willing to
pay and invites sellers to supply the good or
service at that price
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Typical Business
Models in EC (cont.)
4. Affiliate marketing: an arrangement
whereby a marketing partner (a business,
an organization, or even an individual)
refers consumers to the selling company’s
Web site
5. Viral marketing: word-of-mouth marketing
in which customers promote a product or
service to friends or other people
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Typical Business
Models in EC (cont.)
6. Group purchasing: quantity
purchasing that enables groups of
purchasers to obtain a discount price
on the products purchased
7. SMEs: small to medium enterprises
8. Online auctions
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Typical Business
Models in EC (cont.)
8. Product and service customization
customization: creation of a product
or service according to the buyer’s
specifications
8. Electronic marketplaces and
exchanges
9. Value-chain integrators
10. Value-chain service providers
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Typical Business
Models in EC (cont.)
12. Information brokers
13. Bartering
14. Deep discounting
15. Membership
16. Supply chain improvers
Business models can be independent or
they can be combined amongst themselves
or with traditional business models
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Chapter 2
E-MARKETPLACES: STRUCTURE,
MECHANISMS, ECONOMICS,
AND IMPACTS
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Electronic Marketplaces
Markets play a
central role in the
economy facilitating
the exchange of:
information
goods
services
payments
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Markets create
economic value for:
buyers
sellers
market
intermediaries
society at large
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Electronic Marketplaces (cont.)
Three main functions of markets
1. matching buyers and sellers
2. facilitating the exchange of information,
goods, services, and payments
associated with market transactions
3. providing an institutional infrastructure,
such as a legal and regulatory
framework, that enables the efficient
functioning of the market
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Electronic Marketplaces (cont.)
In recent years markets have seen a
dramatic increase in the use of IT—EC
has:
increased market efficiencies by
expediting or improving functions
been able to significantly decrease
the cost of executing these functions
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Marketspace
Marketspace: A marketplace in
which sellers and buyers exchange
goods and services for money (or for
other goods and services), but do so
electronically
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Marketspace Components
Customers
Sellers
Products
Infrastructure
Front end
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Back end
Intermediaries
Other business
partners
Support
services
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Marketspace Components (cont.)
Digital products:
Goods that can be
transformed to
digital format and
delivered over the
Internet
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Front end: The
portion of an
e-seller’s business
processes through
which customers
interact, including
the seller’s portal,
electronic catalogs,
a shopping cart, a
search engine, and
a payment gateway
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Marketspace Components (cont.)
Back end: The activities
that support online
order-taking. It includes
fulfillment, inventory
management,
purchasing from
suppliers, payment
processing, packaging,
and delivery
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Intermediary: A
third party that
operates
between sellers
and buyers
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Types of Electronic Markets
Electronic storefront: A
single or company Web
site where products and
services are sold
Mechanisms necessary
for conducting the sale:
electronic catalogs
search engine
e-auction facilities
payment gateway
shipment court
customer services
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Types of Electronic Markets (cont.)
e-mall (online mall): An online
shopping center where many stores
are located
some are merely directories
some provide shared services (e.g.,
choicemall.com).
some are actually large click-and-mortar
retailers
some are virtual retailers (e.g., buy.com)
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Types of Electronic Markets (cont.)
Types of stores and malls
General stores/malls
Specialized stores/malls
Regional versus global stores
Pure online organizations versus clickand-mortar stores
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Types of Electronic Markets (cont.)
e-marketplace:
An online market, usually B2B, in which buyers
and sellers exchange goods or services; the
three types of e-marketplaces are private, public,
and consortia
Private e-marketplaces:
Online markets owned by a single company; can
be either sell-side or buyside marketplaces
Sell-side e-marketplace:
A private e-market in which a company sells
either standard or customized products to
qualified companies
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Types of Electronic Markets
(cont.)
Buy-side e-marketplace:
A private e-market in which a company makes
purchases from invited suppliers
Public e-marketplaces:
B2B markets, usually owned and/or managed by
an independent third party, that include many
sellers and many buyers; also known as
exchanges
Consortia:
E-marketplaces owned by a small group of large
vendors, usually in a single industry
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Information Portals
Information portal: a single point
of access through a Web browser to
business information inside and/or
outside an organization
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Information Portals (cont.)
Six types of portals
1.
2.
3.
4.
5.
Commercial (public) portals
Corporate portals
Publishing portals
Personal portals
Mobile portals: a portal accessible via a mobile
device
6. Voice portals: a portal accessed by telephone
or cell phone
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Intermediation and Syndication
in E-Commerce
Intermediaries (brokers) provide valueadded activities and services to buyers
and sellers
Intermediaries in the physical world are
wholesalers and retailers
Infomediaries:
electronic intermediaries that control
information flow in cyberspace, often
aggregating information and selling it to
others
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Exhibit 2.2 Infomediaries and
Information Flow Model
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Intermediation and Syndication
in E-Commerce (cont.)
Roles and value of
intermediaries in
e-markets
Search costs
Lack of privacy
Incomplete
information
Contract risk
Pricing inefficiencies
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Intermediation and Syndication
in E-Commerce (cont.)
E-distributors in B2B
e-distributor:
An e-commerce intermediary that connects
manufacturers (suppliers) with buyers by
aggregating the catalogs of many suppliers
in one place—the intermediary’s Web site
Maintenance, repair, and operation items
(MROs):
Routine items that are usually not under
regular contract with suppliers
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Intermediation and Syndication
in E-Commerce (cont.)
Disintermediation and reintermediation
Disintermediation:
Elimination of intermediaries between
sellers and buyers
Reintermediation:
Establishment of new intermediary roles
for traditional intermediaries that were
disintermediated
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Intermediation and Syndication
in E-Commerce (cont.)
Syndication as an EC mechanism
Syndication:
The sale of the same good (e.g., digital content)
to many customers, who then integrate it with
other offerings and resell it or give it away free
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Auctions as EC Market
Mechanisms
Auction:
A market mechanism by which a seller places an
offer to sell a product and buyers make bids
sequentially and competitively until a final price
is reached
Auctions can be done:
online
off-line
at public sites (eBay)
at private sites (by invitation)
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Auctions as EC Market
Mechanisms (cont.)
Electronic auctions (e-auctions):
Auctions conducted online
Host sites on the Internet serve as
brokers, offering services for sellers to
post their goods for sale and allowing
buyers to bid on those items
Conventional business practices that
traditionally have relied on contracts and
fixed prices are increasingly being
converted into auctions with bidding for
online procurements
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Auctions as EC Market
Mechanisms (cont.)
Dynamic pricing:
Prices that
change based on
supply and
demand
relationships at
any given time
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Auctions as EC Market
Mechanisms (cont.)
Four major categories of dynamic
pricing
1.
2.
3.
4.
One buyer, one seller
One seller, many potential buyers
One buyer, many potential sellers
Many sellers, many buyers
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Auctions as EC Market
Mechanisms (cont.)
1. One buyer, one seller
Forward auction: An auction in which a
seller entertains bids from buyers
One seller, many potential buyers
Forward auctions used for fast liquidation
and as a selling channel. Price is increasing;
the highest bidder wins
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Auctions as EC Market
Mechanisms (cont.)
2. One buyer, many potential suppliers
Reverse auction (bidding or tendering
system):
Auction in which the buyer places an item
for bid (tender) on a request for quote
(RFQ) system, potential suppliers bid on the
job, with price reducing sequentially, and
the lowest bid wins; primarily a B2B or G2B
mechanism
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Auctions as EC Market
Mechanisms (cont.)
3. One buyer, many potential sellers
(special model)
“name-your-own-price” model:
Auction model in which a would-be buyer
specifies the price (and other terms) they are
willing to pay to any willing and able seller. It
is a C2B model, pioneered by Priceline.com
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Auctions as EC Market
Mechanisms (cont.)
4. Many sellers, many buyers
Double auction:
Auctions in which multiple buyers and their
bidding prices are matched with multiple
sellers and their asking prices, considering
the quantities on both sides
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Exhibit 2.5 The Reverse
Auction Process
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Benefits of E-Auctions
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Limitations of E-Auctions
(cont.)
Limitations of e-auctions
Lack of security
Possibility of fraud
Limited participation
Impacts of auctions
Auctions as a coordination mechanism
Auctions as a highly visible distribution
mechanism.
Auctions as a component in e-commerce
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E-Commerce in the Wireless
Environment: M-Commerce
Mobile computing:
Permits real-time access to information, applications,
and tools that, until recently, were accessible only
from a desktop computer
Mobile commerce (m-commerce):
E-commerce conducted via wireless devices
m-business:
The broadest definition of m-commerce, in which ebusiness is conducted in a wireless environment
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E-Commerce in the Wireless
Environment: M-Commerce (cont.)
Promise of m-commerce
Mobility significantly changes the manner in
which people and trading partners interact,
communicate, and collaborate
Mobile applications are expected to change the
way we live, play, and do business
Much of the Internet culture may change to one
based on mobile devices
M-commerce creates new business models for
EC, notably location-based applications
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E-Commerce in the Wireless
Environment: M-Commerce (cont.)
DoCoMo’s
(nttdocomo.com) iMode—pioneering
wireless service—
with a few clicks on
a handset, i-Mode
users can conduct a
large variety of mcommerce activities
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Shopping guides
Maps and transportation
Ticketing
News and reports
Personalized movie
service
Entertainment
Dining and reservations
Additional services
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Issues in E-Markets: Liquidity,
Quality, and Success Factors
Early liquidity:
Achieving a critical mass of buyers and sellers as fast
as possible, before a start-up company’s cash
disappears
Quality uncertainty:
The uncertainty of online buyers about the quality of
non-commodity type products that they have never
seen, especially from an unknown vendor
Microproduct:
A small digital product costing a few cents
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E-Market Success Factors
Product Characteristics
Digitizable products can be electronically
distributed to customers, resulting in very
low distribution costs, allowing orderfulfillment cycle time “to be minimal”
Industry Characteristics
Electronic markets are most useful when
they are able to directly match buyers
and sellers
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E-Market Success Factors
(cont.)
Seller Characteristics
Electronic markets reduce search costs,
allowing consumers to find sellers offering
lower prices
Consumer Characteristics
e-markets require a certain degree of effort
on the part of the consumer, e-markets are
more conducive to consumers who do some
comparison and analysis before buying
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Economics of
E-Marketplaces
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Economics of
E-Marketplaces (cont.)
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Economics of
E-Marketplaces (cont.)
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