Matakuliah
Tahun
Versi
: J0422 / Manajemen E-Corporation
: 2005
:1/2
MODULE 4 :
Crafting Business Models
1
Learning Outcomes
 In this chapter, we will study:
 Difference between Old Economy and New Network
Economy.
 What is including in business models?
 What is different between five type of focused
distributors business model.
 How Portal works?
 We will learn about six categories of producers
business model
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Outline Topic
 Business Models : Something Old and Something New
 Classifying Business Models.
 Businesses Built on a Network Infrastructure.
 Businesses that provide Networked Infrastructure.
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Content
 Crafting the Network Economy Business Model.
 Some of the best innovations involve a paradigm shift, a real
mental change of assumptions and certainties. In fact, the
process of innovating and entrepreneuring is much less
about invention or new ideas. It’s much more about
rethinking and questioning the assumptions people already
make… The ability to rethink fundamental assumptions and
take what people accept as certain and question it [is the
central] talent of being an entrepreneur.
– Scott Cook, Founder of Intuit Inc.
 If there is one lesson we can learn from continuing
evolution of work and competition in the new economy,
it’s this … Change the question and you change the
game…
– Slywotsky and Morrison, Profit patterns (NY Times
Business, 1999)
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Business Models: Something Old and Something New
 Old economy question
 What business am I in?
 New network economy question
 What is my business model?
 Emerging networked technology enable us to create new
business model and redefine existing ones.
 IT can provide flexible channel for procuring and
distributing products and services
 As well as the tools to create and package content in all its
many forms
– Data, voice, video
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Classifying the Business Models
 Producers
 Design and build products and services that customer or
market needs
• May sell, service, and support the product
 Distributors
 Enable buyers and sellers to connect, communicate, and
transact business.
• May assume control of inventory and resell a product,
solution or service (retailers, wholesalers).
• May simply act as agents, connecting buyers and suppliers
but no assuming control of inventory (aggregators,
marketplaces, and exchanges).
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Business Built on a Networked Infrastructure
 Focus Distributor
 Provide products and services related to a specific
industry or market niche
• E.g. InsWeb and E-Loan as focused distributors
offering products and services within the financial
services industry.
• Staples.com was a focused distributor for office
products and suppliers.
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Business Built on a Networked Infrastructure
 Five type of focused distributors business model
 Retailer
 Marketplace
 Aggregator
 Exchange
 Infomediaries
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Business Built on a Networked Infrastructure
 These five types can differentiated by asking the
following questions
 Does the business assume control of inventory?
 Does the business sell online?
 Is the price set outside the market, or is online price
negotiation and bidding permitted?
 Is there a physical product or service that must be
distributed?
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Business Built on a Networked Infrastructure
 Focus Distributors: Retailers
 E.g. ToysRus and Staples.com
• Assume control of inventory, set a nonnegotiable price to
the consumer, and sell physical products online.
• The primary revenue model is based on product/service
sales,
• The cost model includes procurement, inventory
management, order fulfillment, and customer service.
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Business Built on a Networked Infrastructure
 Focus Distributors: Marketplaces
 E.g. E-Loan and InsWeb
• Sell products and services but do not take control of the
physical inventory.
• Sell products with a nonnegotiable price and complete
sales online.
• The revenue model is based on a commission or
transaction fee for sale.
• Usually e-link to supplier databases and transaction
systems to ensure that transactions can be completed and
revenue can be recognized.
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Business Built on a Networked Infrastructure
 Focus Distributors: Aggregators
 E.g. Autoweb
• Provide information on products or services for sale by others
in the channel.
• Allow a comparison of features and pricing but do not enable
buyers and sellers to complete the final transaction
• The revenue model is based on referral fees and advertising
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Business Built on a Networked Infrastructure
 Focus Distributors: Infomediaries
 Internet Securities
• Special type of aggregators that unites sellers and buyers of
information-based products, such as news, weather, sports,
and financial information.
• Transaction can be completed online because no physical
product is involved
• Revenue model include subscription fee, advertising
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Business Built on a Networked Infrastructure
 Focus Distributors: Exchanges
 eBay and FreeMarket
• May or may not take control of inventory
• May not complete the final sales transaction online
• The key differentiating feature of this model is that the price
is not set; it is negotiated by the buyer and the seller at the
time of the sale.
• The revenue, cost, and asset models vary depending on
weather the online exchange assumes control of inventory
and completes the transaction.
• B2B auction exchanges such as FreeMarket charge
transaction fees and supplement revenues with fees for
consulting services.
• B2C and C2C exchanges often supplement transactions
revenues with advertising revenues
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Business Built on a Networked Infrastructure
Focused Distributor Business Models
Models and
Examples
Own
Inventory
Sell
Online
Price
set
Online
Physical
product or
service
Likely Revenues
Likely costs
Retailer
ToysRus.com
Staples.com
Yes
Yes
No
Yes
Product/service
sales
Advertising and marketing;
physical facilities; inventory
and customer services;
R&D; IT infrastructure
Marketplace
Eloan.com
nsweb.com
Possible
Yes
No
No
Transaction fees;
service fees;
commissions
Aggregator
Internet
Securities
No
No
No
Possibly
Referral fees;
advertising and
marketing fees
Advertising and marketing;
R&D; IT infrastructure
Exchange
ebay.com
freemarket.com
Possibly
Possibly
Yes
Possibly
Depends on
model
Advertising and marketing;
staff support for auctions
(especially B2B)R&D; IT
infrastructure; inventory
control; R&D; technical
infrastructure.
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Advertising and marketing;
R&D; IT infrastructure
Focused Distributor Business Models Trends
 Focused distributors that do not allow customers and
business community to transact business online are
losing power
 Aggregators are evolving into marketplaces and/or
vertical portals
 Multiple business models are required to ensure flexible
and sustainability
 Focused distributors are aligning closely with vertical
and horizontal portals or are evolving their model to
become vertical portals
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Business Built on a Networked Infrastructure
 Portals
 “Door way”
 Early Pre-Internet Portals
– American Hospital Supply’s ASAP
– AA Sabre
• Online consumer portals
– America Online
– CompuServe
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Portals
 Types of Portals
 Horizontal
 Vertical
 Affinity
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Portals
 Horizontal Portals
 Aol.com , Yahoo and Quicken.com
• Provide gateway access to the Internet’s vast store of content
and services.
• Provide a broad range of tools for locating information and
websites, communicating with others, and developing online
communities of interest.
• Revenue models
– Advertising
– Transaction fee from multiple vertical solutions channels.
– Strategic alliances with dial-up and broadband Internet service
providers (ISP)
• Cost includes development, maintenance, and operation of
infrastructure and content
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Portals
 Vertical Portals
 E.g. Covisint and WebMD
• Provide deep content: a place to conduct business, learn,
and shop; communicates and community-building tools
• Often composed of a variety of business models, all of which
generate separate revenue streams.
– Advertising and referral fees if transactions are not completed
online
– Service fees and transaction fees may be generated if
transactions are completed online
– Subscription fees may also be generated for unique content
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Portals
 Affinity Portals
 iVillage.com and Realtor.com
• Provide deep content, commerce, and community features
such as those found in vertical portal but these offerings are
targeted toward a specific market segment.
• Some towards a specific gender
• The revenue model is similar to vertical portals, cost, and
asset models are based on business model adopted by the
portal
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Portals
Portal Business Models
Models and
Examples
Gateway
Access
Horizontal Portal
AOL.com
Yahoo.com
Quicken.com
Small business
Yes
Vertical Portal
WebMD.com
Covisint.com
Limited
Affinity Portals
Realtor.com
iVillage.com
Possibly
Deep
Content
and
Solutions
Affinity
Group
Focus
Likely
Revenues
Likely costs
Possibly;
often
through
partnership
with
vertical and
affinity
portals
Yes
Possibly
; often
partners
hips
Advertising,
affiliations
and slotting
fees; possibly
subscription
or access
fees
Advertising, marketing and
sales; content/information
asset management; R&D; IT
infrastructure
No
Transaction
fees;
commissions;
advertising,
affiliation and
slotting fees
Advertising, marketing and
sales; content/information
asset management; R&D; IT
infrastructure; legacy system
integration to support
transactions
Focused
on affinity
group
Yes
Referral fees;
advertising
and slotting
fees
Advertising, marketing and
sales; content/information
asset management; R&D; IT
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infrastructure
Portal Business Model Trends
 Horizontal and vertical portals are emerging as dominant
sources of power within consumer and business markets
 Horizontal portals are joining forces with horizontal
infrastructure portals to provide not just access to
content and services but also access to network and
hosting services
 Large media and entertainment portals that represent
the convergence of data, telephone, television, and radio
networks are emerging in the consumer space.
 These portals unite content development, packaging,
and distribution components of the value chain
 B2B portals provide both horizontal access to business
networks and vertical industry-wide solutions
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Portal Business Model Trends
 Producers
 Producers design and make also may directly market, sell,
and distribute products, services, and solutions.
 Producers held the position of power in the traditional
business market
 In contrast, the Internet and associated networked
technologies of the Network Economy create wealth by
connecting buyers and suppliers.
 Many believed that distributors would become the
dominant players in the Network Economy.
• Gaining control of the distribution channel is a key success
factor in the today
• Producers are also thinking of taking steps to recapture the
position of power by forming coalitions with distributors
– Covisint in the automobile industry and Global Healthcare Exchange in
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the health-care industry.
Portal Business Model Trends
 Six categories of producers business model
 Manufacturer
 Service provider
 Educator
 Adviser
 Information and new service
 Producer portal
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Portal Business Model Trends
 Differentiating between producers
 Does the business sell physical products and/or provide
face-to-face services
 Does the business sell information-based products and/or
services
 Does the business provide customized products and/or
services
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Producer Business Model
 Manufacturer
 Ford Motor Company and Procter & Gamble
• Design, produce and distribute physical products,
components and parts
• The Internet and associated networked technologies has
been used to streamline, integrate, coordinate, and control
physical channels of production and distribution.
• Often these IT-enabled process redesign efforts often begin
inside the organization and extend to connect customers,
suppliers, and partners.
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Producer Business Model
 Service Providers
 American Express and Singapore Airlines
• Offer a wide range of services offerings that may be delivered
through multiple channels.
• Like manufactures of physical producer, service providers
that offers physical services (e.g. car rental agencies,
restaurants, etc.) often use it to streamline, integrate,
coordinate, and control service delivery and to connect and
share information with customers, suppliers, and partners.
• Service providers that offers primarily information-based
services (e.g. financial services) can use IT to digitize service
delivery.
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Producer Business Model
 Educator
 DePaul, Harvard, and Virtual Universities
• Create and deliver online educational programs, products,
and services.
• The ability to use the Internet and associate technologies to
define new multimedia educational offerings and to
customize those offerings to meet of individual and
businesses is revolutionizing education.
• Distance will never replace face-to-face class room
education offerings.
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Producer Business Model
 Advisers
 McKinsey and Accenture
• Consulting and coaching services to business and
individuals.
• Use online to extend the nature of the relationship with
customers from a one-time consulting project to an ongoing
education and advisory service.
• Online channels can used to disseminate knowledge,
connect consultants with their clients, and create
communities of interest.
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Producer Business Model
 Information and News Services
 Dow Jones and Euromoney
• Create packages and deliver information through both online
and offline channels and across multiple media formats
• Because information in all its many forms can be digitized,
stored, and delivered to meet personalized needs, we
convergence among polishing, television, radio, and
information industries.
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Producer Business Model
 Producer Portal
 Covisint and Global Healthcare Exchange
• Use the Internet and associated technologies to support all
aspects of the production and distribution process
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Producer Business Model
Portal Business Models
Models and
Examples
Sale
Physical
Product/
Services
Sale
Informatio
n-based
Product/
Services
Level of
custom
ization
Likely
Revenues
Likely costs
Manufacturers
Ford Motor
Company
Procter & Gamble
Yes
Possibly
Low to
moderat
e
Product
sales;
services
Advertising, marketing and
sales; content/information
asset management; R&D; IT
infrastructure
Service
Providers
American Express
Singapore Airlines
Yes
Possibly
Moderat
e to
high
Commissions
, service, or
transaction
fees
Advertising, marketing and
sales; content/information
asset management; R&D; IT
infrastructure
Educator
DePaul.edu
Harvard.edu
Possibly
Possibly
Moderat
e to
high
Registration
or event fee;
subscription
fee; hosting
fee
Content/information asset
management; R&D; IT
infrastructure
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Producer Business Model
Portal Business Models
Model differentiators
Models and
Examples
Sale
Physical
Product/
Services
Sale
Information
-based
Product/
Services
Level of
customi
zation
Likely
Revenues
Likely costs
Information and
news Services
Dow Jones
Euromoney
Yes
Yes
Moderate
to high
Subscription
fee; transaction
fee; or service
fee
Advertising, marketing and
sales; content/information asset
management; R&D; IT
infrastructure
Producer Portal
Covisint
Global Healthcare
Exchange
Possibly
Yes
High
Service or
transaction fee;
membership
fee; Consulting
and integration
fee; hosting fee
Content/information asset
management; R&D; IT
infrastructure; software
development logistics
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Producer Business Model Trends
 Producers must be best in class – the number one or two
brand – to survive
 Some large full-service producers, such as American Express
and Citigroup in the financial services industry and AOL Time
Warner in the entertainment and media industry, are acquiring
a full range of products and services and then integrating
them to provide vertical solutions required by customers.
 This solutions are offered through company-owned portals and
also through a wide variety of distribution agreements.
 Industry supplier coalitions are forming to enable virtually
integrated B2B commerce within and across industry groups
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Businesses that Provide Networked Infrastructure
 Until recently, there was a distinct separation between
businesses that were built using IT and those developing
and selling IT.
 “Charles Schwab is a technology company that just
happens to be in the brokerage business. Everything we
think about as we run our business has technology in the
center of it with the goal of engineering cost down and
service up…”
David Pottruck co-CEO of Charles Schwab
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Businesses that Provide Networked Infrastructure
 Infrastructure Distributors
 Infrastructure Portals
 Infrastructure Producers
 Infrastructure Service Providers
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Chapter Summary
 Emerging networked technology enable us to create new
business model and redefine existing ones.
 Classifying business models in many categories.
 Business built on a Networked Infrastructure depends on
distributors, producers, portals.
 There was a distinct separation between businesses that
were built using IT and those developing and selling IT.
 Business Built on Networked Infrastructure consist of
Focused distributors, Portals, and Producers.
 Business that provide networked infrastructure consist of
Infrastructure distributor, portals, and producers.
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