Electronic Commerce:
Business Models
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Learning Objectives
• Importance of Business Models in
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Electronic Commerce
What is a Business Model?
Taxonomy of Electronic Commerce
Business Models
– Transplanted Content based Models
– Transplanted Transaction based
Models
– Native Content Based Models
– Native Transaction based Models
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Growth in Electronic Commerce
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Unprecedented Growth in Internet Connectivity
Unprecedented Growth in Number of Web Sites
Unprecedented High Profile failures
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Boo.com (US $135 million)
Toysmart.com
Kozmo.com (US $50 million)
Etoys.com
Jaldi.com
Autoindia.com
Is Electronic Commerce Businesses are for real?
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Electronic Commerce: Business Model
• A business model describes a set of
business entities and interrelationships
among them. The model describes the
sources of revenues and potential
benefits accruing to the involved
business actors.
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Electronic Commerce: Business Model
• The business model provides the broad
perspective necessary for identifying
appropriate solution at some level of
abstraction. The identified solution
should be sustainable in terms of
revenues and capable of realizing the
stated objective.
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Taxonomy of Business Models
Native
Information Content Model
Freeware Model
Information Exchange Model
Transplanted
Subscription Model
Advertisement Model
Infomediary Model
Affiliate Model
Content
Digital Products
Internet Access Provision
Web Hosting & Internet
Services
Metered Service Model
Metamediary Model
Electronic Store Model
Brokerage Model
Manufacturing Model
Transactions
Transactions
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ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Information Content Model
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Web is a largest source of Information repositories
In the early stages of Web developments – Major
source of Information Contents were scientists,
Academicians and Researchers
• The Information is typically available at no charge
basis
• It is typically utilized by agencies and groups interested
in wide dissemination of information
For example,
• Virtual Library -- http://www.vlib.org
• International Council of Museums–
http://www.icom.org/vlmp
• National Informatics Center, India– http://www.nic.in
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Freeware Model
• Distribution of cooperatively developed free
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software prototypes, products, patches and
demonstration versions.
The contents (software packages) can be
downloaded at no incremental cost.
For Example
Linux – http://www.linux.org
GNU -- http://www.gnu.org
Apache Web server – http://www.apache.org
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Information Exchange Model
• The interaction- click-stream and transaction
in addition to voluntarily provided information
at time of registrations at a web site can be
used for creating profile of user.
• This information can be exchanged with other
targeted marketing and promotions companies.
• Privacy Issues
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Subscription Model
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Economic Databases (CMIE, Prowess)
Stock Exchange Trading information (NSE )
Digital Contents –
– Scientific discoveries,
– Images – http://cfa-www.harvard.edu
– Stock Market - EDGAR
– Journals -- http://acm.org, http://ieee.org
The model provides a subscription based access to
Digital contents
Flat rates vs. Contents based subscription rates
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Advertising Model
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Web sites that establish providing free interactive and
repetitive services such as Email, Chat sessions,
Discussion forums, News etc. aggregate web traffic or
eye-balls
These sites can serve Advertisements to these eyeballs
by charging the companies to make up for the content
provision and other associated cost and profit margins.
The model is derived from the free television model.
Charging on the basis of number of times a
advertisement has been served. Additional charges for
the click-through.
ISPs - Caltiger.com, Juno.com
Emails- HotMail.com, Rediffmail.com
Portals/search engines – Yahoo.com
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Infomediary Model
• Aggregated personal profiles/needs from its
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users (consumers and /or suppliers)
Subsequently, markets that data to interested
set of users
Maintains the data privacy
The users may get a portion of the brokered
deals
It operates by lowering the search/location
cost
It leverages on interaction cost for identifying
the right product and price in a fast evolving
technologically innovative product groups
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Affiliate Model
User Enters
Affiliate’s
Website
Affiliated
Web Site
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Sponsoring
Merchant’s Site
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1: Affiliated Site redirects the customer to sponsoring merchant’s site
2: The Sponsoring merchant pays a percentage of transaction to the affiliated site
Figure 2.2: The Affiliate Model
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Digital Product Merchant Model
Information Flow
Seller
Digital Data
MM Content
s/w Programs
Transaction
Buyer
Digital Data
MM Content
S/W Programs
Payment Flow
Delivery
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Internet Access Provision Model
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Network Infrastructure is at the foundation of growth
of electronic commerce
Various modes of Internet Service Providers
– Dial-up Services
– Cable based services
– DSL and ADSL
– Leased Line services
Payment options
– Flat rates
– Bandwidth based flat rates
– Usage based
– Free Access (in lieu of advertisement viewing)
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Web Hosting & Internet Services Model
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Electronic Shops and Businesses require 24x7
presence, upkeep, maintenance
Also, common services like transaction security and
payment services
SMEs may not have expertise and the cost to get on
electronic marketplace by addressing all infrastructure
issues may get too high
In this business model, the infrastructure company
provides complete set of services required for hosting
your business online.
Yahoo Shops, iCat’s Lemonade Stand, Pugmarks.com
Other services related to Speeding up the access
across the globe etc.
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Metered Service Model
• Owning licenses for multiple software
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packages, information databases, computing
resources that are used occasionally is usually
an expensive and time-consuming proposition.
It puts strain on resources
Distracts from core business activities.
Model - Pay as you go approach for services on
demand
Example- HP’s Infrastructure on Tap
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Metamediary Model
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intermediary that provides a single point of contact
between a community of customers and the
community of suppliers
– it deconstructs space and time
– it offers products in new ways
Metamediaries present the information from users’
viewpoint rather than the Industry segments.
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Metamediary Model
Travel Magzines
Newspaper classifieds
Financing
Insurance
Travel Agents
Hotel reservation
Agents
Peer and Expert
reviews
Trekking Clubs
Skiing Equipment dealer
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Electronic Store Model
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Requires robust delivery (third party) infrastructure
Information Flow
Seller
Products like
Computers,
Electronic Systems,
and Camera
Transaction
Payment Flow
Buyer
Products like
Computers,
Electronic Systems,
and Camera
Delivery
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Brokerage Model
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Market makers, also known as brokers, play an
important role of facilitating the transactions by
bringing the buyers and seller together
• Commission based Services
• Model – Transplant the per transaction/value based
commission model by bringing the sellers and buyers
on electronic marketplace
For Example
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Stock brokers- Charles Schwab, ICICIDirect
Flowers- Teleflowers
Auctions- BaZee.com, AuctionIndia.com
ELECTRONIC COMMERCECOMMERCE- Framework, Technologies and Applications © Tata McGrawMcGraw-Hill
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Manufacturer Model
From Manufacturer to Consumer
• Product passes through several intermediaries
• The cost of product increases in the distribution
process
• Each intermediate layer assists in the distribution and
logistics
• If a manufacturer is capable of direct distribution- it
can reduce the distribution cost.
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In the process, it may need to handle several distribution and
logistics issues
The customer feedback can be direct, and thus create an
opportunity for mass-customization
Example- Dell Computers
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