Lecture 4
E-commerce Business Models
Jifeng Luo
Antai College of Management, SJTU
jifengluo@gmail.com
E-commerce business models
Business Model
B2C Business Models
B2B Business Models
Business Models in emerging areas
E-commerce Business Models—Definitions
Business model
• the architectural configuration of the components of
transactions designed to exploit business opportunities
Business plan
• Describes a firm’s business model
E-commerce business model
• Uses/leverages unique qualities of Internet and Web
Business Model
A story of how a business works
• the method of doing business by which a company can
generate revenue.
Needs to pass two critical tests
• Narrative test
• Numbers test
Think of business modeling as the managerial
equivalent of the scientific method - you start with a
hypothesis, which you then test in action and revise
when necessary.
At the end of the day, the business model should be
condensed onto one page
Strategy vs. Business Model
Strategy = Business Model?
• Business models describe, as a system, how the
pieces of a business fit together. But they don’t
factor in one critical dimension of performance:
competition.
• Sooner or later—and it is usually sooner—every
enterprise runs into competitors. Dealing with that
reality is strategy’s job. A competitive strategy
explains how you will do better than your rivals.
• A firm’s strategy is deeply rooted in that particular
firm’s competitive environment.
Which comes first: strategy or business model
Case: strategy vs. business model
Although you may think that Wal-Mart pioneered a new
business model on its road to success, the reality is that
the model was really no different than the one Kmart
was using at the time. But it was what Sam Walton
chose to do differently than Kmart, such as focusing on
small towns as opposed to large cities and everyday
low prices, that was the real reason for his success.
Although Sam Walton’s model was the same as Kmart's,
his unique strategy made him a success.
Key Ingredients of a Business Model
segment
marketing
Value Proposition
Defines how a company’s product or service
fulfills the needs of customers
Questions to ask:
• Why will customers choose to do business with your
firm instead of another?
• What will your firm provide that others do not or
cannot?
Examples of successful value propositions:
• Personalization/customization
• Reduction of product search, price discovery costs
• Facilitation of transactions by managing product
delivery
Revenue Model
Describes how the firm will earn revenue,
generate profits, and produce a superior
return on invested capital
Major types:
• Sales revenue model
• Advertising revenue model
• Subscription revenue model
Micro-payment
• Transaction fee revenue model
• Affiliate revenue model
Intellectual Property Rights Protection
Market Segment
Refers to a company’s intended market
space and overall potential financial
opportunities available to the firm in that
market space
• Market space
• Area of actual or potential commercial value in
which company intends to operate
• Realistic market opportunity
• Defined by revenue potential in each of
market niches in which company hopes to
compete
Competitive Environment
Refers to the other companies selling similar
products and operating in the same market
space
Influenced by:
•
•
•
•
Number of active competitors
Each competitor’s market share
Competitors’ profitability
Competitors’ pricing
Includes both direct competitors and indirect
competitors
Competitive Advantage
Achieved when a firm can produce a
superior product and/or bring product to
market at a lower price than most, or all, of
competitors
• First mover advantage vs. fast follower advantage
• Unfair competitive advantage
Perfect market: No competitive advantages
or asymmetries
Leverage: When a company uses its
competitive advantage to achieve more
advantage in surrounding markets
Marketing Strategy
Plan that details how a company intends
to enter a new market and attract
customers
Best business concepts will fail if not
properly marketed to potential
customers
Organizational Development
Plan that describes how the company will
organize the work that needs to be
accomplished
• Work is typically divided into functional departments
• Hiring moves from generalists to specialists as
company grows
Management Team
Employees of the company responsible for
making the business model work
Strong management team gives instant
credibility to outside investors
Strong management team may not be able
to salvage a weak business model, but
should be able to change the model and
redefine the business as it becomes
necessary
Slide 2-15
Business Model Template
SWOT
Partners
Product
Core BP
Mkting: CR
Customer
Segment
Mkting: Channel
Value Proposition
Competitive Advantage
Cost
Finance
Revenue
[Osterwalder (2010) Business Model Generation]
Case: Made.com
Made.com Business Model
基础设施
生产组织流程（16位在上海）
采购和物流流程
40多家家具厂商
寻找设计师流程
欧洲的优秀家具
设计师
提供物
低廉的价格
高品质的家具
核心资源：
客户、设计师、
成本结构：
财务
没有中间商、仓库、零售商、库存成本
客户关系：
投票竞赛、购买
客户
客户
渠道通路：
互联网
收入来源：
网上零售
商业模式描述了
企业如何创造价值，传递价值，捕捉价值的
基本原理
[Osterwalder (2010) Business Model Generation]
苹果iPod/iTunes商业模式画布
关键
业务
重要
伙伴
价值
主张
设计师合作
核心
资源
中国家
具厂
众包
品质
运营
软
件
人力资源
实惠
的高
品质
转换成本
渠道
通路
网站
成本结构
人力资
源
生产制
营销与销
售
客户
细分
客户参与
物流采购
设计师
客户
关系
收入来源
销售收入
大众
市场
E-commerce business models
Business Model
B2C Business Models
B2B Business Models
Business Models in emerging areas
B2C Business Models: Portal
Value proposition: a place where consumers start
their Web searching and stay a long time to read
news, find entertainment, and meet others.
Offers powerful search tools plus an integrated
package of content and services
Typically utilizes a combined subscription/advertising
revenues/transaction fee model
Today, seen as “destination” site rather than gateway
May be general (horizontal) or specialized (vertical)
Examples: Yahoo, MSN, AOL, Ask.com, Sina
B2C Business Models: E-tailer
Online version of traditional retailer
Value proposition: sell products online, with lower
price (?) and higher convenience
Types include:
• Virtual merchants
• Bricks-and-clicks
• Catalog merchants
• Manufacturer-direct
Low barriers to entry
B2C Business Models: Content Provider
Value proposition: distribute digital content,
information and entertainment, over the Web
Typical revenue models:
• Subscription (WSJ.com, free headlines and text, charge
or subscription for premium content; importance of
micropayment system)
• Pay for download (itune.com; real.com)
• Advertising
Variations:
• Syndication (youtube.com)
• Web aggregators (fatwallet.com, Craigslist/同城网 )
• User-generated (Wikipedia)
B2C Business Models: Transaction Broker
Processes online transactions for consumers
Primary value proposition—saving time and
money
Typical revenue model—transaction fee
Largest industries using this model:
• Financial services (Scottrade.com)
• Travel services (expedia.com; ctrip.com)
• Job placement services (Monster.com, zhaopin.com)
B2C Business Models: Market Creator
Uses Internet technology to create markets
that bring buyers and sellers together
Examples:
• Priceline
• eBay
Typically uses a transaction fee revenue
model
B2C Business Models: Service Provider
Offers services online
• e.g. Google: Google Maps, Google Docs, dianping,
ask.com, Facebook, Dropbox etc.
Value proposition
• Valuable, convenient, time-saving, low-cost alternatives
to traditional service providers (e.g. legal service from
Linklaters BlueFlag
Revenue models
• Subscription fees
• One-time payment
• Ads
B2C Business Models: Community Provider
Creates online environment (social network) where
people with similar interests can transact and
communicate.
Value proposition: a fast, convenient, one-stop site
where users can focus on their most important concerns
and interests, share the experience with friends, and
learn more about their own interests.
Typical revenue model: Hybrid
• Including advertising fees, subscription fees, sales revenues,
transaction fees, affiliate fees
Examples:
• iVillage, 宽带山, 天涯论坛
E-commerce business models
Business Model
B2C Business Models
B2B Business Models
Business Models in emerging areas
Net Marketplaces
Many different ways to classify Net
marketplaces such as based on:
 Pricing mechanism
 Nature of market served
 Ownership
Another method: Classify Net marketplaces
based on their business functionality
 What businesses buy (direct vs. indirect goods)
 How business buy (spot purchasing vs. long-term sourcing)
Types of Procurement
Types of goods purchased
• Direct goods: Goods integrally involved in production
process
• Indirect goods: All other goods not directly involved in
production process (MRO goods)
Methods of purchasing
• Contract purchasing: Involves long-term written
agreements to purchase specified products, with agreedupon terms and quality
• Spot purchasing: Involves purchase of goods based on
immediate needs in larger marketplaces that involve many
suppliers
Pure Types of Net Marketplaces
B2B Business Models: E-distributor
Supplies products and services directly to individual
businesses
Owned by one company seeking to serve many
customers. Revenue model: sales of goods
Example: Grainger.com – distributor of MRO
supplies
• Catalog sales and physical distribution centers
• Went online in 1995; one-stop shopping is critical
Long tail theory vs. winner-take-all
E-distributors
Most common type of Net marketplace
Provide electronic catalogs that represent products
of thousands of direct manufacturers
Typically independently owned intermediaries that
offer industrial customers single source from which
to order indirect goods on spot basis
Typically operate in horizontal markets because they
serve many different industries with products from
many different suppliers
Example: W.W. Grainger
B2B Business Models: Exchanges
Value proposition: provide an electronic digital
marketplace where suppliers and commercial
purchasers can conduct transactions
Usually owned by independent firms whose
business is making a market
Revenue model: Transaction fees
Usually serve a single vertical industry
Number of exchanges has fallen dramatically in U.S.
Why different fates in USA and China?
B2B Business Models: E-procurement
Value proposition: creates and sells access
to digital electronic markets
• Includes B2B service providers, application service
providers (ASPs)
Revenue models:
• Transaction fees, usage fees, annual licensing fees
Ariba
• Software that helps firms organize procurement
process by creating mini-digital markets.
E-procurement
Independently owned intermediaries connecting hundreds
of online suppliers offering millions of indirect goods to
business firms who pay fees to join the market
Typically used for long-term contractual purchasing of
indirect goods
Expand on business model of e-distributors
Typically offer value chain management (VCM) services,
such as automation of firm’s entire procurement process
on buyer side, automation of selling business processes
on seller side
Sometimes referred to as many-to-many market
Example: Ariba
B2B Business Models: Industry Consortia
Industry-owned vertical marketplaces that serve specific
industries (e.g. automobile, chemical, floral, logging)
Enable buyers to purchase direct inputs from limited set
of invited participants; long-term contractual purchasing
and development of stable relationships
• Supply smaller number of companies with product and services
relevant to industry
• Sponsored by powerful industry players
• Strengthen traditional purchasing behavior
Exostar: Online trading exchange for aerospace and
defense industry
Slide 2-38
Net Marketplace Trends
B2B Business Models: Private Industrial
Networks
Digital networks designed to coordinate the flow
of communications among firms engaged in
business together
Single firm network: Most common form
• Wal-Mart or P&G
Industry-wide networks: Often evolve out of
industry associations, a response to single firm
network
• Agentrics
Slide 2-40
What Are Private Industrial Networks?
Web-enabled networks for coordination of
trans-organizational business processes
(collaborative commerce)
Range in scope from single firm to entire
industry
Example: Procter & Gamble
Main Types of Internet-Based B2B Commerce
Net marketplaces: Bring together potentially
thousands of sellers and buyers in single digital
marketplace operated over Internet
• Transaction-based
• Supports many-to-many as well as one-to-many relationships
• Alibaba
Private industrial networks: Bring together small
number of strategic business partner firms that
collaborate to develop highly efficient supply chains
•
•
•
•
Relationship-based
Support many-to-one and many-to-few relationships
Largest form of B2B e-commerce
WalMart’s Retail link
Implementation Barriers
Difficulties getting suppliers to join; Concerns
about sharing of proprietary data (security)
Implementation is complex, time consuming
and expensive
Integration into existing ERP systems and EDI
networks (economic, tech, business process
change)
Requires change in mindset and behavior of
employees