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  1. 1. Ecommerce and Information Technology Module 5: E-business models Show 1
  2. 2. Learning objectives <ul><li>Define what constitutes a business model </li></ul><ul><li>Identify different types of e-business models </li></ul><ul><li>Confirm the relationship between business models for e-markets and e-businesses </li></ul><ul><li>Apply e-business models to transport businesses or operations </li></ul><ul><li>Analyse and make a balanced judgement on the e-business models being used by select companies </li></ul><ul><li>Determine the alternative business models that may support different e-commerce strategies. </li></ul>
  3. 3. Our focus <ul><li>For the purposes of simplicity this module will focus on business models for businesses adopting e-commerce; that is, an e-business deploying ICT to enhance its commercial processes </li></ul>
  4. 4. Threats to e-business <ul><li>the changing needs of both traditional and online consumers </li></ul><ul><li>the business strategies and offerings of both your new and existing business competitors; and </li></ul><ul><li>the changing needs and offerings of suppliers, stakeholders and employees. </li></ul>
  5. 5. Leveraging an effective business response <ul><li>the business model you are operationalising through the activities of your business and the extent to which this business model encompasses e-business strategies; </li></ul><ul><li>the business processes that have been established to express the business model; </li></ul><ul><li>the nature of products and services offered; </li></ul><ul><li>the skills and capabilities of business staff; and </li></ul><ul><li>the technologies available </li></ul>
  6. 6. What is a business model? <ul><li>The ‘business model’ concept aligns with Peter Drucker’s (1994) concept of ‘the theory of the business’: he suggested that ‘every organisation, whether a business or not, has a theory of the business’. This theory is made up of ‘assumptions that shape [the] organisation’s behaviour, dictate its decisions about what to do and what not to do, and define what the organisation considers meaningful results’ </li></ul>
  7. 7. Why do we need an e-business model? <ul><li>The reason that business models are often considered as a part of e-commerce strategy development is that it is useful to investigate e-commerce strategies from a ‘whole of business’ perspective because this is the level at which the most significant threats and opportunities can be addressed. E-commerce also presents all businesses with new threats and opportunities and, consequently, a need to re-consider their existing assumptions about their customers, products, markets and business in general. </li></ul>
  8. 8. Definitions of a business model <ul><li>… a business model is a description of how your company intends to create value in the marketplace. It includes that unique combination of products, services, image, and distribution that your company carries forward. It also includes the underlying organization of people, and the operational infrastructure that they use to accomplish their work. (KMLab, Inc. 2000, referenced in Chesbrough & Rosenbloom 2002:6) </li></ul><ul><li>A business model is your company’s logic for making money in the current business environment. It includes the value propositions you work out with all your important stakeholders and the operations you put in place to make good on your promises and to make use of what you get in return. (Linder & Cantrell 2001) </li></ul><ul><li>A business model is a variation of the generic value chain underlying all businesses. A business model has two parts: (i) the business activities associated with making something (design, procurement, manufacturing, etc), and (ii) the business activities associated with selling something (customer identification, selling, transaction handling, distribution, delivery). (Magretta 2002:87) </li></ul><ul><li>The method by which a firm builds and uses its resources to offer its customers better value than its competitors and to make money doing so. (Afuah & Tucci 2001:3) </li></ul>
  9. 9. Advantages of using a business model <ul><li>Improving your organisation’s focus. </li></ul><ul><li>Establishing a framework for competing agilely. </li></ul><ul><li>Positioning your firm to overcome industry discontinuities. </li></ul><ul><li>Redefining the competitive landscape. </li></ul><ul><li>Overcoming human limitations. </li></ul><ul><li>Rehearsal without risk versus limits of modelling </li></ul><ul><li>Managing change </li></ul>
  10. 10. E-business Models
  11. 11. Cyveillance® view on e-business models
  12. 12. Advertising model <ul><li>Businesses with a significant amount of customer or consumer traffic can offer advertising services for other businesses. This can provide anything from a means to offset costs to a primary source of revenue. The Internet has enabled customers to self-identify themselves and their interests to information and service websites, thereby also allowing advertising to be directly targeted to their interests and needs. This can provide highly valuable marketing opportunities, and facilities for advertising can usually be established without significant extra cost above that of developing and having a business website. </li></ul>
  13. 13. E-retailing model <ul><li>This model is customer-facing, effectively positioning a business at the end of a value chain of other businesses and business activity. Being in this position can provide opportunities to align and assist other participants in your value chain with market intelligence. This is particularly important in situations where your value chain is competing with other value chains from other regions or overseas. </li></ul>
  14. 14. Channel model <ul><li>Focusing on maintaining existing business relationships and channels to market can be achieved by streamlining and value-adding the transactions that occur within existing channels to market using online technologies. </li></ul>
  15. 15. Affiliate model <ul><li>An affiliate model offers the equivalent of commissions to businesses that create customers. For example, Amazon.com and some web domain registration businesses offer commissions to businesses which direct customers and sales to their sites. This is also typical in businesses offering web domain name registration and website hosting services. This typically involves providing a link to your website and services along with some standard promotional material. </li></ul>
  16. 16. Franchise model <ul><li>This involves selling only via accredited agents and would be appropriate where there are particular standards of quality or service that need to be delivered by agents who are in closer contact with end-consumers. This approach has the advantage of leveraging the customer relationships of other businesses. This can be particularly useful when launching a business into new or overseas markets. </li></ul>
  17. 17. Subscription model <ul><li>This is the online equivalent of magazine subscriptions, with subscribers gaining access to Internet content or access to online software. For example, anti-virus software providers McAfee and Symantec offer annual subscriptions to their software and updates. Microsoft also offers subscription options for purchasing some of its software. A subscription model could also be used as a means to charge other businesses for accessing an electronic market and/or making their catalogue of goods available to buyers participating in that market </li></ul>
  18. 18. Timmers – Sorting e-business models by degree of functional integration and innovation
  19. 19. Timmers’ (1998) Business Models for Electronic Markets <ul><li>e-shops – promotion, cost reduction, additional demand, (seeking demand) </li></ul><ul><li>e-procurement – additional inlet (seeking suppliers) </li></ul><ul><li>e-auction – electronic bidding (no need for prior movement of goods or parties) </li></ul><ul><li>e-mall – (collection of e-shops), aggregators, industry sector marketplace </li></ul><ul><li>third party marketplace – common marketing front-end and transaction support to multiple businesses </li></ul><ul><li>virtual communities – focus on added value of communication between members </li></ul><ul><li>value chain service provider – support part of value chain, e.g. logistics, payments </li></ul><ul><li>value chain integrator – added value by integrating multiple steps of the value chain </li></ul><ul><li>collaboration platforms – e.g. collaborative design </li></ul><ul><li>information brokers – trust providers, business information and consultancy </li></ul>
  20. 20. Wired for business —five successful e-business models <ul><li>e-business storefront : an entity in the e-business in which commerce occurs, margin is created and value is extracted, using existing as well as new digital market channels – also known as a storefront – often has a ‘dot.com’ identity </li></ul><ul><li>infomediary: an entity that brokers content, information, knowledge or experiences that add value to a particular e-business transaction – also known as content aggregators </li></ul><ul><li>trust intermediary: an entity that creates trust between the buyer and the seller </li></ul><ul><li>e-business enabler : an entity that provides a component or functionality and adjunct services to enable and lubricate other e-business storefronts or infomediaries </li></ul><ul><li>infrastructure providers or communities of commerce: aggregate members across a set of complementary interests (products, content, and services) and markets – communities of enterprises organised around common interests through a common infrastructure </li></ul>
  21. 21. Composite e-business patterns (Endrei & Sadtler, 2004:8)
  22. 22. The classification of business models <ul><li>The user role. </li></ul><ul><li>Interaction pattern. </li></ul><ul><li>Nature of the offerings. </li></ul><ul><li>Pricing system. </li></ul><ul><li>The level of customisation. </li></ul><ul><li>The economic control. </li></ul><ul><li>The level of required security. </li></ul><ul><li>The level of value integration. </li></ul><ul><li>The value/cost offerings </li></ul><ul><li>The scale of traffic. </li></ul><ul><li>The degree of innovation. </li></ul><ul><li>The power relationship. </li></ul>
  23. 23. B2C business models
  24. 24. B2B Business Models
  25. 25. Value relationships in different e-business models
  26. 26. The cornerstones of an business strategy for e-commerce <ul><li>Any business, technological or management strategy can be thought of as being directed at improving or maintaining these exchange outcomes. E-commerce is useful to the extent that it enables one of these two outcomes. </li></ul><ul><li>In this exchange context, it is possible to identify four broad themes of e-commerce activity: </li></ul><ul><ul><li>Purchase and sale transactions. These exchanges involve transactions for the purchase and sale of goods and/or services, for example, buying a book online, subscribing to an online magazine, or buying a domain name. </li></ul></ul><ul><ul><li>Information and service transactions. These exchanges involve one party providing information and services for the use of others via the Internet, for example, a search engine, an email service, a news site or a catalogue of products online. </li></ul></ul><ul><ul><li>Human communication and collaboration. These exchanges involve people communicating and collaborating with each other for whatever purpose – business or social. Examples include email communication, chat/messenger services, online communities, virtual worlds, multiplayer online games. </li></ul></ul><ul><ul><li>Organisational communication and collaboration. These exchanges involve the communication of information between organisations to facilitate joint outcomes and coordination. For example, EDI, automated reporting systems, reporting to government/regulators. </li></ul></ul>
  27. 27. E-business typologies <ul><li>Each of the types of e-commerce exchange can be considered in the context of the four main classifications and therefore e-business approaches: </li></ul><ul><ul><li>business to customer (B2C) </li></ul></ul><ul><ul><li>business to business (supplier) (B2B) </li></ul></ul><ul><ul><li>business to employee (B2E) </li></ul></ul><ul><ul><li>business to shareholders, government and other stakeholders (B2G/B2S). </li></ul></ul>
  28. 28. Integrated view of an e-business model (Based on Osterlander and Pigneur 2002)
  29. 29. In summary – There is no ‘right model’ <ul><li>This does not mean that success in e-business is about picking the ‘right’ business model. Rayport (1999:3) notes that: </li></ul><ul><li>… e-commerce is just, when all is said and done, another kind of business. As with businesses that have come before it, there are countless ‘right’ answers, endless combinations of business models and infinite permutations of key themes and approaches. </li></ul>