Ecommerce and Information Technology Module 5: E-business models Show 1
Define what constitutes a business model
Identify different types of e-business models
Confirm the relationship between business models for e-markets and e-businesses
Apply e-business models to transport businesses or operations
Analyse and make a balanced judgement on the e-business models being used by select companies
Determine the alternative business models that may support different e-commerce strategies.
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
Threats to e-business
the changing needs of both traditional and online consumers
the business strategies and offerings of both your new and existing business competitors; and
the changing needs and offerings of suppliers, stakeholders and employees.
Leveraging an effective business response
the business model you are operationalising through the activities of your business and the extent to which this business model encompasses e-business strategies;
the business processes that have been established to express the business model;
the nature of products and services offered;
the skills and capabilities of business staff; and
the technologies available
What is a business model?
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’
Why do we need an e-business model?
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.
Definitions of a business model
… 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)
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)
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)
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)
Advantages of using a business model
Improving your organisation’s focus.
Establishing a framework for competing agilely.
Positioning your firm to overcome industry discontinuities.
Redefining the competitive landscape.
Overcoming human limitations.
Rehearsal without risk versus limits of modelling
Cyveillance® view on e-business models
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.
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.
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.
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.
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.
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
Timmers – Sorting e-business models by degree of functional integration and innovation
Timmers’ (1998) Business Models for Electronic Markets
e-auction – electronic bidding (no need for prior movement of goods or parties)
e-mall – (collection of e-shops), aggregators, industry sector marketplace
third party marketplace – common marketing front-end and transaction support to multiple businesses
virtual communities – focus on added value of communication between members
value chain service provider – support part of value chain, e.g. logistics, payments
value chain integrator – added value by integrating multiple steps of the value chain
collaboration platforms – e.g. collaborative design
information brokers – trust providers, business information and consultancy
Wired for business —five successful e-business models
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
infomediary: an entity that brokers content, information, knowledge or experiences that add value to a particular e-business transaction – also known as content aggregators
trust intermediary: an entity that creates trust between the buyer and the seller
e-business enabler : an entity that provides a component or functionality and adjunct services to enable and lubricate other e-business storefronts or infomediaries
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
Value relationships in different e-business models
The cornerstones of an business strategy for e-commerce
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.
In this exchange context, it is possible to identify four broad themes of e-commerce activity:
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.
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.
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.
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.
Each of the types of e-commerce exchange can be considered in the context of the four main classifications and therefore e-business approaches:
business to customer (B2C)
business to business (supplier) (B2B)
business to employee (B2E)
business to shareholders, government and other stakeholders (B2G/B2S).
Integrated view of an e-business model (Based on Osterlander and Pigneur 2002)
In summary – There is no ‘right model’
This does not mean that success in e-business is about picking the ‘right’ business model. Rayport (1999:3) notes that:
… 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.