E- Commerce Business Models

E-COMMERCE BUSINESS MODELS AND CONCEPTS,
INTERNET AND WORLD WIDE WEB
1
UNIT-2
Unit II : E-commerce Business Models, Major Business to Consumer (B2C) business models,
Major Business to Business (B2B) business models, Business models in emerging E-commerce
areas, How the Internet and the web change business: strategy, structure and process, The
Internet: Technology Background, The Internet Today, Internet II-The Future Infrastructure,
The World Wide Web, The Internet and the Web : Features.
E-COMMERCE

Meaning of Business Model
 Business model is the most discussed and least understood aspect of the web. There is so
much talk about how the web changes traditional business models. But there is little clear-
cut evidence of exactly what this means.
 Basically, a business model is the method of doing business by which a company can
sustain itself -- that is, generate revenue. The business model spells-out how a company
makes money by specifying where it is positioned in the value chain.
 Some models are quite simple. A company produces a good or service and sells it to
customers. If all goes well, the revenues from sales exceed the cost of operation and the
company realizes a profit.
 Internet commerce will give rise to new kinds of business models. But the web is also
likely to reinvent tried-and-true models. Business models have been defined and
categorized in many different ways. When organizations go online, they have to decide
which e-business models best suit their goals.
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Merchant Model
This model basically transfers the old retail model to the e-commerce world by
using the internet. There are different types of merchant models. The most common
type of merchant model is similar to a traditional business model that sells goods
and services over the web. Amazon.com is a good example of this type. An e-
business similar to Amazon.com utilizes the services and technologies offered by the
web to sell products and services directly to the consumers.
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Brokerage Model
In traditional commerce, brokers play an important role of facilitating transactions
by bringing buyers and sellers together. The brokers also known as market makers,
charges a fee or a commission on transactions that are facilitated by them. The
traditional brokerage model has also been adopted in the electronic commerce and
has been applied in the B2C, B2B, C2C and C2B electronic commerce applications.
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Infomediary Model
An information intermediary or infomediary model collects information about
consumers and businesses and then sells this information to interested parties for
marketing purposes. The infomediary model is based on the premise of lowering the
interaction cost to consumers during the process of searching for suitable products or
services and prices. Business based on the infomediary model address the information
demand of consumers by identifying the best deal for them. These new intermediaries
deliver the value through information mediation rather than the physical distribution.
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Subscription Model
An e-business might sell digital products to its customers, by using this model.
Scientific journals, news magazines, and other periodic content have been
offered, on a subscription basis. Leading publishers and creators of digital
content have adapted the same subscription based model on the internet. Today,
many journals, magazines, many news services and valuable audio and video
content are also available in digital format.
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Manufacturer Model
In a typical distribution system from the time products are manufactured to the time they
reach consumers, they pass through several layers of intermediaries, such as
wholesalers, distributor, and local store. Each layer adds market friction, thus adding
cost to the product and it reducing the profit margin that the manufacturer may get. The
power of disintermediation offered by the web reduces this market friction, leading to
saving at each disinter mediated layer. The manufacturer as a direct seller to the
customer, through the web, offers numerous advantages in the area of customer support
service, product marketing, and fulfillment of guarantees. Manufacturer have a better
sense of customer requirements, view points, suggestions and complaints with regards to
the existing products, leading to improved product offerings newer products. For
instance, Dell computers started to sell the products through phone and web.
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Advertising Model
This model is an extension of traditional advertising media, such as television and radio.
Internet provides advertisements through e-mail, chat sessions and discussion forums to
the content viewers. Search engines and directories such as Google and Yahoo provide
contents similar to radio and TV and that allow the users to access this content for free of
cost and generate revenue through the advertisements they display. By creating significant
traffic, these e-businesses are able to charge advertisers for putting banner advertisements
or leasing spots on their sites. The model is derived from commercial television and print-
publications that make their basic revenue from the advertisement stream. The model has
several variations, banner advertisements being the most popular form. Banner
advertisements are served to users visiting one of these popular sites for content service.
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Affiliate Model
The affiliate companies offer sale products to other manufacturers or e-retailers on their
website on an incentive. The visitors of affiliate site may choose product or service
offered by e-retailer. The affiliate site redirects the sale transaction to the sponsoring e-
retailer or manufacturer, where the actual transaction is carried out. It earns incentive
revenue based on the value of each transaction. For instance, Amazon.com offers its
affiliate program as Amazon associate program
 Affiliated site redirects the customer to the sponsoring merchant’s site.
 The sponsoring merchant pays a percentage of transaction to the affiliated site.
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E-Commerce business models can generally be categorized into
the following categories
 Business - to - Business (B2B)
 Business - to - Consumer (B2C)
 Consumer - to - Consumer (C2C)
 Consumer - to - Business (C2B)
 Business - to - Government (B2G)
 Government - to - Business (G2B)
 Government - to - Citizen (G2C)
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Business - to – Business (B2B)
A website following the B2B business model sells its products to
an intermediate buyer who then sells the product to the final
customer. As an example, a wholesaler places an order from a
company's website and after receiving the consignment, sells the
end product to the final customer who comes to buy the product at
one of its retail outlets.
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Business - to – Consumer (B2C )
A website following the B2C business model sells its products
directly to a customer. A customer can view the products shown on
the website. The customer can choose a product and order the same.
The website will then send a notification to the business
organization via email and the organization will dispatch the
product/goods to the customer.
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Consumer - to - Consumer
A website following the C2C business model helps consumers to
sell their assets like residential property, cars, motorcycles, etc., or
rent a room by publishing their information on the website. Website
may or may not charge the consumer for its services. Another
consumer may opt to buy the product of the first customer by
viewing the post/advertisement on the website
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Consumer - to - Business
In this model, a consumer approaches a website showing multiple business
organizations for a particular service. The consumer places an estimate of amount
he/she wants to spend for a particular service. For example, the comparison of
interest rates of personal loan/car loan provided by various banks via websites. A
business organization who fulfills the consumer's requirement within the specified
budget, approaches the customer and provides its services.
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Business - to - Government
B2G model is a variant of B2B model. Such websites are used by
governments to trade and exchange information with various business
organizations. Such websites are accredited by the government and
provide a medium to businesses to submit application forms to the
government.
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Government - to - Business
Governments use B2G model websites to approach business
organizations. Such websites support auctions, tenders, and
application submission functionalities.
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Government - to - Citizen
Governments use G2C model websites to approach citizen in general.
Such websites support auctions of vehicles, machinery, or any other
material. Such website also provides services like registration for birth,
marriage or death certificates. The main objective of G2C websites is to
reduce the average time for fulfilling citizen’s requests for various
government services.
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How Internet & Web Change Business - Internet &
World Wide Web, E-Commerce
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Manufacturing is the transformation of raw materials into finished goods for sale,
or intermediate processes involving the production or finishing of semi-
manufactures. The production of goods and services is the result of the efforts of
many organizations - a complex web of contracts and co-operation known as the
supply chain or the value system. As shown below manufacturing requires various
Components (e.g. wheels, seats, etc.), Sub-assemblies (e.g. engine, gearbox, etc.)
etc., as well as include transportation, storage, paperwork (Orders, Invoices, etc.)
1. E-Commerce Application in Manufacturing 32

2. E-Commerce Application in Wholesale
Wholesale is the sale of goods or services in large quantities and at lower prices to
someone other than consumers. Wholesale consists of the sale of
goods/merchandise to retailers, to industrial, commercial, institutional, or other
professional business users or to other wholesalers and related subordinated
services. Sometimes called middleperson, middleman or distributor.
Wholesalers frequently physically assemble, sort and grade goods in large lots,
break bulk, repack and redistribute in smaller lots, for example pharmaceuticals;
store, refrigerate, deliver and install goods, engage in sales promotion for their
customers and label design.
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3. E-Commerce Application in Retail
Retailing involves selling products and services to consumers for their personal or
family use. Department stores, discount stores and specialty stores like jewelers, toys
are all examples of retail stores. Service providers, like dentists, hotels and hair
salons and on-line stores, like Amazon.com, are also retailers.
Many businesses, like Home Depot, are both wholesalers and retailers because they
sell to eoMumers and building contractors.
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4. E-Commerce Application in Service sector
The service sector or the service industry is one of the three main industrial categories of a
developed economy, the others being the secondary industry (manufacturing and primary goods
production such as agriculture), and primary industry (extraction such as mining and fishing).
The tertiary sector of industry involves the provision of services to other businesses as well as
final consumers. Services may involve the transport, distribution and sale of goods from
producer to a consumer as may happen in wholesaling and retailing, or may involve the
provision of a service, such as in pest control or entertainment. The goods may be transformed
in the process of providing the service, as happens in the restaurant industry. However the focus
is on people interacting with people and serving the customer rather than transforming physical
goods.
The service sector consists of the “soft” parts of the economy such as insurance, tourism,
banking, retail and education.
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The different uses of internet in Business:
1. Business Use of Internet :
Business concerns use internet for a variety of purpose. Some of the major use of interest in the
business field are enumerated below.
2. Access to database:
Internet is highly useful to a business to access complex databases. For example with the help of
internet, a company can access financial database.
3. Electronic Commerce:
Now a days, commercial on interest is becoming popular. Buying and selling products and services on
interest is called electronic commerce. Companies can carry out electronic commerce including
advertising, selling, buying, distributing products and providing after sales service.
4. Electronic Mail:
A major use of internet in the field of business is for speedy communication. The electronic mail (E-
mail) is widely used by companies to communicate faster between companies, customers, workers and
outsiders.
36

The different uses of internet in Business:
1. Business Use of Internet :
Business concerns use internet for a variety of purpose. Some of the major use of interest in the
business field are enumerated below.
2. Access to database:
Internet is highly useful to a business to access complex databases. For example with the help of
internet, a company can access financial database.
3. Electronic Commerce:
Now a days, commercial on interest is becoming popular. Buying and selling products and services on
interest is called electronic commerce. Companies can carry out electronic commerce including
advertising, selling, buying, distributing products and providing after sales service.
4. Electronic Mail:
A major use of internet in the field of business is for speedy communication. The electronic mail (E-
mail) is widely used by companies to communicate faster between companies, customers, workers and
outsiders.
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5. Companies are also making use of interest to conduct both audio and video conferencing to discuss
important issues by executives locating at distant places.
6. Worldwide audience:
The Internet is a worldwide network allowing the business to reach people all over the world. It helps to
capture the attention of customers even very expensive advertising could not achieve.
7. Provide product information:
Internet give customers direct access to information about your products. Some people prefer to collect
information about products by themselves. The Internet has a great ability to make information about
your company’s products or services available to potential customers.
8. Save on literatures costs:
Providing the information on-line reduces the need to print and mail product literature, thereby resulting
in significant cost reductions.
9. Provide easy access to customer service representatives:
Human interaction cannot to totally replaced by even he best graphical interface. When customers have
a question, or would like to speak with a person, provide a list of contacts and phone numbers or allow
them to send e-mail directly to customer service representative, requesting that they be contacted.
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6. Recruit new employees:
Many companies provide current information about job openings and attract talented people
from places hey could not reach otherwise.
7. Provide on-line service:
Many products and services can be delivered over the Internet. Online service will become an
even brighter option for many businesses. Since the transaction is electronic, billing and
inventory control can be automated, increasing accuracy and reducing your accounting and
product storage costs.
8. Eliminate the middleman:
Middlemen exist in some industries where there are barriers to direct contact between
producers and consumers. The Internet is a vehicle for removing these barriers. This lower
prices for consumers and increases profits for producers.
9. Entertainment programs:
Media and entertainment companies use the internet to broadcast audio and video, including
live radio and television programs.
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INTRANETS
An intranet is an internal, secured business environment, which uses HTML
and TCP/IP protocols like the Internet, but operates on a LAN [Local Area
Network]. If the LAN Provides access to the Internet, the Intranet resides
behind a firewall, with no gateway to, or from the Internet. If a gateway
exists, it is not an intranet, but an extranet.
The Intranet environment is completely owned by the enterprise and is
generally not accessible from the Internet at large. An Intranet incorporates
a working, interactive custom environment to serve the business model,
with familiar internet‐like functionality and navigation. An intranet can be
as basic or comprehensive as need dictates.
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ADVANTAGES OF INTRANET
 Workforce productivity:
 Information sharing:
 Communications:
 Web publishing:
 Business operations and management:
 Time saving:
 Cost savings:
 Same information:
 Team work:
 Customized site:
 Platform Independence:
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DRAWBACKS OF INTRANET
 Cost
 Security
 Productivity
 Training
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EXTRANET
Extranet is a business to business intranet that allows limited controlled,
secure access between a company’s internet and authorized users from
remote locations. The information stored on the web of one organization
can be shared by other organizations if they are in good terms.
Extranet is also a private network of an organization. However, it allows
trusted external partners or clients such as suppliers, customers and
business partners to access the network. An intranet extended to trusted
external parties becomes an extranet. An external party would have
limited access to the network compared to an internal employee of the
organization.
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Advantages of Extranet
 Provide Information:
 Sharing of information:
 Updated content:
 Eliminate the inefficiencies:
 Convenience:
 Increased Efficiency:
 Security:
 Cost saving:
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Disadvantages of Extranet
 Costly:
 Protection:
 Decrease personal contact:
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WORLD WIDE WEB (WWW/W3)
 WWW or World Wide Web is used for people around the world and it
would easily link to other pieces of information, so that only the most
important data would quickly found by a user.
 WWW is a global web in which millions of users are communicating
with each other with the help of computers. It is a wide‐area
hypermedia information retrieval initiative aiming to give universal
access to a large universe of documents. It is an Internet based
computer network that allows users on one computer to access
information stored on another through the world wide network.
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Working of the WWW
The WWW works on a Client‐server approach. Whenever the user wants to retrieve a
webpage, the www works as follows: A user enters the URL of the webpage in the address
bar of the web browser. The web browser requests the Domain Name Server for the IP
address corresponding to www.yahoo.com After receiving the IP address, the browser
sends the request for the webpage to the Internet using HTTP protocol which specific the
way the browser and Web Server communicates. The Internet Routers send the request to
the intended web server
Then the web server receives the request using HTTP protocol. It then examines the hard
disk or memory and if the requested file is found it returns it back to the web browser and
closes the Http connection.
The Web browser then interprets the file and displays the contents of the webpage in the
browser window.
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Advantages of WEB/WWW
 It helps in faster communication
 Millions of people have a access to the WWW with more
and more added everyday.
 Provides Business information
 Customer service
 Opportunity to conduct business access 24*7
 Provide files to download
 Helps in E- Commerce and Advertising
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Disadvantages of Web/WWW
 Websites may be unreliable
 A website crashes is no good to anyone
 Difficulty in reaching the right people
 Creates Bad Publicity
 Theft of personal information (insecurity)
 Spamming
 Virus Threat
 Social Disconnect
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FUTURE OF THE INTERNET INFRASTRUCTURE
The future of any technology is difficult to forecast, and we do not profess to know what
the future holds for the Internet. The Internet has revolutionized the access of information
and communication in 1990’s.The ongoing development in speed, bandwidth, and
functionality will continue to cause fundamental changes in the world for decades to come.
Some of the major trends shaping the future of the Internet are as follows:‐
Globalism:‐
The future of the Internet global distribution of information and knowledge at lower and
lower cost will continue to lift the world community for generations to come. People will
have access to any information they wish, get smarter sooner, and be more aware of the
world outside their local environment. A better informed humanity will make better macro‐
level decisions, and an increasingly integrated world will drive international relations
towards a global focus.
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Communities:‐
This internet communication revolution results into a new uniting community.
The Internet will increasingly be used for communications within
communities as much as across countries. Local communities will organize in
virtual space and take increasing advantage of group
communication tools such as mailing lists, new groups, and web sites, and
towns and cities will become more organized and empowered at the
neighborhood level.
Virtual Reality
With the continued increase of computer capability every couple of years, the
ability of technology to process the complex environment that humans live in
– “ reality” – will continue to increase, and will be increasingly integrated
with the Internet.
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 Three dimensional graphics will become more sophisticated, and virtual reality interfaces
such as viewers and physical feedback systems will become more realistic. The
increasingly sophisticated virtual experiences will continue to change how we understand
the nature of re3ality, experience, art and human relations.
Bandwidth
Large increases of bandwidth in the 10 Mbps range and up will continue to be deployed to
home users through cable, phone and wireless networks. High resolution audio, video, and
virtual reality will be increasingly available online and on demand, and the cost of all kinds
of Internet connections will continue to drop.
Wireless
The future of Internet wireless communication is the endgame. Wireless frequencies have
two great advantages. (a) There are no infrastructure start‐up or maintenance costs other than
the base stations and (b) it frees users to become mobile, taking Internet use from one
dimension to three. Wireless Internet Networks will offer increasingly faster services at
vastly lower costs over wider distances, eventually pushing out physical transmission
systems.
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Grids.:‐
The future of the Internet grid movement is as inevitable as the spread of the
Internet seems now. The connection of thousands of computers on the Internet
together to solve problems, often called grid computing will continue to evolve
and change many areas of human Endeavour.
Integration
The integration with an increasing number of other technologies is as natural as
a musician’s experimentation with notes. The internet will become increasingly
integrated with phones, televisions, home appliances, portable digital assistants,
and a range of other small hardware devices, providing an unprecedented,
nearly uniform level of integrated data communications. Users will be able to
access, status, and control this connected infrastructure from, anywhere on the
Interne
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Internet is a system that interconnects the different computer systems across the world.
It uses the Internet protocol suite to link devices located in different corners of the
world.
The Internet system carries an extensive range of information resources and services
including World Wide Web (WWW), telephony, electronic mail, etc. It uses standard
internet protocols, such as TCP/IP and HTTP, etc.
An internal web comprises of all Hypertext Transfer Protocol (HTTP) nodes on a
private network; for example, an organization’s LAN or WAN.
INTERNET
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FEATURES OF INTERNET
Let us now discuss the features of Internet. The features are described below −
1. Accessibility
An Internet is a global service and accessible to all. Today, people located in a remote
part of an island or interior of Africa can also use Internet.
2. Easy to Use
The software, which is used to access the Internet (web browser), is designed very
simple; therefore, it can be easily learned and used. It is easy to develop.
3. Interaction with Other Media
Internet service has a high degree of interaction with other media. For example, News
and other magazine, publishing houses have extended their business with the help of
Internet services.
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4. Low Cost
The development and maintenance cost of Internet service are comparatively low.
5. Extension of Existing IT Technology
This facilitates the sharing of IT technology by multiple users in organizations and
even facilitates other trading partners to use.
6. Flexibility of Communication
Communication through Internet is flexible enough. It facilitates communication
through text, voice, and video too. These services can be availed at both
organizational and individual levels.
7. Security
Last but not the least, Internet facility has to a certain extent helped the security
system both at the individual and national level with components such as CCTV
camera, etc.
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Internet Software
Internet Software comprises of all the tools needed for
networking through computer. Following are a few important
components of the Internet Software −
 Transmission Control Protocol/ Internet Protocol (TCP/IP)
 Dialer Software
 Interment Browser
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Internet Applications
Internet applications are server-based applications. Following
are a few Internet Applications −
 World Wide Web (WWW)
 Electronic mail (e-mail)
 File Transfer Protocol (FTP)
 Telnet (i.e., log-in to the computer located remotely)
 Internet Relay Chat (IRC) (Real time video chatting)
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