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Entrepreneurship & Commerce in IT - 08 - E-Commerce business models and concepts


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This series in about the Entrepreneurial and E-Commerce opportunities and how to harness the power of Information Technology to improve or revolutionize business.

This session discusses about e-commerce business models and concepts:
• Growth of the Internet and the Web • Origins and Growth of E-commerce • E-commerce I and E-commerce II eras • Organizing themes of e-commerce • Elements of a business model • Business-to-consumer (B2C) business models • Business-to-business (B2B) business models • Business models in other emerging e-commerce areas • How the Internet and Web change business, strategy, structure, and process.

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Entrepreneurship & Commerce in IT - 08 - E-Commerce business models and concepts

  1. 1. Entrepreneurship & Commerce in IT 08 Sachintha Gunasena MBCS
  2. 2. Recap so far…
  3. 3. E-Commerce • e-commerce • e-business • features of e-commerce • types of e-businesses • types of e-commerce • examples of e-commerce
  4. 4. Today
  5. 5. Today’s Discussion • Growth of the Internet and the Web • Origins and Growth of E-commerce • E-commerce I and E-commerce II eras • Organizing themes of e-commerce • Elements of a business model • Business-to-consumer (B2C) business models • Business-to-business (B2B) business models • Business models in other emerging e-commerce areas • How the Internet and Web change business, strategy, structure, and process
  6. 6. Growth of the Internet & Web
  7. 7. Growth of Internet & Web • • exponential-growth-of-the-internet/ • e-growth-web-usage-infographic/ • • •
  8. 8. Growth of Internet and Web Cont.d • 1960 - ARPANET - US Defence Department • 1970s - wide usage of ARPANET in universities • 1989 - Tim Berners Lee proposes WWW (CERN) • text based global hypertext system • 1992 - first text based browser • 1990s - wide usage adaptation of computers • 1992 - Mosaic - GUI Web Browser - Marc Andreessen • 1993 - 130 sites estimated • 1994 - first paid advertisement - two lawyers in Arizona - was met with hate • 1997 - 650,000 sites • 2000 - worldwide users 369,400,000
  9. 9. Growth of E- Commerce
  10. 10. Origins & Growth of E- Commerce • The term e-commerce was originally conceived to describe the process of conducting business transactions electronically using technology from the Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT). • first appeared in the late 1970’s, allowed for the exchange of information and the execution of electronic transactions between businesses, typically in the form of electronic purchase orders and invoices. • EDI and EFT were the enabling technologies that laid the groundwork for what we now know as e-commerce.
  11. 11. Origins & Growth of E- Commerce • The Boston Computer Exchange, a marketplace for used computer equipment started in 1982, was one of the first known examples of e-commerce. • Throughout the 1980’s, the proliferation of credit cards, ATM machines and telephone banking was the next step in the evolution of electronic commerce. • Starting in the early 90’s, e-commerce would also include things such as enterprise resource planning (ERP), data warehousing and data mining.
  12. 12. Origins & Growth of E- Commerce • It wasn’t until 1994 that e-commerce (as we know it today) really began to accelerate with the introduction of security protocols and high speed internet connections such as DSL, allowing for much faster connection speeds and faster online transaction capability. • Industry “experts” predicted explosive growth in e-commerce related businesses.
  13. 13. Origins & Growth of E- Commerce • In response to these expert opinions, between 1998 and 2000, a substantial number of businesses in Western Europe and the United States built out their first rudimentary e-commerce websites. • The definition of e-commerce began to change in 2000 though, the year of the dot-com collapse when thousands of internet businesses folded. • Despite the epic collapse, many of the worlds’ most established traditional brick-and-mortar businesses were emboldened with the promise of e- commerce and the prospect of serving a global customer base electronically. • The very next year, business to business transactions online became one of the largest forms of e-commerce with over $700 billion dollars in sales.
  14. 14. Origins & Growth of E- Commerce • Many of the dot-com collapses “first-mover” failures served their offline competitors very well, providing evidence of what not to do in building a viable online business. • For example, Webvan, which was one of the more infamous dot-com failures, trail blazed the path for Albertsons and Safeway, two of the largest national supermarket chains, who each have developed their own successful online grocery delivery businesses.
  15. 15. Origins & Growth of E- Commerce • The birth of companies such as eBay and Amazon (launched in 1994) really began to lead the way in e-commerce. • Both eBay and Amazon were among the first to establish prominent e-commerce brands. • The most prominent e-commerce categories today are computers, books, office supplies, music, and a variety of electronics.
  16. 16. Origins & Growth of E- Commerce •, Inc., founded by Jeff Bezos, was the original e-commerce pioneer and certainly the most recognizable. • In the beginning, Amazon’s business model required massive investment in warehousing, delivery and fulfillment capability and took years for Amazon to gain profitability. • But finally in 2003, almost 10 years after launching the company, realized its first annual profit.
  17. 17. Origins & Growth of E- Commerce • Amazon began as just an online bookstore but over the years has extended its offering to a wide variety of product categories, including electronics, software, music, DVD’s, CD’s, video games, MP3’s, clothing, shoes, health and beauty products and even household goods. • Bezos, was responsible for naming the company “Amazon” after the world’s largest river and it enjoys a truly global presence with stand alone websites in six other countries, including the United Kingdom, Canada, France, Germany, Japan and China. • was also the original pioneer in affiliate marketing, allowing other websites to earn sales commissions for referring Amazon products to their customers. • Today, Amazon generates anywhere between 30 to 40% of its total sales revenue from affiliates or third party merchants who list and sell their products on Amazon’s web site. • Today, the Amazon moniker certainly applies as it is one of the most recognized and most profitable e-commerce businesses on the planet. • In 1999, Jeff Bezos was honored with Time Magazine’s “Person of the Year” award, immortalizing him forever as probably the single most recognizable figure in the entire e- commerce community.
  18. 18. Origins & Growth of E- Commerce • Amazon and fellow e-commerce industry giant Dell remain two of the largest internet retailers in the world, among other offline industry giants such as Staples, Office Depot, and Hewlett Packard. • is another one of the most recognizable e-commerce brands online. •’s website was launched in 1994 with a single static web page and their online presence quickly grew. • In 1997, Dell announced a single-day sales record of a million dollars on its website. • In fact, roughly half of Dell’s total profits come directly from their website alone. • With no offline retail outlets to speak of, Dell is another e-commerce pioneer that many businesses have tried to model themselves after by selling products almost exclusively online.
  19. 19. E-Commerce Era I & II
  20. 20. E-Commerce I & II Eras • E-Commerce I (1995-2000) • Explosive growth starting in 1995 • Widespread of Web to advertise products • Ended in 2000 when began to collapse • E-Commerce II (2001-2006) • Began in January 2001 • Reassessment of e-commerce companies
  21. 21. E-Commerce I & II Eras Cont.d • Crash in stock market values of E-commerce I companies throughout 2000 is an end to E- commerce I • Led to a sobering reassessment of the prospects of e-commerce and the methods of achieving business success. • E-commerce II begins in 2001 and ends five year later -- the limit for making technology and business projections
  22. 22. E-Commerce I & II Eras Cont.d • Reasons for the end of E-Commerce I • run-up in technology stocks due to enormous information technology capital expenditure of firms rebuilding their internal business systems to withstand Y2K • telecommunications industry had built excess capacity in high-speed fiber optic networks • 1999 e-commerce Christmas season provided less sales growth that anticipated and demonstrated e-commerce was not easy ( • valuations of technology companies had risen so high supporters were questioning whether earnings could justify the prices of the shares.
  23. 23. Ecommerce Eras Compared
  24. 24. Organising Themes of E-Commerce
  25. 25. E-commerce: Organizing Themes • Technology • Development and mastery of digital computing and communications technology • Business • New technologies present businesses and entrepreneurs with new ways of organizing production and transacting business • Society • Intellectual property, individual privacy, and public policy
  26. 26. Unique Features of E- Commerce
  27. 27. Features of E-Commerce
  28. 28. Types of E-Commerce
  29. 29. Major Types of E-Commerce • Market relationships • Business-to-Consumers (B2C) • Business-to-Business (B2B) • Consumer-to-Consumer (C2C) • Technology-based • Peer-to-Peer (P2P) • Mobile Commerce (M-commerce)
  30. 30. B2C • Most commonly discussed type • Online businesses attempt to reach individual consumers
  31. 31. B2B • Businesses focus on sell to other businesses • Largest form of e-commerce • Primarily involved inter-business exchanges at first • Other models have developed • e-distributors • infomediaries • B2B service providers
  32. 32. C2C • Provide a way for consumers to sell to each other • Estimated $5 billion market • Consumer: • prepares the product for market • places the product for auction or sale • relies on market maker to provide catalog, search engine, and transaction clearing capabilities
  33. 33. P2P • Enables Internet users to share files and computer resources • Napster (early example) • Skype (more modern and successful example)
  34. 34. M-Commerce • Wireless digital devices enable transactions on the Web • Uses personal digital assistants (PDAs) to connect • Used most widely in Japan and Europe
  35. 35. E-Commerce Business Models & Concepts
  36. 36. E-Commerce Business Models
  37. 37. Business Models • Business model • a set of planned activities designed to result in a profit in a marketplace • E-commerce business model • a business model that aims to use and leverage the unique qualities of the Internet and the World Wide Web.
  38. 38. Key Ingredients of a Business Model
  39. 39. Value Proposition • Defines how a company’s product or service fulfils the needs of customers. • Questions • Why will customers choose to do business with your firm instead of another company? • What will your firm provide that other firms do not and cannot?
  40. 40. Revenue Model • Describes how the firm will earn revenue, produce profits, and produce a superior return on invested capital. • E-commerce revenue models include: • advertising model • subscription model • transaction fee model • sales model • affiliate model
  41. 41. Revenue Model Cont.d • Advertising revenue model • a company provides a forum for advertisements and receives fees from advertisers (Yahoo) • Subscription revenue model • a company offers it users content or services and charges a subscription fee for access to some or all of it offerings (Consumer Reports or Wall Street Journal)
  42. 42. Revenue Model Cont.d • Transaction fee revenue model • a company receives a fee for enabling or executing a transaction (eBay or E-Trade) • Sales revenue model • a company derives revenue by selling goods, information, or services (Amazon or DoubleClick) • Affiliate revenue model • a company steers business to an affiliate and receives a referral fee or percentage of the revenue from any resulting sales (MyPoints)
  43. 43. Primary Revenue Models
  44. 44. Market Opportunity • Market opportunity • refers to the company’s intended marketspace and the overall potential financial opportunities available to the firm in that market space • defined by the revenue potential in each of the market niches where you hope to compete • Marketspace • the area of actual or potential commercial value in which a company intends to operate
  45. 45. Competitive Environment • Refers to the other companies operating in the same marketplace selling similar products • Influenced by: • how many competitors are active • how large are their operations • the market share of each competitor • how profitable these firms are • how they price their products
  46. 46. Competitive Advantage Cont.d • Achieved by a firm when it can produce a superior product and/or bring the product to market at a lower price than most, or all, of its competitors • Achieved because a firm has been able to obtain differential access to the factors of production that are denied their competitors -- at least in the short term
  47. 47. Competitive Advantage Cont.d • Asymmetry • exists whenever one participant in a market has more resources than other participants • First mover advantage • a competitive market advantage for a firm that results from being the first into a marketplace with a serviceable product or service
  48. 48. Competitive Advantage Cont.d • Unfair competitive advantage • occurs when one firm develops an advantage based on a factor that other firms cannot purchase • Perfect Market • a market in which there are no competitive advantages or asymmetries because all firms have equal access to all the factors of production • Leverage • when a company uses its competitive advantage to achieve more advantage in surrounding markets
  49. 49. Market Strategy • The plan you put together that details exactly how you intend to enter a new market and attract new customers • Best business concepts will fail if not properly marketed to potential customers
  50. 50. Organisational Development • Describes how the company will organize the work that needs to be accomplished • Work is typically divided into functional departments • Move from generalists to specialists as the company grows
  51. 51. Management Team • Employees of the company responsible for making the business model work • Strong management team gives instant credibility to outside investors • A strong management team may not be able to salvage a weak business model • Should be able to change the model and redefine the business as it becomes necessary
  52. 52. Major B2C Business Models
  53. 53. Major B2C Business Models
  54. 54. Major B2C Business Models Cont.d
  55. 55. Portal • offers powerful search tools plus an integrated package of content and services • typically utilizes a combines subscription/advertising revenues/transaction fee model • may be general or specialize (vortal)
  56. 56. E-tailor • online version of traditional retailer • includes • virtual merchants (online retail store only) • clicks and mortar e-tailers (online distribution channel for a company that also has physical stores) • catalog merchants (online version of direct mail catalog) • online malls (online version of mall) • Manufacturers selling directly over the Web
  57. 57. Content Provider • information and entertainment companies that provide digital content over the Web • typically utilizes an advertising, subscription, or affiliate referral fee revenue model
  58. 58. Transaction Broker • processes online sales transactions • typically utilizes a transactions fee revenue model
  59. 59. Market Creator • uses Internet technology to create markets that bring buyers and sellers together • typically utilizes a transaction fee revenue model
  60. 60. Service Provider • offers services online
  61. 61. Community Provider • provides an online community of like-minded individuals for networking and information sharing • revenue is generated by referral fee, advertising, and subscription
  62. 62. Major B2B Business Models
  63. 63. Major B2B Business Models
  64. 64. B2B Hub • also known as marketplace/exchange • electronic marketplace where suppliers and commercial purchasers can conduct transactions • may be a general (horizontal marketplace) or specialized (vertical marketplace)
  65. 65. E-distributor • supplies products directly to individual businesses
  66. 66. B2B Service Provider • sells business services to other firms
  67. 67. Matchmaker • links businesses together • charges transaction or usage fees
  68. 68. Infomediary • gather information and sells it to businesses
  69. 69. Business models in other emerging e-commerce areas
  70. 70. Business Models in Other Emerging E-Commerce Areas
  71. 71. C2C Business Models • connect consumers with other consumers • most successful has been the market creator business model
  72. 72. P2P Business Models • enable consumers to share file and services via the Web without common servers • a challenge to find a revenue model that work • Skype !!!
  73. 73. M-commerce Business Models • traditional e-commerce business models leveraged for emerging wireless technologies to permit mobile access to the Web
  74. 74. E-commerce Enablers’ Business Models • focus on providing infrastructure necessary for e-commerce companies to exist, grow, and prosper
  75. 75. E-Commerce Enablers
  76. 76. How the Internet and Web change business, strategy, structure, and process • ideas?
  77. 77. References • • Business/Concepts_and_Definitions • • • • • one/ •
  78. 78. Next Up… • The Internet and World Wide Web
  79. 79. Thank you. Sachintha Gunasena MBCS