Copyright 2010 Pearson Education, Inc.

E-commerce
Kenneth C. Laudon
Carol Guercio Traver

business. technology. society.
Sixth Edition
Copyright 2010 Pearson Education, Inc.

Slide 1-2
Chapter 2
E-commerce Business Models
and Concepts
Copyright 2010 Pearson Education, Inc.
E-commerce Business Models
Business model
Set of planned activities designed to result in a
profit in a marketplace
Business plan
Describes a firms business model
E-commerce business model
Uses/leverages unique qualities of Internet and
Web


Slide 2-3
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8 Key Elements of a Business Model
Slide 2-4
1. Value proposition
2. Revenue model
3. Market opportunity
4. Competitive environment
5. Competitive advantage
6. Market strategy
7. Organizational development
8. Management team
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1. Value Proposition
Why should the customer buy from you? (not
from other sellers)- what is different in your
business
defines how a companys product or service fulfills
the needs of customers
Successful e-commerce value propositions:
Personalization/customization
Reduction of product search and Facilitation of transactions by
managing product delivery
, price discovery costs
Slide 2-5
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2. Revenue Model
describes how the firm will earn revenue, generate
profits, and produce a superior return on invested
capital.
How will the firm earn revenue, generate profits, and
produce a superior return on invested capital?
Major types:
Advertising revenue model
Subscription revenue model
Transaction fee revenue model
Sales revenue model
Affiliate revenue model
Slide 2-6
advertising revenue model: a company
provides a forum for advertisements and
receives fees from advertisers
subscription revenue model: a company
offers its users content or services and
charges a subscription fee for access to
some or all of its offerings
Copyright 2010 Pearson Education, Inc. Slide 2-7
transaction fee revenue model:
company receives a fee for enabling or
executing a transaction
sales revenue model: a company derives
revenue by selling goods, information, or
services
affiliate revenue model: a company
steers business to an affiliate and
receives a referral fee or percentage of
the revenue from any resulting sales
Copyright 2010 Pearson Education, Inc. Slide 2-8
Copyright 2010 Pearson Education, Inc. Slide 2-9
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3. Market Opportunity
market opportunity: refers to the companys
intended marketspace and the overall potential
financial opportunities available to the firm in that
marketspace
What marketspace do you intend to serve and what
is its size?
Marketspace: 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
Market opportunity typically divided into smaller niches
We need to ask about : what is the size of the firms realistic
market opportunity
Slide 2-10
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4. Competitive Environment
Who else occupies your intended
marketspace?
Other companies selling similar products in the same
marketspace
Includes both direct and indirect competitors
Influenced by:
Number and size of active competitors
Each competitors market share
Competitors profitability
Competitors pricing
Slide 2-11
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5. Competitive Advantage
What special advantages does your firm bring to the
marketspace?
Achieved when firm produces superior product or can bring product
to market at lower price than competitors
Important concepts:
Asymmetries (one competitor has more resources than others e.g. financial backing,
knowledge (new ideas), connection, cost from supplier)
First-mover advantage (not always true in technology e.g. problem in marketing,
management reputation)
Unfair competitive advantage (one firm has an advantage based on a factor that
other firms cannot purchase e.g brand name)
Leverage ( use competitive advantage (e.g. customer, experience) to
move to other markets)
Slide 2-12
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6. Market Strategy
How do you plan to promote your
products or services to attract your
target audience?
Details how a company intends to enter market
and attract customers
Best business concepts will fail if not properly
marketed to potential customers
Slide 2-13
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7. Organizational Development
* plan describes how the company will organize the work that needs to be accomplished.
What types of organizational structures within
the firm are necessary to carry out the business
plan?
Describes how firm will organize work
Typically divided into functional departments (e.g. production,
shipping, marketing, customer support ..)
We need to identify the jobs in these departments and description,
responsibility and title)
Hiring moves from generalists to specialists as company grows
Slide 2-14
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8. Management Team
What kinds of experiences and
background are important for the
companys leaders to have?
Employees are 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
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Categorizing E-commerce
Business Models
No one correct way
We categorize business models according to:
E-commerce sector (B2C, B2B, C2C)
Type of e-commerce technology; i.e., m-commerce
Similar business models appear in more than
one sector
Some companies use multiple business
models; e.g., eBay : The purpose will be to leverage
investments and assets developed with one business model into a new
business model.
Slide 2-16
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B2C Business Models: Portal
offers users powerful Web Search tools plus
an integrated package of content and services
all in one place
Revenue models:
Advertising, subscription fees, referral fees
Variations:
Horizontal/General
Vertical/Specialized (vortal)
Pure Search like Google to get revenue from advertisment
Slide 2-17
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How many of you use Google, Yahoo, or Microsofts
Bing? Does the class differ from the overall Web
population?
Why do you use a particular search engine?
Why is Google moving beyond search and
advertising into applications?
How is Bing trying to distinguish itself from Google?
Do you think this strategy will work?
Slide 2-18
Insight on Technology
Can Bing Bong Google?
Class Discussion
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B2C Models: E-tailer
Online version of traditional retailer
Revenue model: Sales
Variations:
Virtual merchant( like Amazon)
Bricks-and-clicks
Catalog merchant
Manufacturer-direct
Low barriers to entry
Slide 2-19
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B2C Models: Content Provider
distributes information Digital content on the
Web such as :
News, music, video, e-book, news papers
Revenue models:
Subscription; pay per download (Micropayment systems technology);
advertising; affiliate referral fees
Variations:
Content owners
Syndication (distribute)
Web aggregators (collect information from different places, and
organize it e.g. comparison sites).
Slide 2-20
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B2C Models: Transaction Broker
Process online transactions for consumers
Primary value propositionsaving time and money
Revenue model:
Transaction fees
Industries using this model:
Financial services
Travel services
Job placement services

Slide 2-21
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B2C Models: Market Creator
Uses Internet technology to create markets that
bring buyers and sellers together to display products,
search for products, and establish a price for
products
Examples:
Priceline
eBay
Revenue model: Transaction fees
Slide 2-22
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B2C Models: Service Provider
Online services
e.g., Google: Google Maps, Google Docs, and so on
Value proposition
Valuable, convenient, time-saving, low-cost alternatives to
traditional service providers
Revenue models:
Sales of services, subscription fees, advertising, sales of
marketing data

Slide 2-23
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B2C Models: Community Provider
Provides online environment (social
network) where people with similar
interests can transact, share content, and
communicate
E.g., Facebook, MySpace, LinkedIn
Revenue models:
Advertising fees, subscription fees, sales
revenues, transaction fees, affiliate fees
Slide 2-24
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B2B Business Models
Net marketplaces
E-distributor
E- procurement
Exchange
Industry consortium
Private industrial network
Single firm
Industry-wide
Slide 2-25
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B2B Models: E-distributor
a company that 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

Slide 2-26
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B2B Models: E-procurement
Creates and sells access to digital
electronic markets
Includes B2B service providers, application service
providers (ASPs) (Spend Management, Invoice
Management, Payment Management, and Contract
Management Software.)
Revenue model:
Transaction fees, usage fees, annual licensing fees
Example: Ariba
Slide 2-27
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B2B Models: Exchanges
Electronic digital marketplace where suppliers
and purchasers conduct transactions
Usually owned by independent firms whose business is
making a market
Usually serve a single vertical industry
Revenue model: Transaction, commission fees
Create powerful competition between
suppliers
Number of suppliers has dropped dramatically
Slide 2-28
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B2B Models: Industry Consortia
Industry-owned vertical marketplaces that
serve specific industries (e.g., automobile,
chemical)
More successful than exchanges
Sponsored by powerful industry players
Strengthen traditional purchasing behavior
Example: Exostar

Slide 2-29
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Private Industrial Networks
Designed to coordinate flow of communication
among firms engaged in business together
Electronic data interchange (EDI)
Single firm networks
Most common form
Example: Wal-Marts network for suppliers

Slide 2-30
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Business Models in Emerging
E-commerce Areas
Consumer-to-consumer (C2C)
Examples: eBay, Half.com
Peer-to-peer (P2P)
Examples: The Pirate Bay, Cloudmark
M-commerce:
E-commerce models using wireless technologies
Technology platform continues to evolve
In the United States, demand still highest for digital
content like ring tones


Slide 2-31
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Insight on Society
Where R U?
Class Discussion
Why should you care if companies track your
location via cell phone?
What is the opt-in principle and how does it
protect privacy?
Should business firms be allowed to call cell
phones with advertising messages based on
location?

Slide 2-32
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E-commerce Enablers: The Gold
Rush Model
E-commerce infrastructure companies:
Hardware, software, networking, security
E-commerce software systems, payment systems
Media solutions, performance enhancement
CRM software
Databases
Hosting services, etc.

Slide 2-33
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How the Internet and the Web
Change Business
E-commerce changes industry structure by
changing:
Basis of competition among rivals (because of the
standard systems available to all players)
Barriers to entry
Threat of new substitute products
Strength of suppliers
Bargaining power of buyers(more power to buyers as they
can search for lowest procies)

Slide 2-34
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Industry Value Chains
Set of activities performed by suppliers,
manufacturers, transporters, distributors, and
retailers that transform raw inputs into final
products and services
Internet reduces cost of information and
other transactional costs
Leads to greater operational efficiencies,
lowering cost, prices, adding value for
customers

Slide 2-35
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E-commerce and Industry Value
Chains
Figure 2.5, Page 103
Slide 2-36
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Firm Value Chains
Activities that a firm engages in to create
final products from raw inputs
Each step adds value
Effect of Internet:
Increases operational efficiency
Enables product differentiation (Amazon more books and
lower prices than traditional bookstores)
Slide 2-37
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E-commerce and Firm Value
Chains
Figure 2.6, Page 104
Slide 2-38
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Firm Value Webs
Networked business ecosystem that uses
Internet technology to coordinate the value
chains of business partners
Within an industry
Within a group of firms
Coordinates a firms suppliers with its own
production needs using an Internet-based
supply chain management system
Slide 2-39
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Internet-Enabled Value Web
Figure 2.7, Page 105
Slide 2-40
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Business Strategy
Plan for achieving superior long-term
returns on the capital invested in a
business firm
Four generic strategies
1. Differentiation
2. Cost
3. Scope
4. Focus
Slide 2-41
Copyright 2010 Pearson Education, Inc. Slide 2-42
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mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.
Copyright 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc. Slide 2-43
Task 2
To which B2C business model do these websites belong to? i.e.
please explain why briefly.

www.Ieee.org
bayt.com
www.Youtube.com
www.rightmove.co.uk
www.cabelas.com
about.com
dropbox.com
www.Facebook.com
www.ebid.net
www.Netflix.com