Transcript EC Business Models

Chapter 1
Overview of Electronic Commerce
EC Business Models
business model
A method of doing business by which a company
can generate revenue to sustain itself
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EC Business Models
 "Whenever a business is established, it either explicitly or
implicitly employs a particular business model that describes the
architecture of the value creation, delivery, and capture
mechanisms employed by the business enterprise. The essence
of a business model is that it defines the manner by which the
business enterprise delivers value to customers, entices
customers to pay for value, and converts those payments to
profit: it thus reflects management’s hypothesis about what
customers want, how they want it, and how an enterprise can
organize to best meet those needs, get paid for doing so, and
make a profit".---David Teece 2010
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EC Business Models
 Six elements of a business model include descriptions of:
1. Customers to be served and the company’s relationships with
these customers including customers’ value proposition
2. All products and services the business will offer
3. The business process required to make and deliver the products
and services
4. The resources required and the identification of which ones are
available, which will be developed in house, and which will need
to be acquired
5. The organization’s supply chain, including suppliers and other
business partners
6. The revenues expected (revenue model), anticipated costs,
sources of financing, and estimated profitability (financial
viability)
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Business Model 2.0
 Chen (2009) pointed out that the business model in the
twenty-first century has to take into account the capabilities
of Web 2.0, such as collective intelligence, network effects,
user generated content, and the possibility of self-improving
systems.
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EC Business Models
revenue model
Description of how the company or an EC project
will earn revenue
value proposition
The benefits a company can derive from using EC
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EC Business Models
The major revenue models are:
Sales
Transaction fees
Subscription fees
Advertising fees
Affiliate fees
Other revenue sources
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EC Business Models
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Transaction fee model
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Subscription model
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Advertisement model
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Affiliate model
Sites that steer business to an “affiliate” receive a referral
fee or percentage of the revenue from any resulting sales.
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Sales model
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EC Business Models
 Functions of a Business Model
 Articulate a customer value proposition
 Identify a market segment
 Define the venture’s specific value chain structure
 Estimate the cost structure and profit potential
 Describe the venture’s positioning within the value network
linking suppliers and customers
 Formulate the venture’s competitive strategy
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EC Business Models
Typical EC Business Models
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Online direct marketing
Electronic tendering systems.
Name your own price
Find the best price
Affiliate marketing
Viral marketing
Group purchasing
Online auctions
Product and service customization
Electronic marketplaces and
exchanges
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Information brokers (informediaries)
Bartering
Deep discounting
Membership
Value-chain integrators
Value-chain service providers
Supply chain improvers
Social networks, communities, and
blogging
 Direct sale by manufacturers
 Negotiation
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EC Business Models
tendering (bidding) system
Model in which a buyer requests would-be sellers
to submit bids; the lowest bidder wins
name-your-own-price model
Model in which a buyer sets the price he or she is
willing to pay and invites sellers to supply the
good or service at that price
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EC Business Models
affiliate marketing
An arrangement whereby a marketing partner (a
business, an organization, or even an individual)
refers consumers to the selling company’s Web
site
viral marketing
Word-of-mouth marketing in which customers
promote a product or service to friends or other
people
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EC Business Models
SMEs :Small-to-medium enterprises
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EC Business Models
group purchasing
Quantity (aggregated) purchasing that enables
groups of purchasers to obtain a discount price on
the products purchased
customization
Creation of a product or service according to the
buyer’s specifications
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New models:
 PERSONAL SUBSCRIPTION
 The model is relatively simple: consumers join a monthly
club, complete a personal style survey, and are then
shown a selection of products each month that they can
choose to buy for a flat rate.
 While traditional online retailers struggle to gain and
retain customer mindshare, and must constantly re-engage
and convert customers to stay profitable, subscription
style services generate far more predictable revenue
streams.
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New models:
 Subscription retailers also capture data on the tastes and size
measurements of individual customers in order to deliver
personalized product selections. This not only drives greater
customer loyalty, but also enables retailers to better manage
inventory risk.
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New models:
 an early
subscription
retail innovator,
is a beauty
subscription
service that
addresses
product
discovery and
sampling
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New models:
 offers personalized, stylist-selected shoes and accessories at affordable
prices, delivered straight to doorsteps, and has attracted over 3 million
members and over $60 million in venture capital from top tier firms.
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New models:
 Challenges: Competition in the subscription retail space is
heating up, so we might start to see increasing churn rates.
While subscription services have stickier revenues, they are
vulnerable to cancellations. In order to succeed over the long
term, they must continue to offer products that are
constantly exciting and relevant to their customers.
Multiple months of disappointment will most likely result in
lost customers.
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New models:
 SOCIAL MERCHANDISING
 Social merchandising enables retailers to collect consumer
feedback on goods prior to buying them. Typically, consumers
are asked to vote, comment or curate products (sometimes
through contests), indicating their preferences in a way that
generates hugely useful data that retailers can leverage to more
accurately predict what will sell, better aligning supply and
demand. Social merchandising also engages customers and
drives greater loyalty.
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New models:
Threadless --One of the first
online fashion
retailers to let
the crowd vote
on their favorite
t-shirt designs
and determine
which designs
would be put
into production
and sold on the
site.
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New models:
Raised $19.8
million in 2010,
experimented
with a
successful “Be
the Buyer”
program, which
lets consumers
vote on their
favorite items,
generating data
that informs
Modcloth’s
merchandising
strategies.
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New models:
 Challenges
 With social merchandising, timing is a challenge. What
consumers want today may not be the same as what they want
in a few months time. So, for these feedback loops to be most
effective, short cycle production and fulfillment are essential.
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Benefits and Limitations of EC
Benefits to
Organizations
Consumers
Society
Limitations
Technological
Nontechnological
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Team assignments and projects
 Each team will share a e-commerce business
model that excites your team members.
 Give a brief description of the chosen business
model (use the framework you learned in the
class).
 Make a SWOT analysis about this model.
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