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CHAPTER 2

THE E – COMMERCE BUSINESS MODELS

Chapter 2: The E-commerce Business Models

1 Key Elements of a Business Model

2 Types of E-commerce Business Models

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1. Key elements of a Business Model

■ Business model
❖ Set of planned activities designed to result in a profit
in a marketplace.
■ Business plan
❖ Describes a firm’s business model.
■ E-commerce business model
❖ A business model that aims to use and leverage the
unique qualities of the Internet and the World Wide
Web.

1. Key elements of a Business Model

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Value Proposition

• Why should the customer buy from you?

• Successful e-commerce value propositions:
– Personalization/customization
– Reduction of product search, price discovery costs
– Facilitation of transactions by managing product
delivery

Revenue Model

• How will you earn money?

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Revenue Model

• How will you earn money?

• Major types of revenue models:
– Advertising revenue model
– Subscription revenue model
– Transaction fee revenue model
– Sales revenue model
– Affiliate revenue model

Revenue Model

- In the ............................, a website that offers its users

content or services charges a subscription fee for access to
some or all of its offerings.

- In the ............................, a company receives a fee for

enabling a transaction.

- In the ............................, sites that steer business to an

“affiliate” receive a referral fee or percentage of the
revenue from any resulting sales.

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Revenue Model

- In the ...................., a Web site that not only offers its

users content, services, products but also provides a forum
for advertisements and receives fees from advertisers.
Those Web sites that are able to attract the greatest
viewership or that have a highly specialized, differentiated
viewership and are able to retain user attention
("stickiness") are able to charge higher advertising rates.

- In the ......................, companies have revenue by selling

goods, information, services to customers.

Market Opportunity

• 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 market niche in which company
hopes to compete

• Market opportunity typically divided into

smaller niches

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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 competitor’s market share
– Competitors’profitability
– Competitors’pricing

Competitive Advantage

• What special advantages does your firm bring to

the marketspace?
– Is your product superior to or cheaper to produce than
your competitors’?

• Important concepts:
– Asymmetries
– First-mover advantage, complementary resources
– Unfair competitive advantage
– Leverage
– Perfect markets

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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

Organizational Development

• 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
– As company grows, hiring moves from generalists to
specialists

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Management Team

• What kind of backgrounds should the company’s

leaders have?

• A strong management team:

– Can make the business model work
– Can give credibility to outside investors
– Has market-specific knowledge
– Has experience in implementing business plans

2. Types of E-commerce Business Models

2 3 4
Information Sharing Sectors

Revenue Participants

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2.1. By Information Sharing

C-BUSINESS

T-COMMERCE

I-COMMERCE

I-Commerce
• Buying
computers,
1 installing internet
• Using email to
communicate

• Building a
website to
introduce
products

• Registering on
the portals/e-
3 exchange:
alibaba.com;
ecvn.com...

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PORTAL

The preliminary
information of the
links
Portal
a d
b c
The full
A information
D page

B C

PORTAL

Portal is general viewed as gateway to the Internet.

It offers users powerful Web search tools as well as
an integrated package of content and services all in
one place (read news, find entertainment, meet
other people...)

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T-Commerce

Intranet

E-contract E-payment

T-
COMMERCE

Intranet

TCP/IP: the core communications protocol for the

Internet
• TCP: protocol that establishes the connections
among sending and receiving web computers and
handles the assembly of packets at the point of
transmission, and their reassembly at the receiving
end.

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Intranet

TCP/IP: the core communications protocol for the

Internet
• IP: protocol that provides the Internet’s
addressing scheme and is responsible for the
actual delivery of the packets.

Intranet

INTRANET: a TCP/IP
network located within a
single organization for
purpose of communications
and information processing

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C-Business

SUPPLIERS

STATE
BANKS ORGANIZATION AGENCIES

CUSTOMERS

Extranet

EXTRANET: are formed when firms permit

outsiders to access their networks. (Dell, General
Motors...)

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Dell’s business procedure

Suppliers Assembly and

distribution
2

1 1

Ordering on Delivering to
Dell’s Website customers

EDI

Electronic Data Interchange - EDI

EDI is the structured transmission of

data between organizations by EDI
electronic means. ED
I
EDI

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EDI

APPLICATIONS

E-ERP

ORGANIZATION

E-CRM E-SCM

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2.2. By Sectors

Sectors

E-education E-banking E-custom ....

1.3. By Participants

BY GOVERNMENT BUSINESS CONSUMER

PARTICIPANTS (G) (B) (C)

GOVERNMENT G2G G2B G2C

(G)

BUSINESS B2G B2B B2C

(B) (alibaba.com) (amazon.com)

CONSUMER C2G C2B C2C

(C) (eBay.com)

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2.3. By Participants

B2B

B2G
Participants B2C
G2B

C2C

Major B2B business models

Participant:
1. Sell-side B2B
2. Buy-side B2B
3. E-exchange

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E-exchange

E-exchange: is an digital independant e-

marketplace where hundreds of suppliers meet
their commercial purchasers

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Major B2B business models

Function:
1. E-distributor
2. E-procurement
3. E-exchange
4. Industry Consortium

E-distributor

E-distributor: is a company’s website

that supplies products and services
directly to individual businesses; online
version of retail and wholesale store.
Ex: Grainger, Amazon Business,...

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E-procurement

E-procurement firms: create and sell access

to e-market for indirect inputs (online
catalogue, software to handle catalogue
creation, shipping, insurance and finance)

E-exchange

E-exchange: independently owned vertical

digital marketplace for direct inputs.
Ex: Go2Paper

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Industry Consortium

Industry Consortium: are industry-

owned vertical marketplace that serve
specific industries, such as the
automobile, chemical, floral...

Revenue model of B2B Models

B2B Model Revenue Model

E-distributor

E-procurement

E-exchange

Industry Consortium

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Major B2C business models

1. E-tailer
2. Content provider
3. Service provider
4. Community provider
5. Transaction broker
6. Market creator
7. Portal

E-tailer

E-tailer: online retail stores, come in all sizes,

from giant to tiny local store that have
websites; where customers can shop at any
hour of the day or night without leaving their
home or office.
Ex: Amazon, iTunes...

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Service provider

Service provider: The website that offers

services online, rather than a product.
Ex: VisaNow, RocketLawyer...

Content provider

The website that distributes information and

entertainment content such as newspapers,
sports sites, and other online sources that offer
customers up-to-date news.
Ex: Wall Street Journal, VnExpress,...

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Transaction broker

Sites that process online sales transactions

for consumers normally handled in person,
by phone or email such as stockbrokers and
travel agents.
Ex: E*trade, Travelocity

Market creator

Website that builds a digital environment

where buyers and sellers can meet,
display products, search for products and
establish a price for products.
Ex: eBay, Priceline, Amazon

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Community provider

Site that creates an online environment where

people with similar interests can transact
(buy and sell goods); share interests, photos
and videos; communicate with like-minded
people; and receive interest-related
information.
Ex: facebook, Twitter, Pinterest,...

Portal

Horizontal/ General: offers an integrated

package of content, content-search, and
social network services (yahoo, facebook,
MSN,...)
Vertical/ Specialized: offers services and
products to specialized marketplace
(Sailnet,...)

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Revenue model of B2C Models

B2C Model Revenue Model

E-tailer

Content provider

Service provider

Community provider

Transaction broker

Market creator

Portal

Major C2C business models

1. E-exchange
2. E-tailer
3. ...

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