Chapter 2: E-Business Models

1. E-Business vs. E-commerce

2. Business Models
3. B2B Models vs. E-tail Models
4. Business Value Proposition
Case Study Presentation
(random call)

Amazon vs. Alibaba

What solution does Amazon’ e-SCM offer?
 1. e-Business vs. e-Commerce

• e-Business is defined as when a business has fully integrated

information and communication technologies (ICTs) into its
operations, potentially redesigning its business processes
around ICT or completely reinventing its business model
(Department of Trade and Industry of UK, 2000)
• e-Commerce is the exchange of information across electronic
networks at any stage in the supply chain, whether within an
organization, between businesses, between businesses and
consumers, or between the public and private sector, whether
paid or unpaid (UK Cabinet Office, 1999).
• As (e-)SCM is part of e-Business, understanding online
business models is essential to learn the management of three
flows (i.e. product flow, cash flow & information flow) in Supply
Chain.
 e-Commerce as a subset of e-Business

Buy-side EC refers transactions to Sell-side EC refers transactions

procure resources needed by an involved with selling products to an
organization from its suppliers organization’s customers
 Different types of sell-side e-Commerce
• Not every product is suitable for sales online. The sell-side EC is
classified into 5 types based on their functions
Type Characteristics Business areas
- Enable online product purchase; Retail sites, travel
Transactional EC
- Provide information for consumers who sites, online banking
sites
prefer to purchase products offline services
- Provide information to stimulate purchase
Service-oriented and build relationships through website
and e-newsletters Manufacturers,
relationship-
dealers
building sites - Encourage offline sales, and generate
enquiries/ leads from potential customers
Low-value, high-
Brand-building - Provide an experience to support the volume fast-moving
sites brand; consumer goods
(FMCG brands)
Portal, publisher - Provide information, news or Newspapers,
or media sites entertainment about a range of topics marketing affiliate
- Are the same as portal, publisher or
Facebook, LinkedIn,
Social networks media sites, but have huge impacts on
Twitter, etc.
company and customer communications
 2. Business models
• Business model is an architecture for product, service
and information flows, including a description of the
various business actors; and a description of the
sources of revenue.
• There are 3 different perspectives from which a
business model can be viewed:
- Marketplace position perspective
- Revenue model perspective
- Commercial arrangement perspective

3 groups: each defines business models for one of

three e-Businesses: MoMo, CGV, Shopee
 Business models from e-Commerce
•perspective
From e-Commerce perspective, business model classification is based on
objects of transactions, including: consumer, business, and government
Business models from operations perspective

There is no formal way to classify online business

models from operations perspective. Here are several
rising models in e-Logistics/e-SCM:
• Nature of presence:
- Bricks & mortar;
- Clicks & mortar;
- Pureplay (clicks only);
• Inventory management:
- Vendor-managed inventory (VMI)
- Dropship
 Nature of presence
Brick-and-mortar Clicks-and-mortar Clicks-only
• Refer to • Refer to • Refer to
traditional enterprises enterprises
enterprises with offering both a having online
a physical website and presence
presence physical stores without a
physical store

$2bil. in sales
1996 $16mil. in sales
Declined to distribute through Amazon
20% share for print books 50% share for print books
2018
2% share for e-books 84% share for e-books
Inventory management

VMI
The retailer of a products provides
information to the vendor of that
product, and the vendor takes full
responsibilities for maintaining an
agreed inventory of the material.
• Benefits:
- Retailer: no safety stock, less
admin costs.
- Vendor: no Bullwhip effect.
• Disadvantages: less control,
intensive IT
 Inventory management
Dropship
The retailer of a product does not
keep stock, but instead transfers the
order details to either manufacturer,
or wholesaler, who then ship the
goods to customer.
• Benefits:
- Retailer: no inventory, offering a
wide range of products.
- Dropshipper: no costs for Dropship
running an online shop.
• Disadvantages: no control.
 Revenue models
· Revenue model specifically describes different
techniques for generation of revenue.
· For existing companies, revenue models have mainly
been based on the income from sales of products or
services, which is either selling price for the
manufacturer/ supplier, or a cut of the selling price for an
intermediary.
· However, there may be options for other methods of
generating revenue. E.g. a manufacturer sells
advertising space or sell digital services.
Revenue model for an online publisher
A publisher may generate revenue online based around
advertising and fees for usage of the online services
Model Abbreviation How it works
CPM display CPM - cost Site owner charges a fee when an ad is
advertising on site per thousand served each 1,000 times of display.
CPC advertising CPC - cost Advertisers are charged for the number
on site per click of times they are clicked upon.
Sponsorship of A company can pay to advertise a site
site sections or channel or section, typically fixed fee
content types for a period.
Advertisers are charged for each
outcome such as a lead/ sale
Affiliate
CPA - cost per generated after a click to a third-party
revenue(CPA, but
acquisition site. Depending on the publisher’s
could be CPC)
power, the affiliate revenue can be CPA
or CPC
Model How it works
Transaction fee A company receives a fee for facilitating a
revenue transaction
Subscription access A range of documents can be accessed from a
to content or service publisher for a period of time

Pay-per-view access Payments occur for single access to a document,

to document video or music clip which can be downloaded

Subscriber data A site owners can make the data of his customers
access for e-mail for profit by sending them information about third
marketing parties
 Revenue model example
Which of these sites do you think would generate the most
revenue?
• Monthly site visitors: 100,000; 0.5% of these visitors click
through to affiliate sites, where about 2% go on to buy
business reports at an average order value of $100;
• Monthly page views: 1,000,000, average three ads
displayed for different advertisers at $20 CPM;
• Subscribers to weekly newsletter: 50,000. Each
newsletter broadcast four times per month has four
advertisers each paying at the rate of $10 CPM.
• Transactional fee: a multi-vendor marketplace charges
the commission of 5% for each product sold. Last month,
they sold 5,000 units of product at the price of $20 each
 3. E-Business B2B vs. B2C Models
¨ E-business B2B Models: the use of the Internet
applications that enable companies to sell goods and
services to other businesses on the Net  matching
suppliers and customers

¨ E-tail (B2C) Models: the use of a variety of Internet

applications that enable companies to sell goods and
services directly to the end-customer on the Net is
referred to as business-to-customer (B2C) e-commerce.
 3.1. B2B Models
¨ B2B E-Marketplaces
¨ Manufacturer Model
¨ Vendor Managed Inventory Model
 3.1.1. E-Marketplaces
¨ An E-Marketplace is an Internet-based broker of goods or
services in a community of many buyers and many sellers
¨ An E-Marketplace is a third-party online marketplaces to
streamline the order process and expedite fulfillment
¨ Example: Magento, Opencart, Shopify, Alibaba
Example
 Benefits of an E-Marketplace
To Seller To Market Host To Buyer
• Provides new marketing • Protects current role or • Lowers up-front costs and
and distribution channel to creates new role within risks
customers the commerce chain • Provides access to more
• Provides better customer • Establishes high “value- information and suppliers
service through online add” in digital economy • Provides access to
interaction • Increases service levels to secondary and excess
• Provides more complete existing customers supply auctions
product information to • Leverages current • Provides a more
buyer information and comprehensive solution
• Automates order & customers • Eliminates on-going
fulfillment processes • Provides access to more software upgrades &
• Lowers overall operational information and suppliers maintenance costs
costs • Utilizes outsourced
expertise
 3.1.2. E-Business Manufacturer Model
¨ E-business Manufacturers:
¨ Value chain members cooperation and integration
¨ Real-time visibility into planning processes
¨ Decentralized planning activities except some make-
to-order, discrete manufacturing (e.g. coordinated
centrally virtual inventory or multiple channels
sourcing)
¨ Demand: still have Bullwhip Effect  front-end and
back-end systems are fully integrated
¨ Example: http://www.smtc.com
Vendor Managed Inventory (VMI) Model
¨ Supplier is responsible for managing and replenishing
inventory for its e-business customer.
¨ VMI:
¨ Reduce overhead
¨ Cut costs
¨ Keep inventory levels low
¨ Communication channel: (internet) Electronic Data
Interchange (EDI), customized software
¨ Examples: Kraft, Cisco, Wal-Mart
 3.2. E-Tail Models
¨ Pure-Play In-House Model
¨ Outsourced Model
¨ Drop-Ship Model
¨ Click-and-Mortar Model
¨ Converged Models
 3.2.1. Pure-Play In-house Model
¨ A product is ordered from the website and shipped from an in-
house fulfillment center to the customer in one shipment. E-
commerce companies are often referred to as pure play retailers,
as they sell only through the Internet.
¨ Distributor warehouse is closer to customer and uses last mile
delivery to customer’s home instead of using a package carrier
¨ Example: http://www.Smarterkids.com
 3.2.2. Outsourced Model
¨ Full-service fulfillment companies offer up an end-to-end
solution
¨ Out-source or In-house ? Money >< time
¨ Make fulfillment and distribution simpler and more
efficient
¨ This model could utilize one or multiple distribution
centers
¨ FSP serves for different businesses
¨ Example: Onpoint
 3.2.3. Drop-Ship Model
¨ The drop-ship manufacturers or distributors would ship the
product directly to the entrepreneur’s customers with the e-
tailer’s name on the merchandise.
¨ E-tailers focus on selling and marketing only. The drop shipper
pays the e-tailer a sales commission
¨ Examples: Yes24.vn, Solo.vn
 3.2.4. Click-and-Motar Model
¨ Click and mortar is a type of business model that includes both
online and offline operations, which typically include a website
and a physical store. The online customer come into the local
store to pickup the online purchases.
¨ Example: hnam, bachlong, ….
 3.2.5. Converged Models
¨ Converged e-business model:
incorporate both wholesale and retail
customers while optimizing the entire
value chain.
¨ Some integrating options:
¨ A Multi-Channel E-business Model: mix
online and offline assets
¨ Omni channel model
¨ Examples:
¨ www.vfc.com
¨ www.coldwatercreek.com
 4. Business Value Proposition
¨ Defining an e-SCM value proposition  to define exactly what your
business does and ensure customers benefit as a result
¨ To identify the customer segments
¨ To ensure that the technologies to be implemented will fulfill the service
expected by the customer.
¨ Questions:
¨ Are you offering a product, a service or both?
¨ What problem(s) does your product/service solve for people?
¨ How will customers benefit as a result of using your product /service?
¨ An effective value proposition: results  benefits =Super Service,
Product/Service Solutions, Customization.
 Example: webtretho.com

1. Product/Service/Both? Answer: Both. Product = blogs, forum, shopping

Service = experience sharing, consulting…
2. Problem solved? Answer: someone needs information on baby care but
doesn’t know where to get such information
3. Benefit? Answer: visitors will knowhow to care her baby
Result = blog, forum… Benefit= better baby care
 Homework 2
1. Conduct comparison between Magento – Opencart,
Magento – Shopify.
2. Give examples of Vietnamese case similar with the
corresponding e-tail models
3.Think about an e-commerce company you have
known and try to answer these three questions:
1. Are they offering a product, a service, or both?
2. What problem(s) does their product or service solve?
3. How will customers benefit as a result of using their product
and or service?
 Homework 3
1. Monthly site view is 1,000,000. The site only sells 20% of their
advertising inventory at CPM $10. Average two ads are displayed
for different advertisers. Calculate the site’s monthly revenue.
2. A multi-vendor marketplace charges the commission for each
product sold. The following tables summaries their commission,
monthly sales, and average margin revenue. Calculate the
marketplace’s monthly revenue

Product type Commission Monthly Margin

sales revenue
Electronics 3% 1,500 $425
Clothing and accessories 10% 75,000 $25
Books and audible 7% 27,000 $150
 Homework 4
¨ We consider one supply chain with two suppliers, one e-tailer, and
two markets. The current distribution system is centralized as
depicted as follows:

¨ It costs the e-tailer a fixed set-up cost of $3,000 to place an order

from either supplier, and an annual holding cost of $26.4 per unit of
inventory. The e-tailer adopts the (Q, R) inventory policy in this
system. The monthly demand the e-tailer faces is given as follows:
 Table 1: Monthly demand of the e-tailer

In this distribution system, either supplier bears the inbound

transportation cost, while the e-tailer breas the outbound transportation
cost. The transportation costs are given as the following table:
Table 2: Transportation cost in the current system
 The e-tailer is considering change the distribution system to dropship as
depicted as follows:

In the dropshipping model, the e-tailer only bears the cost for coordinating order
information of $3.5 per unit. However, the risk of the new system is the lack of quality
control over products sold via the e-tailer, which might incur the risk cost for the e-tailer.
The risk cost is estimated on customer dissatisfaction, product warranty, or repairing,
as well as e-tailer's resources to deal with customer claims. Should the e-tailer adopt
the new system? Explain.