MRKT 410

Internet Marketing

Prepared by Dr. Ahmad Al-Fadly

 Internet Marketing

Chapter (3)

Business Models and Strategies

 Objectives

This chapter covers the following objectives:

•Explain the concept and functions of a business model.

•Discuss the concept of the value proposition and its importance in developing
marketing strategies.
•Name and describe the business models that are most prominent on the internet
•Give examples of each of the business models.
Internet Marketing

Chapter (3)

Introduction
 The concept and functions of a business model

Understanding Business Models

•Prof. Michael Rappa’s definition: a “business model is the method of doing
business by which a company can sustain itself and generate revenue.”
•Internet business models are how enterprises are configured to create value for
customers and to deliver that value in a profitable way on the Internet.
• A business model is a conceptual description of the business.

•Sites of all kinds like:

1.Selling/Amazon
2.Operate/eBay
3.Sites/Wikipedia
They are all earning revenue from transactions.
The concept and functions of a business model

eToys: Failing to control costs and create value

A retail website that sell toys via the Internet. It was launched in 1997 and went
through bankruptcy and closed its U.S. site in 2001. “Because the company
miscalculated the costs of running a retail on the Internet.”

Functions and Elements of Business Models

Prof. Henry & Richard explain that the functions of a business model are to:
1. Articulate the value proposition
2. Identify the market segment
3. Define the structure of the value chain
4. Estimate the cost structure
5. Describe the position of the firm
The concept and functions of a business model

Similarly, consultant and author Alex Osterwalder suggests that there are NINE key
elements of preparing a business model:

1. Who are your customer segments?

2. What is your value proposition?
3. What is the customer relationship?
4. What are your revenue streams, how much do they generate?
5. What are your key resources?
6. What are your key activities?
7. What are your key partners?
8. What is your cost structure?
9. What are your distribution channels?
 The Value Proposition
The value proposition is the value delivered by the firm to a specific, targeted
customer segment. Marketers can study the drivers of value in a particular market.

The Figure below is a simple framework that is useful in that process.

Has needs Value matches

Target Capabilities
Customer Value for Proposition enable

It combines consideration of the needs of the target customer, which define the
nature of the value desired, with an understanding of the core capabilities of the
enterprise, which determines the value that can be delivered.
 Identifying Business Models
Prof. Michael Rappa suggests NINE Internet business models. The Table below gives
examples of each in B2C, B2B, and non-profit/government sectors.
Business Model Quick Description B2C Examples B2B Examples Non-profit
Government
Examples

Brokerage Model Bring buyers and seller together Orbitz, eBay, Alibaba, eBay -
Resturant.com

Advertising Model Delivering messages with content Google, Facebook LinkedIn -

Infomediary Model Reselling useful data Wall street Journal InfoUSA Cancer.gov
Merchant Model Providing goods and services Amazon.com Grainger Industrial Redcross.org
Supplier

Manufacturer Reaching buyers directly Dell computer Dell computer, salesforce -

(Direct) Model

Affiliate Model Offering incentives to partner sites Amazon.com Resturant.com Kommen.org

Community Model Connecting individuals and groups Threadless, Etsy CrowdSPRING Wikipedia.org
Subscription Model Delivering services and contents for a Netflix LinkedIn WCPE.org
set fee

Utility Model Delivering services or content “pay as Skype, Google voice Slashdot.org -
you go”
 1. Brokerage Model: Bringing Buyers and Sellers Together

Brokers make markets: the function of a broker is to bring buyers and sellers
together and facilitate transactions.

Subcategories of the “Brokerage Model” include:

1.Marketplace exchanges (Orbitz, Alibaba)
2.Demand collection systems (Priceline/name-your-price)
3.Auction brokers (eBay)
4.Transaction brokers (PayPal)
5.Virtual marketplaces (provide a virtual mall/Merchant services at Amazon.com)
6.Coupon promotion sites (Restaurant.com)
 2. Advertising Model: Delivering Messages with Content

The Web Advertising Model is an extension of the traditional media broadcast

model. Content on a website or in an email can be sponsored, providing another
type of advertising opportunity.

Some categories of the advertising model are:

1. Portal (Yahoo!)
2. Classifieds (Monster.com)
3. Query-based paid placement (Google)
 3. Infomediary Model: Reselling Useful Data

Some firms function as infomediaries (information intermediaries) assisting buyers

and/or sellers to understand a given market.

Some types of infomediaries are listed here:

1.Advertising networks (Google)
2.Audience measurement services (NetRatings)- online research agencies
3.Incentive marketing (MyPoints)- sites operate customer loyalty
4.B2B infomediaries (InfoUSA)- provide information about companies that is
important in marketing efforts such as company size and contact information.
5.Metamediaries (Edmunds)- facilitate transactions between buyer and sellers by
providing information without being involved un the actual exchange of goods or
services between the parties.
 4. Merchant Model: Providing Goods and Services

Web merchants are wholesalers and retailors of goods and services. Sales may be
made based on list prices or through auction.
Several types of Merchant Model are as follow:
1.Virtual merchant (Amazon.com)
2.Catalog merchant (Lands’ End) operates a mail-order business with a web-based
catalog and combines mail, telephone, and online ordering.
3.Bit vendor (Apple iTunes Music store).
4.Click and mortar (Best Buy) a retail establishment with web storefront.
5.Aggregator (Overstock) organizes the distribution of goods, services, and
information
 5. Manufacturer Model: Reaching Buyers Directly

Allow company that creates a product or services to reach buyers directly and
compress the distribution channel.

Several examples of the manufacturer model include:

1.Direct selling (Dell) sells goods and services directly to consumer or business
customer.
2.Software-based services (salesforce) sell software to firms in hosted solutions, so
firms avoid owning and maintaining their own software.
 6. Affiliate Model: Offering Incentives to Partner Sites

The Affiliate Model provides purchase opportunities wherever people may be

surfing. It does this by offering financial incentives (in the form of a percentage of
revenue) to affiliated partner site.

The following is a list of different types of affiliate sites:

1.Banner exchange trades banner placement among a network of affiliated sites
2.Pay-per-click (sites pay affiliates for a user click-through
3.Revenue sharing (Amazon.com)
7. Community Model: Connecting Individuals and Groups

Using a community model as a business model is to create a business based on user

loyalty and repeat engagement.

Specific types of community models:

1. Open content (Wikipedia)
2. Fund-raising (American Red Cross)
3. Social networking services (Facebook)
8. Subscription Model: Delivering Services and Content for a Set Fee

In the subscription model, users are charged a periodic daily, monthly, or annual
fee to subscribe to a service.

Specific types of subscription model as follow:

1. Content services (Netflix)
2. Person-to-person networking services (Classmates)
9. Utility Model: Delivering Services or Content “Pay as You Go”

The utility model is based on metering usage, or a “pay as you go” approach. Unlike
subscriber services, metered services are based on actual usage rates.

•Common in the United States.

Specific types of subscription model as follow:

1.Metered usage (Skype, Google Voice)
2.Metered subscription (Slashdot) allow subscribers to purchase access to content
in metered portions (e.g., numbers of pages viewed)
 The Future of Business Models

The evolution of business models on the Internet continues. It is likely

that different models may achieve prominence at different periods of
time and possible that entirely new models may emerge as the
Internet matures.
 Question?

Are social media the new model?