Week 3 E-Business

Models
Learning Objectives
1.Identify the key components of e-commerce business
models.
2. Describe the major B2C business models.
3. Describe the major B2B business models.
4.Understand key business concepts and strategies
applicable to e-commerce.

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Types of E-Business
• Categorized based on types of relationship and the
platform that it uses to transact:
Business-to-Consumer (B2C) process of businesses selling products and services directly
to consumers

Business-to-Business (B2B)

Consumer-to-Consumer (C2C)

Government-to-Consumer (G2C): between the government and its citizens

or consumers, including paying taxes, registering vehicles, and providing information and
services.

Mobile e-commerce (M-commerce)

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E-commerce Business Models
• 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
– Uses/leverages unique qualities of Internet and
Web

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Nine Elements of a Business Model
1. Key Partners
2. Value Propositions
3. Cost Structure
4. Key Activities
5. Customer Relationships
6. Revenue Streams
7. Channels
8. Key Resources
9. Customer Segments

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1. Key Partners

Who are your key partners?

 Your key suppliers?
 Which key resources are you acquiring from them?
 Which key activities do your partners?
 Key partners are the external companies or suppliers that you would need to
perform your key activities and deliver value to the customers. In order to optimize
operations and reduce risks of a business model, organizations usually cultivate
buyer-supplier relationships so they can focus on their core activity.

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2. Value Propositions
• “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

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3. Cost Structure
 Cost Structure defines all the costs and expenses that
your company will incur while operating your business
model.
 This final step in this process is important because it will
help your team decide whether to pivot or proceed.
 Your business can be either cost-driven or value-
driven.

 (expenses: Fix cost & variable cost)

 Let you pivot or losing

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 4. Key
•Activities
Key Activities are the most important activities in
executing a company’s value proposition.
• These include your product distribution, research, and
development, strategy etc.
• It is the most important activities in executing a company’s
value proposition.

• (what to do for domino to achieve quality pizza at competitive

pricing)

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5. Customer Relationships
• You should clarify what type of relationship do you
maintain with each customer segment? What are
the expectations of your customers? How to establish
them?
• Customer Relationships describes the type of relationship a
company establishes with its specific customer segments.
Customer relationships are driven by customer acquisition,
customer retention, and boosting sales — in other
words, you need to get, keep, and grow your customer
relationships.

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6. Revenue Streams
• How do I make money? Who are the customers willing to
pay and for what benefit? How would they prefer to pay? How
are they currently paying? How does each stream add up to the
total revenue?
• There are various ways to generate a revenue stream for your
company such as asset sale, subscription fees, leasing,
licensing, advertising etc. These revenue streams should be
linked to the personas or segments and the value propositions.

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7. Channels
• Channel describes how a company communicates with and
reaches its Customer Segments to deliver its Value
Proposition.
• It is important to understand which pathway (or channel) is
best for your company to reach your customers. These
channels could be physical channels, such as a store
needed to sell clothes or a local market, or they could be
virtual channels, such as an e-commerce website selling
clothing online.

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8. Key Resources
• Key Resources describes the most important assets
required to make a business model work.
• These can be things like your office, hosting
requirements, human resources, financial,
transportation, electricity etc.
• These resources should be mapped to the key activities. They
are considered as an asset to a company, which are needed in
order to sustain and support the business.

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9. Customer Segments
• Customer Segments defines the groups of people or
organization you aim to reach or serve. Every company
needs profitable customers in order to survive.
• Using the BMC, you will determine what your customer
segment(s) will be.
• A good way to think about this block is to treat it as
the demographic information of your customers. The
information you may want to predict and test for this
section could include age, gender, time spent working, etc.

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Categorizing E-commerce Business
Models
• No one correct way to categorize
• Text categorizes according to:
– E-commerce sector (e.g., B2B)
– E-commerce technology (e.g., m-commerce)
• Similar models appear in different sectors
• Companies may use multiple business models (e.g.,
eBay)
• E-commerce enablers

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B2C Business Models
• E-tailer
• Community provider (social network)
• Content provider
• Portal
• Transaction broker
• Market creator
• Service provider

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B2C Models: E-Tailer
• Online version of traditional retailer
• Revenue model: Sales
• Variations:
– Virtual merchant
– Bricks-and-clicks
– Catalog merchant
– Manufacturer-direct
• Low barriers to entry

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B2C Models: Community Provider
• Provide online environment (social network) where people
with similar interests can transact, share content, and
communicate
– Examples: Facebook, LinkedIn, Twitter, Pinterest
• Revenue models:
– Typically hybrid, combining advertising,
subscriptions, sales, transaction fees, and so on

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B2C Models: Content Provider
• Digital content on the Web:
– News, music, video, text, artwork
• Revenue models:
– Use variety of models, including advertising,
subscription; sales of digital goods
– Key to success is typically owning the
content
• Variations:
– Syndication
– Aggregators

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Insight on Technology: Connected Cars
and the Future of E-commerce
• Class Discussion
– What is the Internet of Things (IoT)?
– What value does the IoT have for businesses?
– What impact does the IoT have on the content
industry?
– What impact does the IoT have on vehicles?
– Are there any disadvantages to “connected”
cars?

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B2C Business Models: Portal
• Search plus an integrated package of content and
services
• Revenue models:
– Advertising, referral fees, transaction fees,
subscriptions for premium services
• Variations:
– Horizontal/general (example: Yahoo, AOL,
MSN)
– Vertical/specialized (vortal) (example:
Sailnet)
– Search (example: Google, Bing)

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B2C Models: Transaction Broker
• Process online transactions for consumers
– Primary value proposition-saving time and money
• Revenue model:
– Transaction fees
• Industries using this model:
– Financial services
– Travel services
– Job placement services

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B2C Models: Market Creator
• Create digital environment where buyers and sellers can meet
and transact
– Examples: Priceline, eBay
– Revenue model: Transaction fees, fees to
merchants for access
• On-demand service companies (sharing economy):
platforms that allow people to sell services
– Examples: Uber, Airbnb

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B2C Models: Service Provider
• Online services
– Example: Google-Google Maps, Gmail, 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

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B2B Business Models
• Net marketplaces
– E-distributor
– E-procurement
– Exchange
– Industry consortium
• Private industrial network

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B2B Models: E-Distributor
• Version of retail and wholesale store, MRO goods, and
indirect goods
• Owned by one company seeking to serve many
customers
• Revenue model: Sales of goods
• Example: Grainger

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B2B Models: E-Procurement
• Creates digital markets where participants transact for
indirect goods
– B2B service providers, SaaS and PaaS
providers
– Scale economies
• Revenue model:
– Service fees, supply-chain management,
fulfillment
services
• Example: Ariba

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B2B Models: Exchanges
• Independently owned vertical digital marketplace for direct
inputs
• Revenue model: Transaction, commission fees
• Create powerful competition between suppliers
• Tend to force suppliers into powerful price competition;
number of exchanges has dropped dramatically
• Example: Go2Paper

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B2B Models: Industry Consortia
• Industry-owned vertical digital marketplace open to select
suppliers
• More successful than exchanges
– Sponsored by powerful industry players
– Strengthen traditional purchasing behavior
• Revenue model: Transaction, commission fees
• Example: SupplyOn

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Private Industrial Networks
• Digital network used to coordinate among firms engaged in
business together
• Typically evolve out of large company’s internal
enterprise system
– Key, trusted, long-term suppliers invited to
network
• Example: Walmart’s network for suppliers

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How E-commerce Changes Business
• E-commerce changes industry structure by changing:
– Rivalry among existing competitors
– Barriers to entry
– Threat of new substitute products
– Strength of suppliers
– Bargaining power of buyers
• Industry structural analysis

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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

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Figure 5.4 E-commerce and Industry
Value Chains

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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
– Enables precise coordination of steps in chain

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Figure 5.5 E-commerce and Firm Value
Chains

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Firm Value Webs
• Networked business ecosystem
• Uses Internet technology to coordinate the value chains of
business partners
• Coordinates a firm’s suppliers with its own production needs
using an Internet-based supply chain management system

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Figure 5.6 Internet-Enabled Value Web

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Business Strategy
• Plan for achieving superior long-term returns on capital
invested: that is, profit
• Five generic strategies
– Product/service differentiation
– Cost competition
– Scope
– Focus/market niche
– Customer intimacy

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E-commerce Technology and Business
Model Disruption
• Disruptive technologies
• Digital disruption
• Sustaining technology
• Stages
– Disruptors introduce new products of lower quality
– Disruptors improve products
– New products become superior to existing
products
– Incumbent companies lose market share

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Class Exercise
• Create an e-Business Model Canvas
• A business model canvas is a one-page
summary describing the high-level
strategic details needed to get a business
(or product) successfully to market.

Refer to Juncal, S. (2019). How to Build a Product Roadmap Based on a Business Model
Canvas, viewed 27 March 2020, <https://www.productplan.com/business- model-canvas/
>
Example
Business Model Canvass
Template (BMC)