Chapter Two

E-Commerce Business Models

Badimaw T.
March 2023
 Introduction
 A business model is a specification describing how an organization
fulfills its purpose.
 It answers the following questions:
 Who is your customer?
 What does the customer value?
  How do you deliver value at an appropriate cost?
 Business processes and policies are part of the model.
 An e-commerce business model aims to use and leverage the unique
qualities of the Internet, the Web, and the mobile platform.
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Key Components of E-Commerce Business Models

 Business processes
 Business Policies

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 Value Proposition
 Defines how a company’s product or service fulfills the needs of
customers.
 To develop and/or analyze a firm’s value proposition, you need to
understand:
 Why customers will choose to do business with the firm instead
of another company, and
 What the firm provides that other firms do not and cannot.

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 Value Proposition cont’d…
 Successful e-commerce value propositions include:
 Personalization and customization of product offerings,
 Reduction of product search costs,
 Reduction of price discovery costs, and
 Facilitation of transactions by managing product delivery.

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 Revenue Model
 Describes how the firm will earn revenue, generate profits, and
produce a superior return on invested capital.
 The e-commerce revenue models many companies rely on include:
 Advertising revenue model,
 Subscription revenue model,
 Freemium strategy,
 Transaction fee revenue model,
 Sales revenue model,
 Affiliate revenue model.
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 Revenue Model cont’d…
A company provides a forum for
Advertising revenue
01 advertisements and receives fees from
model advertisers.

A company offers its users content or

Subscription revenue
02 services and charges a subscription fee
model for access to some or all of its offerings.
Companies give away a certain level of
product or services for free, but then
03 Freemium strategies
charge a subscription fee for premium
levels of the product or service.
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 Revenue Model cont’d…

Transaction fee revenue A company receives a fee for enabling

04 or executing a transaction.
model

A company derives revenue by selling

05 Sales revenue model goods,
information, or services.
A company steers business to an
affiliate and receives a referral fee or
06 Affiliate revenue model
percentage of the revenue from any
resulting sales.
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 Market Opportunity
 Refers to the company’s intended marketspace and the overall
potential financial opportunities available to the firm in that
marketspace.
 Market place: an area of actual or potential commercial value.
 The market opportunity is usually divided into smaller market
niches.
 The realistic market opportunity is defined by the revenue potential
in each of the market niches where you hope to compete.

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 Competitive Environment
 Refers to the direct and indirect competitors doing business in the
same marketspace.
 It also refers to:
 The presence of substitute products and potential new entrants to
the market, as well as
 The power of customers and suppliers over your business.

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 Competitive Environment cont’d…
 The competitive environment for a company is influenced by several
factors. Some of them are:
 How many competitors are active,
 How large their operations are,
 What the market share of each competitor is,
 How profitable these firms are, and
 How they price their products.

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 Competitive Advantage
 Refers to the factors that differentiate the business from its
competitors, enabling it to provide a superior product at a lower
cost.
 Can be influenced by:
 The quality of products and services,
 The cost of products and services,
 The scope of the market place they operate on.
 Firms that can provide superior products at the lowest cost on a
global basis are truly advantaged.
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 Market Strategy
 Marketing: everything you do to promote your company’s products
and services to potential customers.
 Market strategy: the plan a company develops that outlines how it
will enter a market and attract new customers.

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 Organizational Development
 Refers to the plan that describes how the company will organize the
work that needs to be accomplished.
 Works are functionally divided into departments,
 Each department has clearly defined jobs,
 Each job has skillful personnel recruited to them.

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 Management Team
 Refers to the employees of the company responsible for making the
business model work.
 A strong management team gives a model:
 Instant credibility to outside investors,
 Immediate market-specific knowledge, and
 Experience in implementing business plans.
 The challenge is to find people who have both the experience and
the ability to apply that experience to new situations.

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 E-commerce Business Models
 There are some difficulties in categorizing e-commerce business
models.
 Some of these difficulties include:
 There are many in number, and more are being invented each
day.
 There is no one correct way to categorize these business models.
 So, the main approach is to categorize them according to the
different major e-commerce sectors in which they are utilized as:
 B2C business models
 B2B business models 16
 Major B2C Business Models
 Business-to-consumer (B2C) e-commerce, in which online
businesses seek to reach individual consumers, is the most well-
known and familiar type of e-commerce.

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 Major B2C Business Models cont’d…
 E-tailer: online retail store in which customers place their orders
using the Internet or their mobile phones.
 Some are divisions of existing physical stores
Eg: REI, JCPenney, Barnes & Noble, Walmart, and Staples.
 Others operate only on the virtual world.
Eg: Amazon, Blue Nile, and Bluefly,…

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 Major B2C Business Models cont’d…
 Community provider: creates an online environment where people
with similar interests can:
 Transact; sell and buy products and services,
 Share interests; photos, and videos,
 Communicate with likeminded people, and
 Receive interest-related information.
 Eg: Facebook, LinkedIn, Twitter, and Pinterest,…

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 Major B2C Business Models cont’d…
 Content provider: distribute information content, such as digital
video, music, photos, text, and artwork.
 Eg: Apple music, Wall Street Journal, Harvard Business
Review,…
 Portal: offers users powerful search tools as well as an integrated
package of content and services all in one place.
 Eg: Google, Microsoft’s Bing, Yahoo, Ask, and AOL.
 Transaction broker: processes transactions for consumers that are
normally handled in person, by phone, or by mail.
 Monster for job searches.
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 Major B2C Business Models cont’d…
 Market creator: builds a digital environment where buyers and
sellers can meet, display products, search for
products, and establish a price for products.
 Eg: Priceline for travel accommodations,
eBay for online auctions.
 Service providers: offers services online.
 Eg: Google Docs, Google Maps, and Gmail from Google,
Uber, Lyft, , Airbnb (can also be market creators).

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Major B2B Business Models

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 Major B2B Business Models cont’d…
 E-distributor: a company that supplies products and services
directly to individual businesses.
 Eg: W. W. Grainger for maintenance, repair operations.
 E-procurement: just as e-distributors provide products to other
companies.
 E-procurement firms create and sell access to digital markets.
 Eg: Ariba
 B2B service provider: sells business services to other firms.
 Work mainly on supply chain management.
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 Major B2B Business Models cont’d…
 Exchange: an independent digital marketplace where suppliers and
commercial purchasers can conduct transactions.
 Industry consortia: industry-owned vertical marketplaces that serve
specific industries such as the automobile,
aerospace, chemical, floral, or logging industries.
 Eg: Bosch and Continental for automotive components.
 Private industrial network: digital network designed to coordinate
the flow of communications among firms
engaged in business together.
 Eg: Walmart
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 Major E-commerce Enablers
 They are firms whose business model is focused on providing the
infrastructure necessary for e-commerce companies to exist, grow, and
prosper.
 They provide:
 Hardware: web servers
 Software: operating systems and server software, CRM, e-commerce SW
 Networking: routers
 Security: encryption software
 Streaming and rich media solutions
 Payment systems
 Databases and hosting services, etc. 25
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 How E-commerce Affects Key Business
Concepts And Strategies?
 E-commerce has effects on the following areas:
 Industry structure
 Industry value chain
 Firm value chain
 Firm value web
 Business strategy

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Industry Structure

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Industry Value Chains

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Firm Value Chains

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Internet-Enabled Value Web

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Business Strategies

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Thanks!
Questions?
You can find me at:
badimaw21@gmail.com
badimaw.terefe@wku.edu.et

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