Electronic Commerce:

Business Models
Electronic Commerce: Business Model

A business model describes a set of business entities and

interrelationships among them. The model describes the sources of
revenues and potential benefits accruing to the involved business actors.
Electronic Commerce: Business Model

The business model provides the broad perspective necessary for

identifying appropriate solution at some level of abstraction. The
identified solution should be sustainable in terms of revenues and
capable of realizing the stated objective.
▪ Earlier, content centric business over internet.
▪ Later, transaction focused sites.
▪ Business models based on the activities that occur in the real world and then
transplanted on the internet.
▪ Activities involving and evolved from the internet.
 Taxonomy of Business Models

Digital Products
Native

Information Content Model Internet Access Provision

Freeware Model Web Hosting & Internet
Information Exchange Model Services
Metered Service Model
Metamediary Model
Transplanted

Subscription Model
Electronic Store Model
Advertisement Model
Brokerage Model
Infomediary Model
Manufacturing Model
Affiliate Model

Content Transactions
Native Content Based Models
Native Content Based Models
It emerged due to the efforts of many amateurs who set up
informational web sites expecting no financial returns.
E.g., software programs and utilities which are available for free.
 Information Content Model
▪ Web is a largest source of Information repositories
▪ In the early stages of Web developments – Major source of
Information Contents were scientists, Academicians and Researchers
▪ The Information is typically available at no charge basis
▪ It is typically utilized by agencies and groups interested in wide
dissemination of information
For example,
▪ Virtual Library -- http://www.vlib.org
▪ International Council of Museums– http://www.icom.org/vlmp
▪ National Informatics Center, India– http://www.nic.in
 Freeware Model
▪Distribution of cooperatively developed free software
prototypes, products, patches and demonstration
versions.
▪The contents (software packages) can be downloaded at
no incremental cost.
For Example
▪Linux – http://www.linux.org
▪GNU -- http://www.gnu.org
▪Apache Web server – http://www.apache.org
 Information Exchange Model
▪Based upon the exchange of information between
individuals and organizations, over the internet.
▪Information can be provided voluntarily as a part of
registration process (e.g., yahoo.com) or during
interaction in trying to access some information about
product or service (cookies).
▪This information can be exchanged with other targeted
marketing and promotions companies.
▪Privacy Issues
▪News delivery services, advertising services etc.
Transplanted Content Based
Models
Transplanted Content Model
The traditional content providers – journals, research databases,
directories and advertising – have moved their content to the internet
to take advantage of the growing audience.
Subscription Model
Economic Databases (CMIE, Prowess)
Stock Exchange Trading information (NSE )
Digital Contents –
◦ Scientific discoveries,
◦ Images – http://cfa-www.harvard.edu
◦ Stock Market - EDGAR
◦ Journals -- http://acm.orgJournals -- http://acm.org,
http://ieee.org
◦ OTT Platforms
The model provides a subscription based access to Digital contents.
Basic Content to non-subscribers and premium content to
subscribers.
Flat rates vs. Contents based subscription rates
Advertising Model

Commission charged to advertisers to put up their

advertisements in a well known online marketing platform.
They take advantage of the huge traffic who regularly visit
the chosen platform to shop around, see the ad and get
directed to the actual site.
Web sites providing free interactive and repetitive services
such as Email, Chat sessions, Discussion forums, News etc.
generate revenue through the advertisements they display.
The model is derived from the free television model.
Charging on the basis of number of times a advertisement
has been served. Additional charges for the click-through.
ISPs - Caltiger.com, Juno.com
Emails- HotMail.com, Rediffmail.com
Infomediary Model
Aggregated personal profiles/needs from its users
(consumers and /or suppliers)
Subsequently, markets that data to interested set of
users
Maintains the data privacy
The users may get a portion of the brokered deals
It operates by lowering the search/location cost
It leverages on interaction cost for identifying the
right product and price in a fast evolving
technologically innovative product groups
 Affiliate Model

User Enters 1
Affiliate’s Affiliated Sponsoring
Website Web Site Merchant’s Site

1: Affiliated Site redirects the customer to sponsoring merchant’s site

2: The Sponsoring merchant pays a percentage of transaction to the affiliated
site

Figure 2.2: The Affiliate Model

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Digital Product Merchant Model

Information Flow

Transaction
Seller
Buyer
Digital Data
Digital Data
MM Content
MM Content
s/w Programs
S/W Programs
Payment Flow

Delivery
Internet Access Provision Model
Network Infrastructure is at the foundation of growth of
electronic commerce
Various modes of Internet Service Providers
◦ Dial-up Services
◦ Cable based services
◦ DSL and ADSL
◦ Leased Line services
Payment options
◦ Flat rates
◦ Bandwidth based flat rates
◦ Usage based
◦ Free Access (in lieu of advertisement viewing)
Web Hosting & Internet Services Model

Electronic Shops and Businesses require 24x7 presence,

upkeep, maintenance
Also, common services like transaction security and payment
services
SMEs may not have expertise and the cost to get on
electronic marketplace by addressing all infrastructure issues
may get too high
In this business model, the infrastructure company provides
complete set of services required for hosting your business
online.
Yahoo Shops, iCat’s Lemonade Stand, Pugmarks.com
Other services related to Speeding up the access across the
globe etc.
Metered Service Model
Owning licenses for multiple software packages,
information databases, computing resources that
are used occasionally is usually an expensive and
time-consuming proposition.
It puts strain on resources
Distracts from core business activities.
Model - Pay as you go approach for services on
demand
Example- HP’s Infrastructure on Tap
Metamediary Model
intermediary that provides a single point of contact between
a community of customers and the community of suppliers
◦ it deconstructs space and time
◦ it offers products in new ways
Metamediaries present the information from users’
viewpoint rather than the Industry segments.
 Metamediary Model

Travel Magzines
Financing
Newspaper classifieds
Insurance
Travel Agents
Peer and Expert
Hotel reservation reviews
Agents
Trekking Clubs

Skiing Equipment dealer

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Electronic Store Model
Requires robust delivery (third party) infrastructure

Information Flow

Buyer
Seller Transaction Products like
Products like Computers,
Computers, Electronic
Electronic Systems, Systems, and
and Camera Camera
Payment Flow

Delivery
 Brokerage Model
Market makers, also known as brokers, play an important
role of facilitating the transactions by bringing the buyers and
seller together
Commission based Services
Model – Transplant the per transaction/value based
commission model by bringing the sellers and buyers on
electronic marketplace
For Example

Stock brokers- Charles Schwab, ICICIDirect

Flowers- Teleflowers
Auctions- BaZee.com, AuctionIndia.com
 Manufacturer Model
From Manufacturer to Consumer
Product passes through several intermediaries
The cost of product increases in the distribution process
Each intermediate layer assists in the distribution and
logistics
If a manufacturer is capable of direct distribution- it can
reduce the distribution cost.
◦ In the process, it may need to handle several distribution and logistics
issues
◦ The customer feedback can be direct, and thus create an opportunity
for mass-customization
Example- Dell Computers