Module 2

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BUSINESS MODELS FOR E
COMMERCE
 A business model is the method of doing
business by which a company can sustain itself,
that is, generate revenue.

E market allows the participating sellers and

buyers to exchange goods and services with the
aid of information technology.

2
Electronic markets have 3 main functions,
1. Matching buyers and sellers
2. Facilitating commercial transactions
3. Providing legal infrastructure

3
 DIFFERENT WAYS TO CATEGORIZE
E-BUSINESS MODELS

1. E-Business models based on the relationship

of Transaction Parties
2. E-Business models based on the relationship
of Transaction Types
3. Classification by revenue model
4. Classification by distribution channel

4
E-commerce models can be recognize in the form of
relationship between two entities:

 Direct marketing versus indirect marketing

 Fully cyber marketing versus partial cyber marketing

 Electronic distributors versus shopping mall

 Generalized e-malls versus specialized e-malls

 Proactive versus strategic cyber marketing

 Global versus regional marketing

 Sales versus customer service

5
E-commerce can be classified according to the
transaction partners such as

1) business to consumer (B2C)

2) business-to-business (B2B)
3) business-to-government (B2G)
4) consumer to-consumer (C2C)
5) consumer-to-business (C2B)

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7
SUMMARY OF E BUSINESS TRANSACTION MODEL

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1) BUSINESS-TO-CONSUMER (B2C)

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Some of the reasons why should opt for B2C

1) Inexpensive costs, big opportunities.

2) Globalization.
3) Reduced operational costs.
4) Customer convenience.
5) Knowledge management.

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PROCESSES IN B2C (HOW DOES B2C WORK?)

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B2C WORKING

1. Visiting the virtual mall- customer visits the mall by

browsing the outline catalogue.
2. Customer registers- customer has to register to
become part of the site‘s shopper registry
3. Customer buys product.
4. Merchant processes the order- the merchant then
processes the order that is received from the previous
stage & fills up the necessary forms

12
5. Credit card is processed:- credit card of the customer
is authenticated through a payment gateway or a bank.
6. Shipment & delivery:- the product is then shipped to
customer.
7. Customer receives:- the product is received by
customer and is verified.
8. After sales service:- after sale, the firm wants to
maintains a good relationship with its customers. It is
called CRM customer relationship management.

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2) BUSINESS TO BUSINESS (B2B)

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15
MAJOR ADVANTAGES OF B2B

 Directinteraction with customers.

 Focussed sales promotion.

 Building customer loyalty.

 Scalability.

 Savings in distribution costs.

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TOOLS AND TECHNIQUES AT THE
DISPOSAL OF B2B ENTERPRISES

1. Use of pricing as a tool

2. Use of application service provider model
3. Use of generic models which are known for
efficiency as well as personalized attention
4. Use of comparison shopping

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COMMON ELEMENTS OF B2B
EXCHANGE

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 PROCESSES FOR B2B
(i) review catalogues
(ii) identify specifications
(iii) define requirements
(iv) post request for
proposals (REP)
(v) review vendor
reputation
(vi) select vendor
(vii) fill out purchase orders
(PO)
(viii) send PO to vendor
(ix) prepare invoice
(x) make payment
(xi) arrange shipment
(xii) organize product
inspection and reception.
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MODELS PROPOSED FOR B2B
COMMERCE

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 B2B IS CLASSIFIED AS:-

1. Market place:- a digital electronic market place where

suppliers and commercial purchasers can conduct
transactions.
2. E – distributors:- a company that suppliers products
and services directly to individual business.
3. B2B service provider:- it is a company that access to
internet based software application to another
companies.
4. Infomediary: - a company whose business model is
premised upon gathering information about customers &
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selling it to other businesses
B2B SUMMARY

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3) CONSUMER TO CONSUMER (C2C)

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C2C
 The C2C model involves transaction between
consumers.
 A consumer sells directly to another consumer.

 Eg: OLX

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4) CONSUMER TO BUSINESS (C2B)

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The various C2B classified into:-

1. Idea collectors:- consumers generally have a great

idea about how to improve the existing products and
what new features can be added to new products.
Eg: ideas.com
2. Reverse auctions:- A reverse auction is a type of
auction in which the roles of buyer and seller are
reversed.
Eg: construction or supply contracts
Eg: itsmybid.in
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 E-GOVERNANCE
 E-governance is the application of information and
communication technology (ICT).
 It provides government services, exchange of
information communication transactions, integration
of various stand-alone systems and services between
systems.
 The services are G2C, G2B, G2G, B2G, C2G.

 Through e-governance, government services will be

made available to citizens in a convenient, efficient
and transparent manner. 27
B2G
 Businesses selling to local, state, and federal
agencies.
 In this model, the business houses transact with the
government over the Internet.
 For example, business houses can also pay their
taxes on the Internet.
 B2G may also include the rental of online
applications and databases designed especially for
use by government agencies.

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G2B
 This model involves transactions between a
government and business organizations.
 For example, the government plans to build a fly
over. For this, the government requests for tenders
from various contractors.

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G2G
 Itinvolves transactions between 2 governments.
 Eg: If the American government wants to by oil from
the Arabian government
C2G
 An individual consumer interacts with the
government. Eg: consumer can pay his taxes online
G2C
 The government transacts with consumer.
 Eg: Various online registrations (birth, marriage, tax,
etc) 30
E-BUSINESS MODELS BASED ON THE
RELATIONSHIP OF TRANSACTION TYPES
1. Brokerage
2. Aggregator
3. Info- mediary
4. Community
5. Value chain
6. Advertising
7. Subscription
8. Manufacturer
9. Affiliate 31
32
1. BROKERAGE MODEL

 Brokers are market-makers:

 They bring buyers and sellers together and
facilitate transactions.
 Brokers play a frequent role in business-to-
business (B2B), business-to-consumer (B2C),
consumer-to-consumer (C2C), etc.
 Usually a broker charges a fee or commission for
each transaction it enables.
 The formula for fees can vary depending on
context. 33
Brokerage models include:
 Marketplace Exchange -- offers a full range of
services covering the transaction process, from
market assessment to negotiation and fulfilment.

 Buy/Sell Fulfillment -- takes customer orders to buy

or sell a product or service, including terms like price
and delivery.

 Demand Collection System -- Prospective buyer

makes a final (binding) bid for a specified good or
service, and the broker arranges fulfillment. 34
 Auction Broker -- conducts auctions for sellers
(individuals or merchants). Broker charges the seller
a listing fee and commission scaled with the value of
the transaction.

 Transaction Broker -- provides a third-party payment

mechanism for buyers and sellers to settle a
transaction.

 Distributor-- is a catalog operation that connects a

large number of product manufacturers with volume
and retail buyers. 35
 Search Agent -- a software agent or "robot" used to
search-out the price and availability for a good or
service specified by the buyer, or to locate hard to
find information.

 VirtualMarketplace -- or virtual mall, a hosting

service for online merchants that charges setup,
monthly listing, and/or transaction fees. May also
provide automated transaction and relationship
marketing services.

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CHARACTERISTICS OF BROKERAGE
MODEL
1. The price-discovery mechanism is its key-principle.
2. It is a meeting point for sellers and buyers.
3. Auctions and exchanges are the modes of
transactions.
4. It is a ‘free Market’.
5. It consist of Global Network of Buyers and Sellers.
6. It is a Virtual Market space enabled by the Internet.
7. It encompasses all types of organizations.
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ADVANTAGES OF BROKERAGE
MODEL
 C2C trading
 Global reach

 Trading convenience

 Sense of community through direct buyer and

seller communication
 Efficient access to information

 Alleviation of the risks of anonymous trading

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BROKERAGE – PRICE DISCOVERY
MECHANISMS
1. Auction: A seller puts up an item and buyers
place bids until the close of the auction, at which
time the item goes to the highest bidder.
2. Reverse Auction : A type of auction in which
sellers bid for the prices at which they are willing
to sell their goods and services.
3. Market Exchange is a highly organised market
where brokers and traders buy and sell securities
such as shares, commodities, currencies, futures
and options. 39
Auction

 English auction
 Dutch auction

 First price sealed bid auction

 Vickrey auction

 Electronic auction

Reverse Auction
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1. ENGLISH AUCTION
 Open-outcry auction or ascending-price auction.
 Used for selling art, wine and other physical goods
which do not have limited lifetime.
 Auctioneer starts off auction with the lowest acceptable
price or reserve price.
 Receives bids until no raise in the bid.

 Knocks down

 Manipulation of bidders is possible.

 Auction site may provide alerts if their bids are too low.

 Possibility of pay more if bidder gets excited

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 Possibility of pay less if reserve price is not declared.
2. DUTCH AUCTION
 Descending-price auction.
 Used for goods which have limited lifetime.

 Auction time period is very short.

 Practiced in departmental stores during sales season to

dispose off excess inventory accumulation.
 Forces bidder to make bidding decisions earlier.

 Opening price is set extremely high.

 Price then descends with a predefined amount at

predefined time intervals.
 When many items of the same product are auctioned,
many bidders claims the product until no product left.42
 Different prices for different bidders.
3. FIRST-PRICE SEALED-BID AUCTION
 Individualbids are hidden from other bidders.
 Bidding phase
 all
bides are collected.
 Each bidder submits bid based on his own valuation
 Resolution phase
 bids are opened and the winner is determined.
 Bids are opened and sorted from highest to lowest bid
 For one item highest will be winning bid.
 For multiple items of same product – items are awarded to
the highest bids until no items left (Discriminatory Sealed
Bid).
 In Discriminatory Sealed Bid all bidders do not pay the 43
same price.
4. VICKREY AUCTION
 Uniformed second-price auction.
 Bids are sealed.

 The winning bidder will pay the price of the second

highest bid.
 Winner – Highest unsuccessful bid.

 For multiple units of the same item – all winning

bidders will pay the same price.
 Vickrey and first-price sealed-bid auction will both
yield the same expected price..
 Bidder will adjust his bids as he increases the price
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upwards.
ELECTRONIC AUCTION

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Benefits of using web enabled auctions

1. Common infrastructure with millions of potential

users.
2. Standardized hypertext protocol for displaying the
trade objects to increase economic feasibility of
electronic auctions.
3. Development of standardized search function.
4. Standards for secure payments(SSL).

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Critical Factors characterizing Electronic Auctions

1. Perishability: occurs if the value of the product to

be sold at a given time is zero.
Eg: Airplane ticket, any type of maintenance
2. Scarcity : occurs when there is an excess demand
than supply.
Eg: new computer parts, IP address, domain names
3. Goods that may be moved electronically.
4. Goods that are geographically constrained.
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Electronic Auctions seller-buyer perspective

1. Consumer-to-Consumer(C2C)
2. Business-to-Consumer(B2C)
3. Business-to-Business(B2B)
4. Consumer-to-Business(C2B)
5. e- Government
6. eBay model

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EBAY MODEL
1. World’s largest personal online trading community.
2. Individuals can buy and sell items in more than
4320 categories like automobiles, collectibles,
antiques, sports memorabilia, computers, toys, coins,
stamps, books, magazines, music, pottery, glass,
photography, electronics, jewellery, gemstones etc.
3. Person-to-person trading site.
4. eBay provides 4 million new auctions and 4,50,000
new items every day.
5. Bulletin boards- encourages open communication
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between users.
50
REVERSE AUCTION
 A reverse auction is a type of auction in which
the roles of buyer and seller are reversed.
 In a reverse auction, the buyer puts up a request
for a required good or service.
 Sellers then place bids for the amount they are
willing to be paid for the good or service, and at
the end of the auction the seller with the lowest
amount wins.
 Eg: Tender of contracts
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2. AGGREGATOR MODEL
 Classic wholesalers and retailers of goods and
services are increasingly referred to as “e- tailers”.
 Sales can be made based on list prices or through
auctions.
 The goods and services are unique to the web and do
not have a traditional “brick and mortar” storefront.

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HOW DOES AGGREGATOR BUSINESS
MODEL WORK?

1. Aggregator visits the Good/service providers.

2. Aggregator promises him more customers and
proposes a partnership plan.
3. Service providers are now the partners.
4. Aggregator builds up his own brand and tries to
attract customers through many marketing strategies.
5. Customers make purchases through the aggregator.
6. Partners get the customers as promised.
7. Aggregator gets the commission 53
DIFFERENT AGGREGATOR MODELS
1. Virtual Merchant :
i. Operates only from web.
ii. Offers traditional or web specific goods and
services.
iii. Selling method- list price, auctions.
iv. Example: Facetime - application service provider.
Provides customer support for e- commerce
sites. (Amazon, eToys, Eyewire and Onsale)
2. Catalogue Merchant :
Migration of mail order to web based order
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Example: Levenger
3. Surf and turf :
Establishment of traditional business with web
storefront.
4. Bit Vendor :
i. Merchant deals in digital products and services.
ii. Conduct sales and distribution over the web.
Eg: e-books, music files, software, digital images, etc
5. Subscription model :
i. User pay for access to site.
ii. High value added content is essential. (IEEE) 55
AGGREGATORS

1. Bypass distributors.
2. Connectors between buyers and sellers.
3. Involved in selection, organization, matching
buyers requirements with available goods,
fulfillment of the orders etc.

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TYPES OF AGGREGATORS
1. Content aggregators:
i. Represent large publishing companies
Example : Pathfinder.com
ii. Contents are attractive to make site viable.
2. Mainstream aggregators:
i. Sites providing web directory and search engine.
ii. Provide attractive tools like e-mail, home pages,
reminders.
iii. Easy- to-remember URL
iv. Top traffic sites on web.
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Eg: yahoo
3. Event aggregators: Sites providing in-depth content and
tools tailored to needs of particular group.
Example: Microsoft’s HomeAdvisor or Home Shark.
4. Shopping aggregators:
i. Let consumers roam through sites and catalogues to
find best price in seconds.
ii. Help consumers to choose through dozens of e-
commerce site.
Example: compare.com, bizrate.com.
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Aggregator model sites
Chennaibazaar.com
Automartindia.com

Case discussion
 What is the business model of automartindia.com?

 What are the factors leading to the success of

automartindia.com?
 Log on to the automartindia.com and find out all about
the new vehicles being offered.
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 3. INFO- MEDIARY MODEL

 An organizer of virtual community.

 Helps sellers to collect, manage and maximize the value
of information about consumers.
 Information is analysed and used to target marketing
campaigns.
 Firms function as info-mediaries : collecting and selling
information to other businesses.

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 An info- mediary may offer users free internet
access/hardware in exchange for detailed information
about their surfing and purchasing habits. E.g. NetZero,
eMachines.com
 A real info- mediary provides information services by
capturing informations from suppliers to customers.
 They do not own products and services.

 It helps to protect consumers from unsolicited mailings

and confusing product selection
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62
Info-mediary Revenue
Membership fees.
Advertising revenue.
Number of user page views and transactional
revenue.
Subscription fees.
 Value Addition :

Overcome limitation of physical space.

Provide suitable suggestions to buyers.
Helps buyers expand, organize and optimize
search space.
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 CLASSIFICATION OF INFO-MEDIARY MODEL

Classification based on open & closed relationships

with sellers and buyers.
There are 4 types of info mediary model
1. Specialized agents
2. Generic agents
3. Supplier agents
4. Buyer agents

Open: non- proprietary, giving anyone can free access

Closed: proprietary, restricting access. 64
1. Specialized agents:

 Closed relationship with buyers and sellers

 Require cost in the form of fees to satisfy
membership profile.
 Manage a specialized market.

 Business performance depends on their ability to

deliver value through scope, specialization and
infrastructure

65
2. Generic agents:

 Open relationships with buyers and suppliers.

 No relationship- specific investments.

 Great value through comprehensive and unbiased

service
 Generate revenues from advertising.

 Example. Google.com, yahoo.com

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3. Supplier agents:
 Sponsored by specific companies to sell their products.

 Provide access to only its own products.

 Sustainability depends on the quality of suppliers,

provision of benefits to buyers and ability to maintain a
good infrastructure and seamless exchanges platform.

4. Buyer agents:
 Relationship with core set buyers and any number of
suppliers.
 To succeed- build a large base of clients, winning their
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trust
4. COMMUNITY MODEL
 Definitions:

a) a unified body of individuals

b) the people with common interests living in a
particular area, broadly the area itself.
c) an interacting population of various kinds of
individuals in a common location.
E-communities:
Electronic communities are formed when
groups of people meet online to fulfill certain needs,
which include personal interests, relationships,
entertainment and transactions. 68
Functions of Communities on the Web

1. Satisfies the need to be accepted and concerned

about. Satisfies a desire to learn. Act as place to make
personal or business contacts.
2. Deep reservoirs of technical information.
3. Beget loyalty : develop the habit of visiting one
particular site again and again. Develop sense of
ownership.
4. Build business.
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STRUCTURES OF COMMUNITIES:

1.Newsletters:
 One-way communication

 Use list-server software (listserv) which sends same

message to an entire list of people.
 Handles subscribers.

 list server act as a backbone for e-mail discussion

lists.

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2. Discussion Lists:
 listserv allows a member to send e-mail to the list
address
 Types of discussion lists:

1.E-mail discussion list (moderator)

2.E-mail discussion list digest (bundle list)
3.Moderated discussion list digest (to familiarize
other subscription list)
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3. Bulletin Boards:
 Different topics of conversation

 Thread keeping problem is removed.

 Allowing posts to be read, searched and researched

later by individuals who may not have been part of
the original conversations

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4. Chat Rooms:
 Source of knowledge and information

 In business- for public relations, schedule chats

and interviews with famous personalities to gear
up business.
 Example : eGroups- java based chat room

Registration required for security.

Open sourse (RedHat)
Open content (Wikipedia)
Public broadcasting (TV)
Social networking services (fb, twitter)
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Necessary elements for the community model
1. Clear focus
2. Technical capability
3. A proper structure, guidelines and parameters
for discussion.
4. A moderator responsible for each group or list
5. A clear strategy on how the community will
benefit your business.

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Bottom Line : effect of community on business
 1. Customer satisfaction through customer support
- enhance sales.
 2. Increased traffic leads to increased publicity.

 3. Repeated use develop loyalty.

 4. Moderating or sponsoring a group puts you/your

business in the role of an expert.
 5. Helps in focusing groups interested in your
products/services.
 6. Well developed lists can earn advertising
revenue. 75
5. VALUE CHAIN MODEL

 To develop full and seamless interaction among

all members of the chain
 Lower inventories

 Higher customer satisfaction

 Shorter time to the market.

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Generalized Portal : AltaVista as a Value Chain Model

 AltaVista Company is the premier knowledge resource on

the Internet.
 It strong search engine tool and patented technology.

 It provide relevant information on any subject, web pages,

shopping, up-to-the-minute news, live audio and video,
community resources.
 Provide multiple integrated platforms

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Multiple integrated platforms are,

1. AltaVista search
 Available in 25 languages with 8 distinct search dimensions.
2. AltaVista shopping.com
 Firstcomparison shopping service
 Provide objective price and product comparison feature.
 Helps intelligent purchase decision making.

3. AltaVista live!
 Only real time, customizable content source.
 Links content channels on topic like money, news, sports,
entertainment etc. 78
4. AltaVista raging bull
 Theweb’s stickiest site
 Web’s most active finance community

5. AltaVista free access

Fastest growing ISP service with 2 million registered
users in US and Canada.
6. AltaVista international

79
Capabilities of AltaVista Search technology

1. Search catalogues, inventory databases, auctions,

classifieds, job listings, suppliers etc.
2. Improve the success rate of incoming searches.
3. Allow users to sort results by brand, price,
availability etc

80
Personalized portal : My Yahoo! as a Value Chain
Model
 Personalized version of yahoo.

 Allows user to collect all his favourite sections of

yahoo.
 Example: surfing through news, weather, stock
prices, sports scores, TV and movie listings,
horoscopes etc.
 My yahoo is free, portable.

 Allow users to have two pages-

 A home page: frequently accessed information storage.
 Secondary page :store secondary information. 81
Topics that Yahoo offers are:

Pick your weather cities

Track your stock quotes
Read your choice of news
Find local movie Showtime
Follow your favourite sports teams

82
6. MANUFACTURER MODEL

 Direct model
 Allow manufacturers to reach buyers directly

 Compress distribution channel

 Based on efficiency, improved customer service

and understanding customer preferences.
 Manufacturer sells product through website

 Eg: tatasteel.co.in

83
Websites used for,
 Purchase:

The sale of a product in which the right of

ownership is transferred to the buyer.
 Lease :

In exchange for a rental fee, the buyer receives

the right to use the product under “terms of use”
agreement.
On expiration of lease agreement product is
returned.
Agreement may include a right-of-purchase upon
84
expiration.
 License:

The sale of a product involves transfer of usage

rights to buyers.
The ownership rights remain with the manufacturer.
(e.g. software licensing)
 Brand integrated content

Created by manufacturers for the sole basis of

product placement.

85
7. ADVERTISING MODEL

 It is an extension of traditional media broadcast

model
 It provide contents and services like e-mail, chat,
forums together with ads
 Broadcaster gets revenue from banner Ads

 Works well when volume of viewer traffic is large or

highly specialized.

86
Working of advertising model
 Sites offer free access to something and show ads.

 User clicks an ads to go to advertisers page

 Advertiser pays site operator

 Advertisements shown when user wait for some

time-consuming operations.
 Operators earn more if advertisements are of related
topics.
 Advertisements can be targeted to user profiles.

 Create business opportunities E.g. DoubleClick-

collects ads from many sources and arranges for 87
placements on different sites
Web pricing models:

CPM or impression only

Click-through
Sponsorships
Cost-per-lead
Cost-per-sale
Straight revenue sharing deals

88
Types of Advertising on the Internet

1. Portals :e.g. yahoo

2. Classifieds :e.g. manorama classifieds
3. User-based registration :e.g. NYTimes Digital
4. Query-based paid placement :e.g. Google
5. Contextual Advertising

89
Different Web Advertising Formats:

1.Banners.
2.Vertical columns
3.Pop-up windows
4.Interstitials (full screen)
5.Advertorials (article)
6.Intromercials (animated)
7.Ultramercials (interactive online ads)
90
Formats of more effective online ads:
1.Richer ad content through sight, sound, and motion
2.More information (larger files)
3.More interactivity
4.Larger screen size
5.More prominent screen positions
6.Less content competition
7.Reliable measurement
8.Accurate audience measurement
9.Meaningful user targeting
10.Cost-effective advertising model with rates reflecting
advertiser value.

91
8. SUBSCRIPTION MODEL
 Users are charged a periodic fee (daily, monthly, or
annual) to subscribe to a service.
 It is common for sites to combine free content with
‘premium’ content (subscriber or member only)
 Frequently combined with advertising model

 Organizations makes money or revenue from

subscriptions.

92
 Services provided by subscription models :
1. Content services : e.g. online news, movies
2. Person-to-person Networking service :
e.g. Classmates.com
3. Trust Services : e.g. Truste.com
4. Internet Service Providers : (network connectivity
& services) e.g. America Online.

 Popular topics of subscription model :

Existing newsletters topics
Trade associations. 93
9. AFFILIATE MODEL
 Itprovides purchase opportunities wherever people
may be surfing.
 Then offering financial incentives to affiliated
partner sites.
Variations
 Banner exchange.
 Pay-per-click.
 Revenue sharing.

Example: Cdnow.com, Amazon.com

94