AACS2733 Introduction to E-Commerce

Chapter 7
E-Commerce Models and Online Industries

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Upon completion of this chapter, you
will be able to:
 Define business model and revenue model
 Describe some e-commerce business

models
 Explain the applications of e-commerce (in

several popular industries)

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7.1 Define Business Model and
Revenue Model
 A business model is a method of doing
business by which a company can generate
revenue to sustain itself. In many cases, one
company may have several business models.
 A revenue model outlines how the

organization, or the EC project, will generate

revenue.
 A company uses its revenue model to

describe how it will generate revenue and its

business model to describe the process it
will use to do so.
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Major revenue models (6 of them)

1) Sales model: Companies generate revenue from

selling merchandise or services on their
websites. E.g. An example is when Godiva sells
a product online.
2) Transaction Fees model: A company receives a
commission based on the volume of
transactions made. E.g.. There is a fixed fee per
trade charged in online stock trades.
3) Subscription Fees model: Customers pay a fixed
amount, usually monthly, to get some type of
service. E.g. Access fee for AOL.

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Major revenue models
4) Advertisement Fees model: Companies charge
others for allowing them to place a banner on
their sites.
5) Affiliate Fees model: Companies receive
commission for referring customers to certain
websites. E.g. A good program called “Amazon
Associates” is available at Amazon.com.
6) Licensing Fees model: Licensing fees can be
assessed as an annual fee or a per usage fee. For
example: Microsoft received fees from each
workstation that uses Windows NT.
7) Other Revenue Sources: Some companies allow
people to play games or to watch real-time match
for a fee.
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7.2 The FIVE most common EC business models
these days are:
7.2.1 Online direct marketing
◦ The most obvious EC model, selling products or
services online, from a manufacturer to a
customer, or from retailers to consumers.
◦ Aims for eliminating intermediaries or physical
stores and making distribution more efficient.
7.2.2 Electronic tendering systems
◦ Large organizational buyers usually make large-
volume/value purchases through an online
tendering(bidding) system, a.k.a. reverse auction.

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The FIVE most common EC business models these days are:

7.2.3 Electronic marketplaces and exchanges

◦ An online marketplace where buyers and sellers meet
to exchange goods, services, money, or information.
◦ E.g. stock and commodities exchanges
◦ Of special interest are vertical marketplaces that
concentrate on one industry. E.g. marketplaces
specializing in chemicals, steels etc.
An online marketplace is an e-commerce site that connects sellers
with buyers. It's often known as an electronic marketplace and all
transactions are managed by the website owner. Companies use
online marketplaces to reach to customers who want to purchase
their products and services.

Examples of Electronic marketplace:

• Product Online Marketplace
• Online Service Marketplace
• Online Rental Marketplace
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The FIVE most common EC business
models these days are:
7.2.4 Viral marketing
◦ It is basically web-based word-of-mouth
advertising where people use e-mail and social
networks to spread WOM advertising.

Example:
Due to their speed and ease to share, social networks are
the natural habitat of this kind of marketing.

The most widespread example in recent times is the

creation of emotional, surprising, funny or unique videos
on YouTube, which are then shared on Facebook, Twitter
and other channels.

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The FIVE most common EC business
models these days are:
7.2.5 Group purchasing
◦ This is based on the concept of quantity discounts,
“cheaper by the dozen”.
◦ Internet allows individuals to get together, so they
can gain the large-quantity advantage.
◦ This model was not popular in B2C until 2010
when Groupon introduced a modified model in
which people are grouped around special deals.

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7.3 Additional E-Commerce business
models
7.3.1 Online Auction(Forward Auction)

 Involved a seller entertains bids from many buyers.

 Online shoppers make consecutive bids for various
goods and services, and the highest bidders get the
items auctioned.
 Bidders increase the price sequentially.
 E.g. eBay and Yahoo!

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7.3.2 Reverse Auction
 Involved a buyer and many sellers.
 Auction in which the buyer places an item for bid on
a request for quote (RFQ) system, potentials suppliers
bid on the job, with the price reducing sequentially,
and the lowest bid wins.

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Forward auction- M buyers,1
seller

SELLERS

BUYERS

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Reverse auction- 1 buyers, M
seller

BUYERS

SELLERS

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7.3.3 Transaction Broker
 Buyers can view rates and terms, but the primary

business activity is to complete transaction.

 E.g. E*TRADE and Ameritrade

7.3.4 Information Broker (Infomediaries)

 Information brokers provide privacy, trust,

matching, search, content, and other services

 Some facilitate transactions, but their main value is

the information they provide.

 E.g. Google.com, Bizrate.com, PartNet

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ETrade.com

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7.3.5 Name Your Own Price

 allows buyer to set the price he is willing to pay for a

specific product or service, the web site will try to
match the customer’s request with a supplier willing
to sell at that price.
 E.g. Priceline.com

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7.3.6 Find the Best Price

 A.k.a. search engine model

 A customer specifies his need and then the web
site matches it against a database to locate the
lowest price.
 E.g. eloan.com: customer can find the best
interest rate for automobile or home loans.

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7.3.7 Affiliate Marketing
 It is an arrangement whereby a marketing partner refers consumers to
a selling company’s web site.
 The referral is done by placing a banner ad or logo of the selling
company on the affiliated company’s Web site.
 In other words, by using affiliate marketing, a selling company creates
a virtual commissioned sales force.
 Eg:myPoints.com

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7.4 Applications of E-Commerce

1. Travel and Tourism Services

2. Employment Placement and Job Market
3. Real Estate
4. Insurance
5. Stock Trading
6. Online Banking

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7.4.1 Travel and Tourism Services

 Internet is ideal place to plan, explore, and

arrange any trip.
 Major travel-related Web sites are: expedia.com,
orbitz.com, travelocity.com, asiatravel.com,
 Revenue models of online travel services include:
◦ Direct revenues (commissions)
◦ Lead-generation payments
◦ Advertising fees
◦ Subscription fees
◦ Membership fees

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Travel and Tourism Services: Services Provided
 Virtual travel agencies offer almost all the services by
conventional travel agencies, e.g. providing general
information, reserving and purchasing travel
accommodations and event tickets.

 Added value functions for virtual agencies, such as

travel tips, e-travel magazine, fare tracking, currency
conversion, detailed driving maps and directions,
worldwide business & place locators, weather,
experts’ opinions, major international and travel
news, chat rooms and bulletin boards, restaurant
reviews and etc

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Special Online Travel Services
 Travel bargains e.g. offer low airfares and discounted
accommodations prices to fill otherwise-empty seats
and hotel rooms
(i) Wireless services
◦ Check flight status, update frequent flyer miles, and book
flights through cell phones.
(ii) Direct marketing
◦ sell electronic tickets over the Internet
◦ Airlines are able to build customer profiles and target
specific customers with tailored offers
(iii) Alliances and consortia
◦ Airlines and other travel agencies are creating alliances to
INCREASE sales or DECREASE purchasing cost
◦ Consortia aggregate participants’ Internet-only fares

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7.4.1.1 Benefits and Limitations of Online Travel
Services
Benefits:
 Huge amount of free useful information.

 Accessible at any time from any place.

 Substantial discounts, can find lowest prices.

 Travel providers benefit by eliminating

commissions and selling otherwise-empty spaces.

Limitations:
 Amount of time and the difficulty of using virtual

travel agencies are significant for inexperienced

Internet surfers.
 Complex trips are difficult to arrange because they

require complicated arrangement.

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7.4.2 Employment Placement and Job Market

 The Internet offers a rich environment for job seekers and

for companies searching for hard-to-find employees
 Parties use the internet job market:
◦ Job seekers (reply to employment ads or place their resumes to
the recruiting firm such as, jobdiret.com, jobstreet.com.my)

◦ Employers seeking employees (can conduct interviews and

administer tests through web)

◦ Job agencies (own web site to post available job description or

advertise their service in e-mail e.g. jobstreet.com)

◦ Government agencies and institutions (Advertise openings for

government position on their web site and other site such as
asiajobsearch.org)
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7.4.2.1 Benefits and Limitations of Electronic Job
Market

Benefits for Job Seekers

 Find information on a large number of jobs worldwide

 Communicate directly and quickly with potential

employers
 Write and post resumes for large-volume distribution

 Search for available positions any time from any

location.
 Assess their market value and determine appropriate

salaries in the marketplace

 Learn how to behave effectively in an interview

 Access social network groups dedicated to find e-job

markets.

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7.4.2.1 Benefits and Limitations of Electronic Job
Market (cont.)

Benefits to Employers
 Advertise to a large numbers of job seekers.

 Save on advertisement and recruitment costs.

 Reduce application processing costs by using

electronic application forms.

 Provide greater equal opportunity for job seekers.

 Increased chance of finding highly skilled

employees.

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7.4.2.1 Benefits and Limitations of Electronic Job
Market (cont.)

Limitations
 Many people do not use the Internet

 Security and privacy, posted resumes and employer-

employee communications are usually not encrypted.

 Create high turnover costs for employers by

accelerating employees’ movement to better jobs

 Finding candidates online is complicated due to the

large number of resumes available online

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 7.4.2.2 Intelligent Agents in the Electronic Job
Market
 It may solve the problems by matching openings

and jobs among job seekers and employers.

 Intelligent agents for Job Seekers:

◦ Free service that uses intelligent agents to search the

Internet’s top job sites and databases for job postings
based on users’ profiles is offered at careershop.com.
◦ Users create as many as 5 different profiles based on
more than 100 different job categories, geographic
regions, and key words.
◦ Users receive a daily e-mail containing job opportunities
from over a dozen top job sites around the Internet

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7.4.2.2 Intelligent Agents in the Electronic Job
Market (cont.)
 Intelligent agents for Employers:
◦ Can help employers find resume that match specific job
description.
◦ E.g. Resumix.com, interpret a candidate’s resumes,
determining skills based on context and matching those
skills to the position criteria.
◦ Recruiters can search for a candidate or identify existing
employees for training programs, redeployment
opportunities, or new initiatives

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7.4.3 Real Estate Online

 Studies have shown that 89% of all recent buyers used the
Internet at some point in their home search.
 Home buyers todays tend to use both real estate agents and the
Internet.

 In real estate online, potential homebuyers can:

◦ View many properties online, at any time and from anywhere, saving
time for the buyer and the broker

◦ Sort and organize properties according to specific criteria and preview

the exterior and interior design of the properties, shortening the
search process

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7.4.3 Real Estate Online (cont.)

Real Estate Applications

 Craigslist.com: Free real estate services
 assist2sell.com: Advice to consumers on

buying or selling a home.

 realtor.com & land.net: National listing of

properties for sale.

 bankrate.com & eloan.com: Information on

current mortgage rates.

 owners.com: Persons selling their homes

privately without using a real estate agent.

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7.4.3 Real Estate Online (cont.)

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 7.4.4 Insurance Online
 Standard insurance policies are
available online at a substantial
discount such as auto, home, life, and
health.

 Third-party aggregators offer free

comparisons of available policies

 Examples of Internet insurance sites:

insurate.com, quotesmith.com,
insweb.com, insurance.com, ebix.com

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7.4.4 Insurance Online

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 7.4.5 Online Stock Trading
 Online stock trading was an innovation in the financial
service industry.
 Advantages:
◦ no busy telephone lines
◦ the chance for errors is small,
◦ there is no oral communication in a frequently noisy
environment
◦ Orders can be place anywhere/place/time
◦ no biased brokers to push a sale.

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Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 39
Example : Online Stock Trading

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7.4.5 Investment Information (cont.)
 money.cnn.com: current financial news
 bloomberg.com: municipal bond prices
 investorguide.com: overall market information with
many links to other financial sites
 thestreet.com: free “guru” (expert) advice
 marketguide.com: stock screening and evaluation
tools (MultexInvestor)

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7.4.6 E-Banking
 Electronic/online/cyber/virtual banking
Various banking activities conducted using an
Internet connection.
 Online banking activities or services:
◦ Check account details, fund transfer, bill-pay
service, investment, pay for taxes etc.
 Pure virtual banks have no physical location and
conduct only online transactions.
E.g.: Bank of Internet USA.

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Chapter 7 Recap
7.1 Define Business Model and Revenue Model
7.2 The FIVE most common EC business models
7.2.1 Online Direct Marketing/Virtual-storefront
7.2.2 E-tendering
7.2.3 E-marketplaces & exchanges
7.2.2 Viral marketing
7.2.3 Group purchasing
7.3 Additional E-Commerce business models
7.3.1 Online auction
7.3.2 Reverse auction
7.3.3 Transaction broker
7.3.4 Information broker (Infomediaries)
7.3.5 Name your own price
7.3.6 Find the best price
7.3.7 Affiliate marketing
7.4 E-commerce application
7.4.1 Travel and Tourism Services
7.4.2Employment Placement and Job Market
7.4.3Real Estate
7.4.4Insurance
7.4.5Stock Trading
7.4.6Online Banking
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