1.2. Chapter 1 (Continue) CLC Updated Business Models

E-commerce 2014
business. technology. society.

tenth edition
Kenneth C. Laudon
Carol Guercio Traver
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall

Chapter 1 (continued)
E-commerce Business Models
and Concepts
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall

Class Discussion
Tweet Tweet: Twitter’s Business Model

■ What characteristics or benchmarks can be used to
assess the business value of a company such as
Twitter?
■ Have you used Twitter to communicate with friends
or family? What are your thoughts on this service?
■ What are Twitter’s most important assets?
■ Which of the various methods described for
monetizing Twitter’s assets do you feel might be
most successful?
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 2-3
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
Eight Key Elements of a Business Model
1. Value proposition
2. Revenue model
3. Market opportunity
4. Competitive environment
5. Competitive advantage
6. Market strategy
7. Organizational development
8. Management team
1. Value Proposition
■ “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
Value Proposition
■ Value Proposition defines how a company’s product or service fulfills the
needs of customers
■ From the consumer point of view, 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.
http://be.com.vn/
www.amazon.com
-Provide products with competitive prices
- Product diversification
- Build a website with high security in
payment
- International delivery
- The CRM system works effectively,
marketing specifically to customers
https://en.wikipedia.org/
wiki/Amazon_(company)
2. Revenue Model
■ “How will you earn money?”
■ Major types of revenue models:
❖Advertising revenue model
❖Subscription revenue model
❖Transaction fee revenue model
❖Sales revenue model
❖Affiliate revenue model
Revenue Model
Many different e-commerce revenue models
■Advertising revenue model: a company provides a forum for advertisements and
receives fees from advertisers
■Subscription revenue model: a company offers its users content or services and
charges a subscription fee for access to some or all of its offerings. Freemium strategy
companies give away a certain level of product or services for free, but then charge a
subscription fee for premium levels of the product or service
■Transaction fee revenue model: a company receives a fee for enabling or executing a
transaction
■Sales revenue model :a company derives revenue by selling goods, information, or
services
■Affiliate revenue model :a company steers business to an affiliate and receives a
referral fee or percentage of the revenue from any resulting sales
Advertising revenue model
Transaction fee revenue model
https://momo.vn/
Affiliate Revenue Model
https://vietnambiz.vn/mo-hinh-doanh-thu-lien-ket-
affiliate-revenue-model-la-gi-20200207193750852.htm
Sales revenue model
Doanh nghiệp
theo mô hình này
thu được doanh
thu từ việc bán
hàng hoá, dịch vụ
và thông tin cho
khách hàng.
https://www.thegioid
idong.com/
,
Subscription revenue model
Transaction fee revenue model
https://www.netflix.com/
vn/
Revenue Model
3. Market Opportunity
■ “What marketspace do you intend to
serve and what is its size?”
❖ Marketspace: Area of actual or potential commercial
value in which company intends to operate
❖ Realistic market opportunity: Defined by revenue
potential in each market niche in which company hopes
to compete
■ Market opportunity typically divided

into smaller niches
4. Competitive Environment
■ “Who else occupies your intended
marketspace?”
❖ Other companies selling similar products in the same
marketspace
❖ Includes both direct and indirect competitors
■ Influenced by:
❖ Number and size of active competitors
❖ Each competitor’s market share
❖ Competitors’ profitability
❖ Competitors’ pricing
5. Competitive Advantage
■ “What special advantages does your firm
bring to the marketspace?”
❖ Is your product superior to or cheaper to produce than
your competitors’?
■ Important concepts:
❖ Asymmetries
❖ First-mover advantage, complementary resources
❖ Unfair competitive advantage
❖ Leverage
❖ Perfect markets
Business Insider, 2017
■ Asymmetries lead to some firms having an edge over others, permitting them to
come to market with better products, faster than competitors, and sometimes at
lower cost
■ First-mover advantage: a competitive market advantage for a firm that results
from being the first into a marketplace with a serviceable product or service
■ Complementary resources: resources and assets not directly involved in the
production of the product but required for success, such as marketing,
management, financial assets, and reputation
■ Unfair competitive: advantage occurs when one firm develops an advantage
based on a factor that other firms cannot purchase
■ Perfect market: a market in which there are no competitive advantages or
asymmetries because all firms have equal access to all the factors of production
■ Leverage: when a company uses its competitive advantages to achieve more
advantage in surrounding market
6. Market Strategy
■ “How do you plan to promote your

products or services to attract your
target audience?”
❖Details how a company intends to enter
market and attract customers
❖Best business concepts will fail if not
properly marketed to potential customers
Shopee
-Free delivery
-Set up a team to
check product quality,
support sellers in
conducting live
broadcasts on
Shopee's website. –
- Strong
communication (viral
marketing)
7. Organizational Development
■ “What types of organizational structures
within the firm are necessary to carry
out the business plan?”
■ Describes how firm will organize work
❖Typically, divided into functional departments
❖As company grows, hiring moves from
generalists to specialists
Organizational Development
■ Typically, work is divided into functional departments,
such as production, shipping, marketing, customer
support, and finance
■ Many e-commerce firms and many traditional firms that
attempt an e-commerce strategy have failed because they
lacked the organizational structures and supportive
cultural values required to support new forms of
commerce
8. Management Team
■ “What kind of backgrounds should the
company’s leaders have?”
■ A strong management team:
❖Can make the business model work
❖Can give credibility to outside investors
❖Has market-specific knowledge
❖Has experience in implementing business plans
Raising Capital
■ Seed capital
■ Traditional sources
❖Incubators
❖Commercial banks
❖Angel investors
❖Venture capital firms
❖Strategic partners
■ Crowdfunding
❖JOBS Act
Categorizing E-commerce
Business Models
■ No one correct way
■ Text categorizes according to:
❖ E-commerce sector (e.g., B2B)
❖ E-commerce technology (e.g., m-commerce)
■ Similar business models appear in more than
one sector
■ Some companies use multiple business
models (e.g., eBay)
B2C Business Models
■ E-tailer
■ Community provider (social network)
■ Content provider
■ Portal
■ Transaction broker
■ Market creator
■ Service provider
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
B2C Models: E-tailer
■ REI, JCPenney, Barnes & Noble,
Walmart, and Staples are examples of
companies with complementary online
stores
■ Barriers to entry: the total cost of
entering a new marketplace
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
B2C Models: Content Provider
■ Digital content on the Web:
❖ News, music, video, text, artwork
■ Revenue models:
❖ Subscription; pay per download (micropayment);
advertising; affiliate referral
■ Variations:
❖ Syndication
❖ Web aggregators
Insight on Technology: Class Discussion
B2C Models: Content Provider

■ E.g., with Spotify, a monthly subscription fee provides users with access
to millions of music tracks
■ Some content providers, however, do not own content, but syndicate

(aggregate) and then distribute content produced by others.
Aggregators, who collect information from a wide variety of sources and
then add value to that information through post-aggregation services,
are another variation
■ For instance, Shopzilla collects information on the prices of thousands of

goods online, analyzes the information, and presents users with tables
showing the range of prices and links to the sites
B2C Business Models: Portal
■ Search plus an integrated package of
content and services
■ Revenue models:
❖Advertising, referral fees, transaction fees,
subscriptions
■ Variations:
❖Horizontal/general
❖Vertical/specialized (vortal)
❖Search
B2C Business Models: Portal
■ offers users powerful search tools as well as an integrated package
of content and services all in one place
■ Google, Microsoft’s Bing, Yahoo [Oath], Ask, and AOL
■ Portals generate revenue primarily by charging advertisers for ad
placement, collecting referral fees for steering customers to other
sites, and charging for premium services
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
B2C Models: Transaction Broker
■ Transaction broker: processes transactions for consumers that are
normally handled in person, by phone, or by mail
■ largest industries using this model are financial services, travel
services, and job placement services
■ Given rising consumer interest in financial planning and the stock
market, the market opportunity for online transaction brokers
appears to be large
■ Transaction brokers make money each time a transaction occurs
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
B2C Models: Market Creator
For example, eBay’s auction business model is to
create a digital environment for buyers and sellers to
meet, agree on a price, and transact
Market creators are different from transaction brokers who
actually carry out the transaction for their customers, acting as
agents in larger markets
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
B2B Business Models
■ Net marketplaces
❖E-distributor
❖E-procurement
❖Exchange
❖Industry consortium
■ Private industrial network
B2B Models: E-distributor
■ Version of retail and cstore, MRO goods,
and indirect goods
■ Owned by one company seeking to
serve many customers
■ Revenue model: Sales of goods
■ Example: Grainger.com
B2B Models: E-procurement
■ Creates digital markets where
participants transact for indirect goods
❖B2B service providers, application service
providers (ASPs)
■ Revenue model:
❖Service fees, supply-chain management,
fulfillment services
■ Example: Ariba
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
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: Exostar
Private Industrial Networks
■ Digital network used to coordinate among
firms engaged in business together
■ Typically evolve out of company’s internal
enterprise system
■ Example: Walmart’s network for suppliers
■ Cost absorbed by network owner and
recovered through production and
distribution efficiencies
E-commerce Enablers:
The Gold Rush Model
■ E-commerce infrastructure companies
have profited the most:
❖Hardware, software, networking, security
❖E-commerce software systems, payment systems
❖Media solutions, performance enhancement
❖CRM software
❖Databases
❖Hosting services, and so on
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 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
E-commerce and Industry Value Chains
Figure 2.5, Page 90

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
E-commerce and Firm Value Chains
Figure 2.6, Page 91

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
■ Value web: networked business ecosystem that coordinates the
value chains of several firms
■ Firms rely on the value chains of their partners—their suppliers,
distributors, and delivery firms. E-commerce creates new
opportunities for firms to cooperate and create a value web.
■ E.g Amazon relies on UPS tracking systems to provide its
customers with online package tracking, and it relies on the U.S.
Postal Service systems to insert packages directly into the mail
stream. The value of Amazon is, in large part, the value delivered
by its value web partners
■ Internet technology enables firms to create an enhanced value
web in cooperation with their strategic alliance and partner firms,
customers, and direct and indirect suppliers
Internet-enabled Value Web
Figure 2.7, Page 92
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
❖Customer intimacy
■ Business strategy: a set of plans for achieving superior long-term
returns on the capital invested in a business firm
■ Profit: the difference between the price a firm is able to charge for its
products and the cost of producing and distributing goods
■ There are five generic strategies for achieving a profitable business:
■ Differentiation: refers to all the ways producers can make their
products or services unique and different to distinguish them from
those of competitors
■ Cost competition: offering products and services at a lower cost than
competitors
■ Scope: competing in all markets around the globe, rather than just
local, regional, or national markets
■ Focus/ market niche strategy: competing within a narrow market or
product segment

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E-commerce 2014

business. technology. society.

Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall

Tweet Tweet: Twitter’s Business Model

Transaction fee revenue model

■ Market opportunity typically divided

■ “How do you plan to promote your

B2C Models: Content Provider

■ Some content providers, however, do not own content, but syndicate

■ For instance, Shopzilla collects information on the prices of thousands of

■ Industries using this model:

■ Revenue model: Transaction fees, fees to

■ E-commerce changes industry structure

Figure 2.5, Page 90

Figure 2.6, Page 91

Figure 2.7, Page 92

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