EBusiness Models

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E-Business Models

• Thinking Outside of the Box

whattheheck
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What Is a Business Model?

• The basic process flow indicating how a business
  operates, including how business functions are
  linked together and are positioned in the value
  chain.
• A representation of a companys revenue stream,
  benefits to the consumer, and architecture to
  deliver those benefits.
• In short, its how the organization makes money!
• Kleindl, p.5

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Dells Online Business Model
Suppliers linked through extranet deliver JIT
Product delivered through independent shippers
such as UPS
Customer gathers information and purchases
through Web page
Dell manufactures customized PC and sells at low
price
Web page provides information and ordering
Payments are made online through web page
Kleindl, p3-5 Atler p3
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Genesis of Online Business Models

• Technology-created vs. Technology-enhanced
• Technology-created business model that did not
  exist or was in a substantially different form
  prior to e-business. (could not survive without
  electronic presence).
• Technology-enhanced traditional business model
  that has been altered, improved, or transformed
  as a result of e-business. (simply improved the
  value chain through technology).

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E-Business Models

• Brokerage Model
• Advertising Model
• Infomediary Model
• Merchant Model
• Manufacturing Direct Model
• Affiliate Model
• Community Model
• Subscription Model
• Utility Model
• Rappa, Business Models on the Web

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Online Brokers

• Market-makers in which buyers and sellers are
  brought together to negotiate, and complete
  transactions
• Provides many value-added services such as
  information resources and financing alternatives,
  but goes beyond just information provider, helps
  arrange transactions for B2C, B2B and C2C.
• May take one of several forms such as
• Buyer Aggregators a unique form of broker that
  brings groups of buyers together for power
  buys.
• Ex. (eWinWin)
• Buy/Sell Fulfillment brings individual buyers
  together with seller
• Ex. ETrade, AutoByTel, Priceline.com
• Market Exchanges are trading desks where B2B
  buyers and sellers come together.
• Ex. Metal Site, PaperSpace, E-Steel
• Profit Commission from transaction or listing
  fees paid by buyer, seller, or both, many varying
  formulas.

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Auctions/Reverse AuctionsType of Brokerage Model

• Extremely popular form of business model for
  selling B2B, B2C, and C2C can be set up to host
  your own auctions or use an auction brokerage
• Auctions may be part of a general auction web
  site or specialized in particular industries
• Great for unloading surplus goods and getting
  close to market prices
• Multiple auction formats reserve, private..
• Challenges including selecting merchandise
  suitable for auctions, handling payment, shipping
• Ex. eBay (grandma), uBid, NextPlanetOver
• Profit Listing fees (nominal) plus commission
  based on winning bid price also from affiliates
  and ads

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Auctions/Reverse Auctions(continued)

• In Reverse Auctions, buyers register an amount
  they are willing to pay, then sellers bid for the
  buyers business.
• Sellers start at high prices, then gradually
  lower it until they meet the buyers price or get
  close enough to cause a sale.
• Common in perishable goods and time constrained
  services (e.g., airline seats and hotel rooms)
• Helps seller get rid of excess merchandise
  without upsetting channel partners
• Ex. NexTag.com, Priceline.com, Travelocity

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Online MallsType of Brokerage Model

• Hosts multiple online merchants to gain added
  exposure from traffic coming to the mall.
• Customer can register purchase, billing, and
  shipping information in central account which is
  used for purchases at all mall stores.
• Offers numerous customer services such as
  frequent shopper programs, gift registry, buyers
  protection, mall search engine, and product
  recommendations for special occasions
• Ex. Yahoo! Store, Majon International
• Profit Mall owner makes money from listing fees,
  transaction fees, setup fees, ads, and
  occasionally, commissions.

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Advertising Model (Content Sponsorship)

• E-business model that builds web sites
  specifically to create traffic and sell
  advertising. Rooted in traditional media
  (television, magazines, radio) that sell space
  and air time
• May use permission marketing, which offers
  consumers incentives to accept advertising and
  email voluntarily. Asks people what they are
  interested in, asks permission to send them
  information, then does it in a creative and
  entertaining manner. Benefit is a captive
  audience who has agreed to view ads.
• Provides content (usually for free) and services
  (like e-mail, chat, forums) mixed with
  advertising messages in the form of banner ads.
• Ex. Portals or Search Engines like Yahoo,
  Classifieds like Monster.com or User Registration
  like NY Times Online
• Profit Selling ad space (ex. Banner ads) and
  promo activities to advertisers. Only works when
  the volume of viewer traffic is large or highly
  specialized.

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Infomediaries

• Information intermediaries sometimes called
  aggregators. This model is built around compiling
  and distributing information, assisting buyers
  and/or sellers understand a given market.
• Ex. Audience Measurement Services -- online
  audience market research agencies like
  Nielsen//Netratings or Advertising networks like
  Doubleclick or Incentive Marketing Programs like
  Coolsavings.com
• Profit Referral fees, advertisers, affiliates

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Merchant Model Virtual Storefront (E-tailing)

• Model is based on an electronic version of
  traditional brick-and-mortar stores. The
  click-and-order electronic store has product
  displays, shopping carts, checkout stands, etc.
  Includes wholesalers and retailers of goods and
  services.
• Much more convenient for consumers to shop,
  cheaper for seller to operate.
• Must have assortment management, good site
  content, secure ordering, solid delivery system,
  and method for driving traffic to your site, such
  as affiliate programs.
• Ex. Virtual merchant like Amazons 1 Click demo.
  CarParts, BarnsandNoble, Etoys. Catalog Merchants
  like Lands End. Bit Vendor like Apple iTune Music
  Store.
• Profits Directly from sale of products from the
  product mix from several manufacturers, plus
  banner ads. Sales may be made based on list
  prices or through auction.

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Manufacturing (Direct) Sales Models

• E-business model is built around concept of
  disintermediation the elimination of middlemen
  in order to cut costs and speed delivery of
  product from manufacturer to consumer or business
  customer. Based on efficiency, improved customer
  service, and a better understanding of customer
  preferences. Dell Computer
• Has been used most successfully in B2B markets
  because of smaller, more homogeneous customer
  groups, advent of EDI, and JIT inventory control
  systems. Can be Bit Vendor, sell tangible
  goods, or business services.
• Ex. Cisco Systems, Dell Computers, Dells Premier
  Support Demo ,
• Profit Derives from sale of company products
  much like offline sales through company sales
  force

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Affiliate Model

• Provides purchase opportunities wherever people
  may be surfing by offering financial incentives
  (in the form of a percentage of revenue) to
  affiliated partner sites.
• The affiliates provide purchase-point
  click-through to the merchant and is a
  pay-for-performance model -- if an affiliate does
  not generate sales, it represents no cost to the
  merchant. Well-suited to the web, which explains
  its popularity. Variations include, banner
  exchange, pay-per-click, and revenue sharing
  programs.
• Ex. Amazon.com Associate Program
• Profit Percentage of revenue, pay-per-click

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Community Model

• Based on user loyalty. Users have a high
  investment in both time and emotion.
• Ex. Knowledge Networks -- discussion sites based
  on the sharing of expertise among professionals
  like AllExperts, or Open Source like Red Hat
• Profit Revenue can be based on the sale of
  ancillary products and services or voluntary
  contributions.

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Utility Model (On-Demand)

• Based on metering usage, or a "pay as you go"
  approach, based on actual usage rates. In some
  parts of the world, ISPs operate as utilities,
  charging customers for connection minutes or
  usage, as opposed to the subscriber model common
  in the U.S. IBM
• Ex. Metered Subscriptions, allowing subscribers
  to purchase access to content in metered portions
  (ex, numbers of pages viewed). Slashdot
• Profit per utility usage

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Subscription Model

• Commonly sites combine free content with
  "premium" (i.e., subscriber- or member-only)
  content. Subscription and advertising models are
  often combined.
• Ex. ISPs like AOL, or Person-to-person networking
  services like Classmates
• Profit Periodic charges to users (daily,
  monthly or annually) to subscribe to service
  regardless of usage.

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Conclusion

• Business models are perhaps the most discussed
  and least understood aspect of the Web. Dr.
  Michael Rappa
• The number and type of e-business models is
  constantly growing and changing, as needs lead to
  innovation.
• Entrepreneurs, thinking outside of the box find
  ways to get peoples attention, spark their
  interest, create desire for a product or service,
  and then to drive them to take action (AIDA
  Model).
• The entrepreneur then fulfills a recognized need
  or even more innovatively creates a need to
  fulfill to generate revenue.