Chapter 2

E-commerce, Business Models and Concepts

2
Learning Objectives
2.1 Identify the key components of e-commerce business
models.
2.2 Describe the major B2C business models.
2.3 Describe the major B2B business models.
2.4 Understand key business concepts and strategies
applicable to e-commerce.

3
Coping with a Pandemic: Small
Businesses Reinvent with E-commerce
• Class Discussion
– Prior to the pandemic, did you physically shop at
small businesses in your community?
– What steps have small businesses with which you
are familiar taken to continue operating during the
pandemic?
– How likely are you to continue new consumer
behaviors instituted during the pandemic after it is
over? For instance, if you ordered groceries online,
will you continue to do so?

4
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

– A business model
Uses/ leverages
unique qualities
of Internet and Web
5
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

Pic from book, don't read pic, read below;

YOU= THE FIRM ,

a firms _ describes “question”
1. Value proposition
Why should the customer buy from you?

2. Revenue model
How will you earn money?

3. Market opportunity
What marketspace do you intend to serve, and what is its size?

4. Competitive environment
Who else occupies your intended marketspace?

5. Competitive advantage
What special advantages does your firm bring to the marketspace?

6. Market strategy
How do you plan to promote your products or services to attract your target audience?

7. Organizational development
What types of organizational structures within the firm are necessary to carry out the business
plan?

8. Management team
What kind of background should the company's leaders have?

6
1. Value Proposition
[ value proposition defines
how a company’s product or service
fulfills the needs of customers]

•“Why should the customer buy from you?”

[ To develop and/or analyze a firm’s value proposition, you need to understand why customers
will choose to do business with the firm instead of another company and
what the firm provides that other firms do not and cannot.]

{ • Successful e-commerce value propositions:

– Personalization/customization
– Reduction of product search,
price discovery costs
– Facilitation of transactions
by managing product delivery}

[ From the consumer point of view,

successful e-commerce value propositions include
personalization and customization
reduction of product search costs,
reduction of price discovery costs, and
facilitation of transactions by managing product delivery.]

( Extra: value is a measure of the benefits that a customer derives from using a particular
product or service relative to its cost. Value = Benefits - Costs)

7
2. Revenue Model
•“How will you earn money?”

[ A firm’s revenue model describes how the firm will earn revenue, generate profits, and produce
a superior return on invested capital.]

• Major types of revenue models:

[ AS SAT]
– Advertising revenue model
– Subscription revenue model
▪ Freemium strategy

[ advertising revenue model

fees from advertisers for advertisement
Facebook

subscription revenue model

Fees from subscriber for access to content or service
Spotify

Recently, a number of companies have been combining a subscription revenue

model with a freemium strategy.

freemium strategy
certain level of product or services for free,
but then charge a subscription fee for premium levels of the product or service
Google Drive
]
– Sales revenue model
Sale of goods, services and information.
Amazon

– Affiliate revenue model

Fees for business referrals
– Transaction fee revenue model
Fees for enabling a transaction

8
3. Market Opportunity
•“What marketspace do you intend to serve and what is its size?”

[Market opportunity
refers to the company’s intended marketspace and the overall potential financial opportunities
available
to the firm in that marketspace]

– 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

9
4. Competitive Environment
•“Who else occupies your intended marketspace?”

[competitive environment refers to

the other companies operating
in the same marketspace
selling similar products]

– Other companies selling similar products in the same marketspace

– Includes both direct and indirect competitors

[Direct competitors
are companies that sell
very similar products and services
into the same market segment.
For example,
Qatar and Emirates airlines,

Indirect competitors
are companies that may be in different industries
but still compete indirectly because their products can substitute for one another
For instance, automobile manufacturers and airline companies. ]

• Competitive Environment is Influenced by:

– Number and size of active competitors
– Each competitor’s market share
– Competitors’ profitability
– Competitors’ pricing

10
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

11
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

12
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

13
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

[ can mg, has me

14
Insight on Society: Foursquare’s Evolving
Business Model: Leveraging Your Location
• Class discussion:
– Why has the shift in Foursquare’s business model been the key to success for Foursquare?
– How comfortable are you with the ability of Foursquare to characterize behavior into various
personas?
– What is your opinion of Foursquare’s characterization of itself as one of the “good guys” in the
location data industry?
– How is Foursquare attempting to cope with a more privacy-conscious business environment?

15
Raising Capital
[SETc]
• Seed capital
• Elevator pitch
• Traditional sources
– Incubators, angel investors
– Commercial banks, venture capital firms
– Strategic partners

• Equity crowdfunding

[Seed capital
typically, an entre_preneur’s personal funds derived from savings, credit card advances, home
equity loans,
or from family and friends

Elevator pitch
short two-to-three minute presentation
aimed at convincing investors to invest
(Time to get in and out of elevator)

Traditional sources
(VIA)
venture capital investors
typically they manage & invest funds for other investors;
usually later-stage investors

in_cu_ba_tors
typically provide
a small amount of funding and
also an array of services
to startup companies

angel investors
typically wealthy individuals or a group of individuals who invest their own money in exchange
for an equity share in the stock of a business; often are the first outside investors in a startup

Crowdfunding
involves using the Internet
to enable individuals
to collectively contribute money
to support a project

16
Key elements of ELEVATOR PITCH
Introduction
Background

Industry size
Revenue model/ numbers/ growth matrics

Funding
Exit strategy
(IB IR FE)
17
Insight on Business: Startups Turn to
Crowdfunding
• Class Discussion
– Would you feel comfortable investing in a startup that raises capital using equity
crowdfunding? Why or why not?
– Why is it important to democratize access to capital?
– What obstacles are presented in the use of crowdfunding as a method to fund startups?

18
Categorizing E-Business Models
• No one correct way to categorize

• Text categorizes according to:

– E-commerce sector (e.g., B2B)
– E-commerce technology (e.g.,m-commerce)

• Similar models appear in different sectors

• Companies may use multiple business models (e.g., eBay)

• E-commerce enablers

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B2C Business Models
• E-tailer
• Community provider (social network)
• Content provider
• Portal
• Transaction broker
• Market creator
• Service provider

[PEC TMS]
20
B2C Models: E-Tailer
• Online version of traditional retailer

• Revenue model: Sales

• Variations:
– Virtual merchant
– Catalog merchant
– Bricks-and-clicks
– Manufacturer-direct

[ Virtual Merchant
Amazon Wayfair Farfetch
Online version of retail store,
{where customers can shop at any hour of the day or night without leaving their home or office }

Catalog Merchant
Grattan OTTO
Online version of direct mail catalog

Bricks-and-Clicks
Walmart Zara
Online distribution channel for a company that also has physical stores

Manufacturer Direct
Nike HelloBody SleepyCat , Hatil
Manufacturer uses online channel to sell direct to customer]

• Low barriers to entry

[ barriers to entry
(the total cost of entering a new marketplace) into the e-tail market are low]

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B2C Models: Community Provider
• Provide online environment (social network) where people with similar interests
can share content and communicate.

– Examples: Facebook, LinkedIn, Twitter, Pinterest

• Revenue models:
– Typically hybrid,
combining advertising, subscriptions,
sales, transaction fees,
and so on

23
B2C Models: Content Provider
• Digital content on the Web:
– News, music, video, text, artwork

• Revenue models:
– Use variety of models, including
advertising, subscription;
sales of digital goods
– Key to success is typically owning the content

[Example - Netflix, Spotify]

24
Insight on Technology: Connected Cars
and the Future of E-commerce
• Class Discussion
– How are new connected car technologies also creating new business models?
– What is the potential impact on different forms of e-commerce, such as the content industry?
– Why are tech companies so interested in the
connected car platform?
– Are there any issues with respect to “connected”
cars?

25
B2C Business Models: Portal
• Search plus an integrated package of content and services

• Revenue models:
– Advertising, referral fees, transaction fees,
subscriptions for premium services

• Variations:
– Horizontal/general (examples: Yahoo, AOL, MSN)
– Vertical/specialized (vortal) (example: Sailnet)
– Search (examples: Google, Bing)

26
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

Example: IG, Monster

27
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

• On-demand service companies ( aka sharing economy companies):

platforms that allow people to sell services
– Examples: Uber, Airbnb

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B2C Models: Service Provider
• Online services

– Examples: 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
[ Companies that make money by selling users a service, rather than a product]