E-commerce 2019: Business. Technology.

Society.
Fifteenth Edition, Global Edition

Chapter 5

E-commerce Business
Strategies

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Learning Objectives
5.1 Identify the key components of e-commerce business models.
5.2 Describe the major B2C business models.
5.3 Describe the major B2B business models.
5.4 Understand key business concepts and strategies applicable to
e-commerce.

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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

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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

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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

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2. Revenue Model
• “How will you earn money?”
• Major types of revenue models:
– Advertising revenue model
– Subscription revenue model
▪ Freemium strategy
– Transaction fee revenue model
– Sales revenue model
– Affiliate revenue model

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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

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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

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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

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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

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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

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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

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Raising Capital
• Seed capital
• Elevator pitch
• Traditional sources
– Incubators, angel investors
– Commercial banks, venture capital firms
– Strategic partners
• Crowdfunding
– JOBS Act

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Categorizing E-commerce 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

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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

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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

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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
• Variations:
– Syndication
– Aggregators

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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 (example: Yahoo, AOL, MSN)
– Vertical/specialized (vortal) (example: Sailnet)
– Search (example: Google, Bing)

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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

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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 (sharing economy): platforms
that allow people to sell services
– Examples: Uber, Airbnb

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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

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B2B Business Models
• Net marketplaces
– E-distributor
– E-procurement
– Exchange
– Industry consortium
• Private industrial network

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B2B Models: E-Distributor
• Version of retail and wholesale store, MRO goods, and
indirect goods
• Owned by one company seeking to serve many customers
• Revenue model: Sales of goods
• Example: Grainger

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B2B Models: E-Procurement
• Creates digital markets where participants transact for indirect
goods
– B2B service providers, SaaS and PaaS providers
– Scale economies
• Revenue model:
– Service fees, supply-chain management, fulfillment services
• Example: Ariba

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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
• Example: Go2Paper

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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: SupplyOn

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Private Industrial Networks
• Digital network used to coordinate among firms engaged in
business together
• Typically evolve out of large company’s internal enterprise
system
– Key, trusted, long-term suppliers invited to network
• Example: Walmart’s network for suppliers

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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 structural analysis

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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

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Figure 5.4 E-commerce and Industry
Value Chains

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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

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Figure 5.5 E-commerce and Firm Value
Chains

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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

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Figure 5.6 Internet-Enabled Value Web

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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/market niche
– Customer intimacy

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E-commerce Technology and Business
Model Disruption
• Disruptive technologies
• Digital disruption
• Sustaining technology
• Stages
– Disruptors introduce new products of lower quality
– Disruptors improve products
– New products become superior to existing products
– Incumbent companies lose market share

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