E-commerce 2023: business. technology.

society.
Seventeenth Edition

Chapter 2
E-commerce Business
Models and Concepts

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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.

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
Connected Cars: The Next Big
E-commerce Revolution?
• 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?

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
Figure 2.1 The Eight Key Elements of a
Business Model

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
 Slid
e 2-
8

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.

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
 Slid
Copyright © 2014 e 2-
Pearson Education, Inc. 10
Publishing as Prentice

Revenue Model
Hall

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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
 Advertising revenue model

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
Transaction fee revenue model

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
https://momo.vn/
Affiliate Revenue Model

https://vietnambiz.vn/mo-hinh-doanh-thu-lien-ket-affiliate-revenue-model-la-
gi-20200207193750852.htm

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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.

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
https://www.thegioididong.
com/
 Subscription revenue model

Transaction fee revenue model

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
https://www.netflix.com/
vn/
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?
– 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?

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
 Business Insider, 2017

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
 Slid
Copyright © 2014 e 2-
Pearson Education, Inc. 21
Publishing as Prentice
Hall

• 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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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)

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
Raising Capital
• Seed capital
• Elevator pitch
• Traditional sources
– Incubators, angel investors
– Commercial banks, venture capital firms
– Strategic partners
• Equity crowdfunding
– JOBS Act

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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?

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
B2C Business Models
• Online retailer (e-tailer)
• Community provider (social network)
• Content provider
• Portal
• Transaction broker
• Market creator
• Service provider

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
B2C Models: Online Retailer (E-tailer)
• Online version of traditional retailer
• Revenue model
– Sales
• Variations
– Virtual merchant
– Bricks-and-clicks
– Catalog merchant
– Manufacturer-direct
• Low barriers to entry

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
B2C Models: Community Provider
• Provide online environment (social network) where
people with similar interests can transact, share
content, and communicate
– Examples: Facebook, TikTok, LinkedIn, Twitter,
Pinterest
• Revenue models
– Typically use a hybrid model, combining advertising,
subscriptions, sales, and transaction fees

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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
• User-generated content, creators, and the creator
economy
– Playing an ever-increasing role in online content
landscape

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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)

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
B2C Models: Market Creator
• Create digital environment where buyers and sellers can
meet and transact
– Examples: Priceline, eBay, Etsy
– 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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
Insight on Technology: Behind the
Scenes at Etsy
• Class Discussion
– What are the technologies that Etsy uses to create an
online platform for sellers and buyers?
– What issues did Etsy face creating its platform?
– Have you ever used Etsy as either a seller or buyer?
What was your experience with the platform?
– What challenges does Etsy face in the future?

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
B2B Business Models
• B2B e-commerce marketplaces
– E-distributors
– E-procurement companies
– Exchanges
– Industry consortiums
• Private B2B networks

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
B2B Models: E-distributors
• 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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
B2B Models: E-procurement
Companies
• 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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
B2B Models: Industry Consortiums
• 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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
B2B Models: Private B2B 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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
Figure 2.4 E-commerce and Industry
Value Chains

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
Figure 2.5 E-commerce and Firm Value
Chains

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
Figure 2.6 Internet-enabled Value Web

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
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

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
Careers in E-commerce
• Position: Assistant Manager of E-business
• Qualification/Skills
• Preparing for the Interview
• Possible Interview Questions

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved
Copyright

This work is protected by United States copyright laws and is

provided solely for the use of instructors in teaching their
courses and assessing student learning. Dissemination or sale of
any part of this work (including on the World Wide Web) will
destroy the integrity of the work and is not permitted. The work
and materials from it should never be made available to students
except by instructors using the accompanying text in their
classes. All recipients of this work are expected to abide by these
restrictions and to honor the intended pedagogical purposes and
the needs of other instructors who rely on these materials.

Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved