erick presentation business model

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Business Model E-Commerce

Presented by: Fanerick G. Kawatu

Pascasarjana Magister Management

Universitas Klabat 2012



E-commerce Business Models— Introduction

Business model – set of plannedactivities designed to result in a profitin a marketplace

Business plan – document thatdescribes a firm’s business model

E-commerce business model – aimsto use and leverage the uniquequalities of Internet and Web



Copyright © 2004Pearson Education,Inc.

Slide 2-3

Key Ingredients of a Business Model



Value Proposition

Defines how a company’s product or servicefulfills the needs of customers

Questions to ask:

Why will customers choose to do businesswith your firm instead of another?

What will your firm provide that others donot or cannot?

Examples of successful value propositions

include: Personalization/customization

Reduction of product search costs

Reduction of price discover costs

Facilitation of transactions by managingproduct delivery



Revenue Model

Describes how the firm will earn revenue,generate profits, and produce a superiorreturn on invested capital

Major types:

Advertising revenue model

Subscription revenue model

Transaction fee revenue model

Sales revenue model

Affiliate revenue model



Advertising Revenue Model

Web site that offers content,services and/or products alsoprovides a forum for advertisements

and receives fees from advertisers

Example: Yahoo.com



Subscription Revenue Model

Web site that offers users content orservices charges a subscription feefor access to some or all of its

offerings

Examples:

Consumer Reports

Online Yahoo! Platinum

Journal etc.



Slide 2-8

Yahoo Uses a Subscription BusinessModel for Yahoo Platinum



Transaction Fee Revenue Model

Company that receives a fee forenabling or executing a transaction

Examples:

eBay.com

E-Trade.com



Sales Revenue Model

Company derives revenue by sellinggoods, information, or services tocustomers

Examples:

Amazon.com

LLBean.com

Gap.com



Slide 2-11

Amazon Uses a Sales Revenue Model



Affiliate Revenue Model

Sites that steer business to an ―affiliate‖ receive a referral fee orpercentage of the revenue from any

resulting sales

Example:

MyPoints.com

Priceline.com



Five Primary Revenue Models



Market Opportunity

Refers to a company’s intendedmarketspace and the overall potentialfinancial opportunities available to the

firm in that marketspace Marketspace – the area of actual or

potential commercial value in which acompany intends to operate

Realistic market opportunity isdefined by revenue potential in eachof market niches in which companyhopes to compete



Competitive Environment

Refers to the other companiesselling similar products andoperating in the same marketspace

Influenced by: how many competitors are active

how large their operations are

what market share for each competitoris

how profitable these firms are

how they price their products



Competitive Environment (cont’d)

Direct competitors – companies that sellproducts or services that are very similar andinto the same market segment

Example: Priceline.com andTravelocity.com

Indirect competitors – companies that maybe in different industries but that still

compete indirectly because their products cansubstitute for one another

Example: CNN.com and ESPN.com



Competitive Advantage

Achieved when firm can produce asuperior product and/or bring productto market at a lower price than most,

or all, of competitors Asymmetry – when one participant in a

market has more resources than others



Competitive Advantage (cont’d)

Types of competitive advantage include:

First mover advantage – results from afirm being first into a marketplace

Unfair competitive advantage – occurswhen one firm develops an advantagebased on a factor that other firms cannotpurchase

Companies leverage their competitive

assets when they use their competitiveadvantages to achieve more advantage insurrounding markets



Market Strategy

A plan that details how a companyintends to enter a new market andattract customers

Best business concepts will fail if notproperly marketed to potentialcustomers



Organizational Development

Describes how the company willorganize the work that needs to beaccomplished

Work is typically divided intofunctional departments

Move from generalists to specialists

as the company grows



Management Team

Employees of the company responsiblefor making the business model work

Strong management team givesinstant credibility to outside investors

A strong management team may notbe able to salvage a weak business

model, but should be able to changethe model and redefine the business asit becomes necessary



Categorizing E-commerce BusinessModels: Some Difficulties

No one correct way

We categorize business models

according to e-commerce sector(B2C, B2B, C2C)

Type of e-commerce technology usedcan also affect classification of a

business model

Some companies use multiplebusiness models



Slide 2-23

B2C Business Models



B2C Business Models: Portal

Offers powerful search tools plus anintegrated package of content andservices

typically utilizes a combinessubscription/advertisingrevenues/transaction fee model

May be general or specialized(vortal)



B2C Business Models: E-tailer

Online version of traditional retailer

Types include:

Virtual merchants (online retailstore only)

Clicks and bricks (onlinedistribution channel for a companythat also has physical stores)

Catalog merchants (online versionof direct mail catalog)

Manufacturer-direct (manufacturerselling directly over the Web)



B2C Business Models: ContentProvider

Information and entertainmentcompanies that provide digital contentover the Web

Second largest source of B2C e-commerce revenue in 2002

Typically utilizes an subscription, pay for

download, or advertising revenue model



B2C Business Models: TransactionBroker

Processes online transactions forconsumers

Primary value proposition – saving of

time and money

Typical revenue model – transaction fee

Industries using this model:

Financial services Travel services

Job placement services



B2C Business Model: MarketCreator

Uses Internet technology to createmarkets that bring buyers and sellerstogether

Examples:

Priceline.com

eBay.com

Typically uses a transaction feerevenue model



B2C Business Model: ServiceProvider

Offers services online

Value proposition – valuable,convenient, time-saving, low-costalternatives to traditional serviceproviders

Revenue models – subscription fees

or one-time payment



B2C Business Models: CommunityProvider

Sites that create a digital onlineenvironment where people withsimilar interests can transact,

communicate, and receive interest-related information.

Typically rely on a hybrid revenuemodel

Examples: Epinions.com

Oxygen.com

About.com



The Five Steps for e-CommerceSuccess

1. Redefine competitive advantage for the digitalenvironmenta. E-commerce is changing the competitive environment in

terms of cost, differentiation, marketing and distribution

2. Rethink traditional ways of formulating strategy

a. Think beyond building a Web siteb. Design an architecture that will support the e-Commerce

strategy

3. Reexamine traditional business and revenue models4. Reengineer structures and processes to capitalize on

the benefits of e-Commerce

5. Reinvent customer service for the new environment



Components of the e-CommerceBusiness Model

Value Proposition

Scope of offerings

Unique resource system Revenue and growth models

Competitive strategy



Value Proposition

Choice of focal customer benefits

Core products/services

What value provided?

How unique?

Does it satisfy customer’s demand?

Are there strong network effects?

Are there substitutes



Value Proposition

Supplemental products/services

How important are supplementalproducts?

How do we increase value by improvingbusiness processes?

How important is it to provideinstructions, training or customerservice?



Value Proposition

• Target Segment – Market attractiveness

• How substantial?

•

Under or over-served?• Growth rate?

• What stage is the market in the productlifecycle?

– Intensity of competition

• What is the market structure?• How intense is competition

• How large are the entry and exit barriers?



Scope of Offerings

Prepurchase

Purchase

Postpurchase

Purchasing Process

Product/Service Contents



Prepurchase

How easy do we make it forcustomers to obtain and compareproduct information?

How important is advertising toinform or persuade?

Do we need 3rd party verification?



Purchase/Postpurchase

• Purchase – When, where, how do customers make

purchase?

–

What kind of services are required to assist? – Is delivery efficient?

• Postpurchase – Do we understand customer evaluation and

satisfaction with product? – Do the majority of customers male repeat

purchases?



Purchase Process

Is it important to offer the customerassistance in the process of purchase?

Can we identify the customer decisionprocess and provide effectiveassistance?

Is the e-Commerce site user-friendly?



Product/Service Contents

• Core product – do we understand thebusiness we’re in, do our productssolve customer problems?

• Core delivery process

– Do we understand how to takeadvantage of economies of scope in

production and distribution? – What kind of channel do we need to get

the product to customers



Unique Resource System

Resources and Capabilities

What resources are needed to build corecompetencies?

Do we have the core capabilities tosupport our product offering?

Do we need to outsource?

Can we identify the partners who fill outour missing capabilities?

How important is intellectual property?




Assessing quality of resource system

How unique are our resources?

How difficult for competitors to imitate

our system?

Does each resource support delivery of acustomer benefit?

Are resources reinforcing?Complimentary?

Does the online resource system supportthe offline system?




Logistics and delivery

Integration

Can we achieve supply chain integration?

Can we collaborate with partners across acommon technical platform?

Fulfillment

Can we develop a flexible and reliable

channel to reach end customers?

Can we reduce order-to-delivery time tocustomers?



Revenue and Growth Models

• Revenue

– From product sales or complementary services?

• E-commerce related revenue

– Can we identify new sources of revenue?

–

How do we use information to create value? – Do we provide one-stop shopping?

• Pricing

– How do we test prices and adjust to supply and demandchanges

– Can we implement innovative new pricing models?

– Can we build brand equity to insulate against price sensitivity?

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