Chapter 2 E-Commerce Business Models and Concepts

Before Studying "Chapter 2 E-Commerce Business Models and Concepts", we should read The Revolution is just Beginning in order to have proper understanding of E-commerce.

Business Model

A set of planned activities designed to result in a profit in a marketplace.

Business Plan

A document that describes a firm’s business model.

E-commerce business model

A business model that aims to use and leverage the unique qualities of the Internet and the World Wide Web.

Value proposition

Defines how a company’s product or service fulfills the needs of customers.

What makes the customer to buy your products.

Value proposition includes those factors that help you to make your products saleable by creating good image of your products.

Example:

If the company is providing the best customer service to its customers, then it helps it in making its products saleable.

Revenue Model

Describes how the firm will earn revenue, produce profits and produce a superior return on invested capital.

Which factors produce its revenue and increase its revenue.

Example:

Retailers sell a product, such as a personal computer or laptop, to a customer who pays for the computer / laptop using cash or a credit card. This produces revenue.

There are following different revenue model.

Ø Advertising Revenue Model

Ø Subscription Fee Revenue Model

Ø Transaction Revenue Model

Ø Sales Revenue Model

Ø Affiliate Revenue Model

Ø Advertising Revenue Model

A company provides a forum for advertisements and receives fees from advertisers. The goal is to convince advertisers that the site has the ability to attract a sizeable viewership.

Example:

Ø Google Adsense

Ø Olx.com.pk

Ø Hafeez Center.pk

Ø Subscription Revenue Model

A company offers its users content or services and charges a subscription fees for access to some or all of its offerings.

Example:

Ø Jstor.org

Ø Vu.edu.pk

Ø Transaction Fee Revenue Model

A company receives a fee for enabling or executing a transaction.

Example:

Ø Stock Brokerage Firms

Stock Brokerage firms like Arif Habib Limited uses this model because they charge their customers a commission for each transaction of stocks/shares, executed through them.

Ø Sales Revenue Model

A company derives revenue by selling goods, information or services.

Example:

Ø Galaxy.com

Ø Hp.com

Ø Affiliate Revenue Model

A company steers business to an affiliate and receives a referral fee or percentage of the revenue from any resulting sales.

Example:

Ø Web Portals

Ø Chalo.pk

Competitive Advantage

It is achieved by a firm when it can produce a superior product and/or bring the product to market at a lower price than most, or all, of its competitors.

Example:

To know about competitive advantage, we must know following terms.

Ø Asymmetry

Symmetry exists whenever one participant in a market has more resources than other participants.

Example:

Nestle has competitive advantage over Haleeb due to its quality products.

Ø 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.

Example:

Ø Cakes & Bakes

Ø Jazz

Ø Complimentary Resources

Resources & assets not directly involved in the production of the product but required for success, such as marketing, management, financial assets and reputation.

This advantage is also achieved when first-mover fails in the market.

Example:

Firstly, Netscape and yahoo are good for search engine but with the passage of time they fail in the market due to advanced search engine techniques of Google.

Ø Unfair Competition

Unfair competition advantage occurs when one firm develops an advantage based on a factor that other firms cannot purchase.

Example:

Daboo Company has unfair competition because at motor way no one can construct restaurant, only Daboo Company can construct that if unfair advantage.

Ø 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.

Example:

Ø Flour

Ø Medicines, like Panadol

  

Ø Leverage

When a company uses its competitive advantages to achieve more advantage in surrounding markets.

Example:

Punjab Groups at first established Punjab Colleges at Canal Bank, Lahore, 1985, then UCP, then Allied Schools and then DOCE Bakers to gain more competitive advantage than its competitors like Superior Groups.

Market Opportunity

Market Opportunity refers to the company’s intended marketspace and the overall potential financial opportunities available to the firm in that marketspace.

To find market opportunities, we have to make SWOT analysis then we need to retain and attract customers. We can retain and attract customers by existing, modifying and by introducing new products and services.

Marketspace

The area of actual or potential commercial value in which a company intends to operate.

Competitive Environment

Competitive environment refers to the other companies operating in the same marketspace selling similar products.

It is such environment in which there are similar products.

Difference Between Competitive Advantage & Comparative Advantage

Competitive Advantage

It is achieved by lowering price with the use of skills and technology. For example, in China, due to skill labor and technology prices of products are lowered than in Pakistan.

Comparative Advantage

It is achieved due to natural resources. For example, Pakistan has huge natural resources in Cotton than China.

Market Strategy

The plan you put together that details exactly how you intend to enter a new market and attract new customers.

Market strategy is the tactics and techniques used to capture the market.

Organization Development

The plan that describes how the company will organize the work that needs to be accomplished.

How the company organized the work that needs to be accomplished. How to recruit the employees, select them, train them, compensate them and awards and promote them.

Management Team

Employees of the company responsible for making the business model work.

What types of duties are assigned to suitable employees that fit to them.

BUSINESS-TO-CONSUMER (B2C) BUSINESS MODEL

There are following major business models utilized in the B2C arena.

Ø Portal

Portal offers users powerful Web search tools as well as an integrated package of content and services all in one place.

When different information is available at one place in web.

Example:

In ucp.edu.pk website, Portal provides to students, teachers and faculty members containing different information relating to students, teachers and faculty at one place.

Ø Content Provider

Content Provider distributes information content, such as digital news, music, photos, video, and artwork, over the Web.

You can create some knowledge that you are going to sell under the license.

Example:

Ø Jstor

        Intellectual property

Intellectual property refers to all forms of human expression that can be put into a tangible medium such as text, CDs, or the Web.

Example:

Ø In Hafeez Center, merchants and customers contact to each other for selling of Personal computers and mobile products.

Ø Olx.com, which is a business.

Ø Transaction Broker

Site that processes transactions for consumers that are normally handled in person, phone, or by mail.

A Stock broker is the person who makes transaction in the stock market on the behalf of the customer.

Example:

Ø Chalo.pk

Ø Service Provider

A service provider provides services to its customers online.

Example:

Ø TCS

Ø Online Banking in Allied Bank, MCB and others.

Ø Yahoo.com

Ø Gmail.com

Ø Community Provider

Sites that create a digital online environment where people with similar interests can transact (buy and sell goods); share interests, photos, and videos; communicate with like-minded people; and receive interest-related information.

The website which makes groups having same interest. It is a place where buyers and sellers meet each other.

Example:

Ø Facebook

Ø Myspace

Ø Twitter

  

Ø E-Retailer/Online Retailer

Online retailer store from where you sell products to customers.

Example:

Ø Glaxy.com

BUSINESS-TO-BUSINESS (B2B) BUSINESS MODELS

There are following major business models utilized in the B2B arena.

Ø E-Distributor

A company that supplies products and services directly to individual businesses.

We can exchange of products digitally or non-digitally. If we exchange office/factory products then it is known as digital e-distributance and if we exchange products other than office/factory, like furniture then, it is known as non-digital e-distributance.

Example:

Dell.com can exchange 150 laptops to hp and in return get 100 windows cd’s.

Ø Industrial

Industrial models specifies us how and where to purchase the products, from where to purchase the products, where to import the raw material, etc.

Example:

Ø Shandy

Ø Redbulls

    Private Industrial Model

Digital network designed to coordinate the flow of communications among firms engaged in business together.

Example:

Wal-Mart operates one of the largest private industrial networks in the world for itsmsuppliers, who on a daily basis use Wal-Mart’s network to monitor the sales of their

goods, the status of shipments, and the actual inventory level of their goods

When Private industrial model is used in the sense of E-Commerce, it can be divided into two types:

Ø Firm-Based

Ø Industrial-Based

Ø Firm-Based

Through supply chain management, a firm can contact with suppliers. Single-firm networks typically evolve out of a firm’s own enterprise resource planning system (ERP), and they are an effort to include key suppliers in the firm’s own business decision making.

Example:

Ø Wal-Mart

Ø  Procter & Gamble

Ø Industrial

It is used to facilitate the industry through network for solving industry problems and provide operating networks that allow members of entire industry to closely collaborate.

Example:

Ø Pern

Ø Pakistan Educational & Research Network

  

CONSUMER-TO-CONSUMER (C2C) BUSINESS MODELS

Consumer-to-consumer (C2C) ventures provide a way for consumers to sell to each other, with the help of an online business.

Example:

Ø eBay

Ø Half.com

PEER-TO-PEER (P2P) BUSINESS MODELS

P2P business models link users, enabling them to share files and computer resources without a common server. The focus in P2P companies is on helping individuals make information available for anyone’s use by connecting users on the Web.

Example:

Ø Torrent websites

Ø Kazaa

Ø Cloudmark

M-COMMERCE BUSINESS MODELS

M-commerce (mobile-commerce) takes traditional e-commerce models and leverages emerging new wireless technologies to permit mobile access to the Web. Wireless Web technology will be used to enable the extension of existing Web business models to service the mobile work force and consumer of the future.

Example:

Ø eBay Mobile

Ø PayPal Mobile

Ø Checkout

Ø AOL Moviefone

Can we connect to each other without internet?

Yes, Due to Electronic Data Interchange (EDI), we can connect to each other. EDI is useful for one-to-one relationships between a single supplier and a single purchaser, and originally was designed for proprietary networks, although it is migrating rapidly to the Internet.

Industry Value Chain

What is Value Chain

Value chain is the set of activities performed in an industry or in a firm that transforms raw inputs into final products and services.

Every industry can be characterized by a set of value-adding activities performed by a variety of actors. E-commerce potentially affects the capabilities of each player as well as the overall operational efficiency of the industry.

There are six generic players in an industry value chain:

Ø Suppliers

Ø Manufacturers

Ø Transporters

Ø Distributors

Ø Retailers

Ø Customers

So this is the brief summary of "Chapter 2 E-Commerce Business Models and Concepts" mentioned above.