E-Commerce

business models
and concepts

Chapter 2
 E-commerce Business Models—Definitions
• Business model: set of planned activities
designed to result in a profit in a marketplace
• Business plan: document that describes a
firm’s business model
• E-commerce business model: aims to
use/leverage the unique qualities of Internet
and Web

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 Key Ingredients of a Business Model
Table 2.1, Page 59

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 Value Proposition
• Defines how a company’s product or service fulfills the
needs of customers
• Questions to ask:
 Why will customers choose to do business with your
firm instead of another?
 What will your firm provide that others do not or
cannot?

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 Revenue Model
• Describes how the firm will earn revenue,
generate profits, and produce a superior
return on invested capital
• Major types:
 Advertising revenue model
 Subscription revenue model
 Transaction fee revenue model
 Sales revenue model
 Affiliate revenue model

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 Market Opportunity
• Refers to a company’s intended market
space and the overall potential financial
opportunities available to the firm in that
market space.
• Realistic market opportunity is defined by
revenue potential in each of market niches
in which company hopes to compete

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 Competitive Environment
• Refers to the other companies selling similar products and
operating in the same marketspace
• Influenced by:
 how many competitors are active
 how large their operations are
 what is the market share for each competitor
 how profitable these firms are
 how they price their products
• Includes both direct competitors and indirector competitors

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 Competitive Advantage
• Achieved when a firm can produce a superior product and/or bring
product to market at a lower price than most, or all, of competitors
• Types of competitive advantage include:
 First mover advantage—results from a firm being first into a
marketplace
 Unfair competitive advantage—occurs when one firm develops an
advantage based on a factor that other firms cannot purchase

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 Market Strategy

• A plan that details how a company intends

to enter a new market and attract
customers
• Best business concepts will fail if not
properly marketed to potential customers

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 Organizational Development

• Describes how the company will organize

the work that needs to be accomplished
• Work is typically divided into functional
departments
• Move from generalists to specialists as the
company grows

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 Management Team
• Employees of the company responsible for
making the business model work
• A strong management team may not be
able to rescue a weak business model, but
should be able to change the model and
redefine the business as it becomes
necessary

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E-commerce Business Models:
• There are a variety of different types of e-commerce
and many different ways to characterize these
types.
• For the most part, we can distinguish different types
of e-commerce by the nature of the market
relationship—who is selling to whom.
• The exceptions are Peer-to-Peer (P2P) and Mobile
commerce (m-commerce), which are technology-
based distinctions.

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Business-to-Consumer (B2C) E-commerce
The most commonly discussed type of e-commerce is
Business-to-Consumer (B2C) e-commerce, in which
online businesses attempt to reach individual
consumers. Within the B2C category, there are many
different types of B2C business models like:
• Portals: -
such as Yahoo, MSN/Windows Live, and AOL offer users powerful
Web search tools as well as an integrated package of content and
services, such as news, e-mail, calendars, shopping, music
downloads, video streaming, and more, all in one place.
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• Online retailers: -
Online retail stores, often called e- tailors, come in all
sizes, from giant Amazon to tiny local stores that have
Web sites. E-tailors are similar to the typical bricks and-
mortar storefront, except that customers only have to
connect to the Internet to check their inventory and
place an order.

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• Content providers: -
which can be defined broadly to include all forms of
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. Content providers
distribute information content, such as digital video,
music, photos, text, and artwork, over the Web.

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• Transaction brokers: -
Sites that process transactions for consumers normally handled in
Person, by phone, or by mail are transaction brokers. The largest
industries using this model are financial services, travel services,
and job placement services. The online transaction broker’s primary
value propositions are savings of money and time.

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• Market creators: -
build a digital environment in which buyers and
sellers can meet, display products, search for
products, and establish prices. Prior to the Internet
and the Web, market creators relied on physical
• Service
places providers:
to establish -
a market.
While e-tailors sell products online, service providers
offer services online.
• Value proposition: valuable, convenient, time-
saving, low-cost alternatives to traditional service
providers
• Revenue models:
Copyright subscription
© 2007 Pearson Education, Inc. fees or one-time
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Community Provider:-

 Sites that create a digital online environment where people

with similar interests can transact, communicate, and receive
interest-related information.
 Typically rely on a hybrid revenue model
 Examples:
 iVillage.com
 Facebook, MySpace, Twitter, About.com

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Business-to-Business (B2B) E-commerce
• B2B e-commerce, in which one business focuses on
selling to other businesses.
• B2B is the largest form of e-commerce.
• The B2B model involves electronic transactions for
ordering, purchasing, as well as other
Administrative tasks between businesses.
• It includes trading goods, Professional services,
manufacturing, and wholesale dealings, etc.

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Consumer-to-Consumer (C2C) E-
commerce
• Consumer-to-Consumer (C2C) e-commerce
provides a way for consumers to sell to each other,
with the help of an online market maker such as
eBay.
• In C2C e-commerce, the consumer prepares the
product for market, places the product for sale, and
relies on the market maker to provide catalog,
search engine, and transaction-clearing capabilities
so that products can be easily displayed,
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Peer-to-Peer (P2P) E-commerce
• Like the C2C 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.

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Mobile Commerce (M-commerce)
• Mobile commerce, or m-commerce, refers to the
use of wireless digital devices to enable
transactions on the Web.
• M-commerce involves the use of wireless networks
to connect cell phones and personal computers to
the Web.

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