Business Models for E-commerce

Chapter-2
 Business model
• A business model is an outline of how a
company plans to make money with its product
and customer base in a specific market.
• A business model explains four things:
– What product or service a company will sell.
– How it intends to market that product or service.
– What kind of expenses it will face.
– How it expects to turn a profit.
 Essential components of a business model
• Value proposition: A feature that makes your product attractive to
customers.
• Target market: A specific group of consumers who would be interested in
the product.
• Competitive advantage: A unique feature of your product or service that
can’t easily be copied by competitors.
• Cost structure: A list of the fixed and variable expenses your business
requires to function, and how these affect pricing.
• Key metrics: The ways your company measures success.
• Resources: The physical, financial, and intellectual assets of your company.
• Problem and solution: Your target customers’ pain points, and how your
company intends to meet/solve them.
• Revenue model: A framework that identifies viable income sources to
pursue.
• Revenue streams: The multiple ways your company can generate income.
• Profit margin: The amount your revenue exceeds business costs.
Types of e-commerce/e-business model
1. Business-to-business (B2B)
– A B2B e commerce application is concerned with providing goods and
services between two businesses. Hence, the products they are selling
will be such that it becomes a raw material for another industry.
– Mobile apps that sell spare automobile parts, machine parts, etc. come
into this category of apps. Boodmo is an example of such an app.
– It’s where businesses sell products to other companies.
– Here the customers is another business itself.
– It is like manufacturer selling/issuing goods to the retailer or wholesaler.
– B2B implies seller as well as buyer as a business entity.
– Some of the leading items in B2B e-commerce are food, agriculture,
electronics etc.
 Business-to-business (B2B)

Benefits
• Encourage business online
• Import/export is easy
• Scalability
• Savings in distribution costs
• Focused sales promotion
Business-to-business (B2B)
Manufacturer
 Advantage of B2B
• Market Predictability
• Compared to the other business strategies, the B2B eCommerce business model has more market
stability. B2B sectors grow gradually and can adapt to various complex market conditions. This helps to
strengthen the online presence and business opportunities and get more potential clients and resellers.
• Better Sales
• An improved supply chain management process along with a collaborative approach increase customer
loyalty in the B2B eCommerce business model. This, in turn, leads to improved sales. It helps businesses
to showcase product recommendations and unlock effective upselling and cross-selling opportunities.
• Lower Costs
• Due to an effective supply chain management process, this online business model leads to lower costs for
businesses. In most cases, the work is done through automation that eradicates the chances of errors and
undue expenditure.
• Data Centric Process
• One of the main advantages of the model is that it relies on effective and factual data to streamline the
whole process. In this way, errors can be avoided and proper forecasts can be made. With an integrated
data-driven approach, you can calculate detailed sales statistics.
 Advantage of B2B
• Limited Market
• Compared to the B2C model, this type of business has a limited market
base as it deals with transactions between businesses. This makes it a
bit of a risky venture for small and medium eCommerce businesses.
• Lengthy Decision
• Here, the majority of the purchase decisions involve a lengthy process
as there are two businesses involved. The process may involve
dependence on multiple stakeholders and decision makers.
• Inverted Structure
• Compared to the other models, consumers have more decision making
power than sellers in the B2B business model. They may demand
customizations, impose specifications and try to lower price rates.
 2. Business-to-Consumer (B2C)
• It is the model taking business and consumers interaction.
• B2C is to sell the product/services online to consumers.
• Sells product directly to the consumers.
• A customer can view products shown on the website of a organization.
• B2C model generates revenue from direct sales and processing fees.
• Example: Amazon, Flip kart etc.
Benefits
 Globalization
 Customer convenience
 Knowledge management
 Reduced operational cost
 Inexpensive cost, big opportunities
Business-to-Consumer (B2C)
 Business-to-Consumer (B2C)

1. The inflexibility of the catalog

– The direct “link” has the potential to display content data and other
visual elements that are already prevalent on websites owned by a
variety of clients. You no need to beg the marketing consultancy
agency.
2. Shrinks Competition Gap
– The low cost of marketing and advertising creates opportunities for
us to compete with well-known enterprises in terms of the cost,
quality, and accessibility of the items.
3. Unlimited Market Place
– By allowing customers to browse and shop at their convenience, it
displays an unlimited market. Online stores no more need a
marketing consultancy agency.
 Advantages of the B2C ecommerce

4. 24-Hour Store with a Shorter Sale Cycle

– There is no need to send lengthy emails or place an excessive number of phone
calls.
5. Lower Cost of Business
– The B2C model has decreased the cost of doing business across a range of
areas, including hiring staff, purchasing expenses, mailing confirmations,
telephone conversations, clerical work, and the need to open physical
locations.
6. Eliminating Third Party Clients
– We are free to sell our items straight to clients without engaging any third
parties in the transaction.
7. Business Administration Made Simpler
– Compared to the conventional methods of business administration, it has
become simpler to record store inventories, shipments, logs, and all
other business operations.
 Disadvantages of the B2C eCommerce

• The following are some of the top disadvantages of the B2C eCommerce:
• 1. Lack of Catalog Flexibility
• However, it’s crucial to rearrange the catalog after adding new data
and merchandise, correspondingly.
• 2. Infrastructure
• Even though it has a huge customer reach and overcomes cultural
boundaries by addressing everyone on the same channel, the truth still
stands.
• 3. Competition
• Since there are thousands of online stores and services, the rivalry is
indeed fierce and could jeopardize our company’s consumer base. Some
online stores have been able to keep a sizable portion of the market,
allowing them an opportunity to endure over time.
 Disadvantages of the B2C eCommerce

• 4. Product Exposure Limits

• It is important to note that e-commerce has limited the amount of product
exposure available to purchasers online, although it provides them with easy
accessibility and a special degree of product customization.
• 5. Entering a Cut-Throat Competition
• Without conducting market research and B2C Campaigns, many people are
influenced to launch a B2c e-commerce business. As a result, they begin to cater to
the market or special segment where numerous e-commerce companies are
already created to serve the public.
• 6. Shipping Charges
• Whether you sell in large or little quantities, transportation fees are a reality.
Additionally, clients demand free shipping in the modern e-commerce industry.
• 7. Security Concerns
• The transactional data from your site can be hacked by a lot of cybercriminals. After
that, they are free to use someone else’s name to purchase anything they want.
 3. Consumer-to-Consumer (C2C)

• Consumer-to-consumer e Commerce is one consumer

selling goods or services to another consumer online.
• It is a type of trade relation where both the sellers and
buyers are consumers instead of businesses.
• This model helps the consumer to sell their assets like
residential property, cars, motorcycle etc by publishing their
information on website.
• For example ebay.com(auction) and traderonline.com.
• There are number of new consumer to consumer expert
information exchanges such as Askme.com , inforocket.com
which is a person to person auction format.
3. Consumer-to-Consumer (C2C)
 4. Consumer-to-Business (B2B)

• End consumer create product and services which are consumed by

business and organization.
• In this model, a consumer approaches a website showing multiple
business organizations for a particular service.
• The consumer places an estimate of amount he/she wants to spend
for a particular service.
• For example, the comparison of interest rates of personal loan/car
loan provided by various banks via websites. A business organization
who fulfills the consumer's requirement within the specified budget,
approaches the customer and provides its services.
• For example consumer in C2B can be webmaster or blogger,
photographer, any individual answering a poll.
Consumer-to-Business (C2B)
 5.Business - to - Government

• B2G model is a variant of B2B model.

• Such websites are used by governments to
trade and exchange information with various
business organizations.
• Such websites are accredited by the
government and provide a medium to
businesses to submit application forms to the
government.
5.Business - to - Government
 6.Government - to - Business

• Governments use B2G model websites to

approach business organizations. Such
websites support auctions, tenders, and
application submission functionalities.
Government - to - Business
 E-business models based on the
relationship of transaction types
1. Brokerage Model
– One Internet business model is the brokerage model.
– The heart of this model are third parties known as brokers, who bring
sellers and buyers of products and services together to engage in
transactions.
– The broker charges a fee to at least one party involved in a transaction.
– Brokers are the market-makers :they bring buyers and sellers together and
facilitate transactions.
Characteristics
• It is a meeting point for sellers and buyers.
• Auctions and exchange are the mode of transactions.
• It is a virtual market place enable by the internet.
• The price discovery mechanism is its key principle.
• It is a virtual market place enabled by the internet.
• Advantages
– Global reach
– Efficient access to information
– 24/7 hours trading and provides continuous up to
date information.
– Allow buyers and sellers to trade directly
Price discovery mechanisms of Brokerage
Model

It is the process of determining price of asset in

market
I. Auction
II. Reverse Auction
III. Market Exchange
 Auction

• An auction is a transaction between sellers (the

auctioneers) and bidders (suppliers in business to business
scenarios) that takes place on an electronic marketplace
• English auction(ascending price auction)
– English auction is also known as an open-outcry ascending-price auction.
– In this auction, auctioneer start off the auction with the lowest price or the
reserve price.
– In the English auction, the price is successively raised until only one bidder
remains, and that bidder purchases the auctioned item at a price equal to
the final bid.
– Then receives bids from bidders until the point from which there is no raise
in the bids and then select highest bidder.
 Dutch auction

– A Dutch auction (also called a descending price auction)

refers to a type of auction in which an auctioneer starts
with a very high price, incrementally lowering the price
until someone places a bid.
– In this auction, auctioneer start off the auction with the
highest price or the reserve price. Then decrease the price
gradually. And sell to the bidders with appropriate amount.
 Sealed-bid auction

– A sealed-bid auction is a type of auction process in which

all bidders simultaneously submit sealed bids to the
auctioneer so that no bidder knows how much the other
auction participants have bid.
– Sealed bid refers to a written bid placed in a sealed
envelope.
– Each bidders write down a bid on a slip of paper and
sealed in envelope.
– Then at the end all envelope will be open and the highest
bidders will get the good.
 Vickrey auction
– A Vickrey auction or sealed-bid second-price auction is a type of
sealed-bid auction. Bidders submit written bids without knowing the
bid of the other people in the auction. The highest bidder wins but the
price paid is the second-highest bid.
– It is also called as uniform second price auction.
– In this auction, bids are sealed and each bidders bids with
his/her own intuition and select the highest bidder but
sells at highest second price.
• Reverse Auction
– A reverse auction is a type of auction in which sellers
bid for the prices at which they are willing to sell
their goods and services
– Here buyer has an advantage of choosing supplier
– Here seller has to decrease the price of goods

• Example of a Reverse Auction

• Bidding for government contracts is an example of reverse
auctions. In this type of auction, governments specify
requirements for the project and bidders, who are approved
contractors, to come up with a cost structure to finish the project.
 Forward auction
• Forward auctions are, essentially, eAuctions in
which bidding starts with the lowest possible
price and the bid value increases gradually.
Such auctions usually feature a single supplier
offering goods or services and buyers
competing against each other by submitting
higher bids. The highest bid wins.
Forward auction
• Market Exchange
– A market exchange is a highly organized market
where brokers and traders buy and sell
securities(धितोपत्र ) such as currencies, share
etc.
– It can also be specialized as a global foreign
exchange market or stock exchange.
– Some famous stock exchange include: New York
stock exchange, London stock exchange.
 Aggregator Model
• An Aggregator Model is a networking E-commerce business model
where a firm, known as an Aggregator, collects (or aggregates) data
of goods and/or services offered by several competing websites or
application software (commonly known as apps) and displays it on
its own website or application software.
• Aggregator organizes the unorganized sector.
• An aggregator does not possess any manufacturing or warehousing
capability
• Aggregator link customer and service provider using the platform.
• Aggregator act as a medium between service provider and
customer and takes/charges some % of commission from service
providers as they provide them customers.
• One of the example of aggregator business model is
• Some types of aggregators are
– Real Estate Aggregators are websites or software
applications that collect and display information pertaining
to real estate and primarily target home hunters, especially
first time home buyers, by displaying home prices, property
details and available deals as listed on various popular
property websites. Examples include Zillow and RealEstate.
– Job Aggregators are websites or software applications that
aggregate job postings from various career sites, employer
job listings, and other job posting sites. Examples include
LinkedIn and Google Jobs.
 • News or Content Aggregators gather news, updates, insights
or general web content from various online sources and
display them at a single location. Examples include Metacritic
and PopUrls.
• Shopping Aggregators collate results of several shopping
engines and offer price, product and ratings comparisons.
Shopping aggregators are some of the most popular sites on
the web, especially since they usually provide the best value,
most reliable results. Examples include Amazon
• Video Aggregators aggregate content from different online
video sites and organize them in categorized lists. Examples
include Aggrega and VodPod.
Metacritic is a website that aggregates reviews of films, TV shows,
music albums, video games and formerly, books.
 Info-mediary
• An organizer of the virtual community is called an
information intermediary or infomediary who helps
seller to collect, manage and maximize the value of
information about costumers.
• A website that gathers and organizes large amounts of
data and acts as a intermediary between those who
want the information and those who supply the
information.
• Data about customers and their consumption habbits
are valuable, specially when that information is carefully
analyzed and used to target marketing campaigns.
• They also provide information about producers and
products to the customers.
• Info-mediaries generate revenue from sellers and not from
the customers
• Info-agent should be capable of collecting information
• Revenue from buyer is rare
• The simplest form of an infomediary model is the
registration model. In this scenario, companies require
users to register before gaining access to information on
their Web sites, even if the information itself is provided
at no charge.
• Types
I. Specialized agents
– Intermediaries usually managed specialized market
II. Generic agents
– Intermediaries maintain open relationship with both buyer and supplier
– Provide unbiased service and often generate revenue from
advertisement
III. Supplier agents
– These agents are sponsored by specific company with vested interest in
selling their products.
IV. Buyer agents
– Establish a relationship with core set of buyers and working on their
behalf
– A buyer's agent helps potential buyers navigate the real estate market.
This type of real estate agent reaches out to pre-qualified buyer leads to
determine their needs, schedule showings, present ,purchase offers.
 Community Model
• E-communities are formed when groups of people
meet online to fulfill certain needs or serve their
common interest, exchange information, share
interests, trade goods and services etc.
• The community utilizes electronic tool such as forums,
chat rooms, e-mail lists, message boards, and other
interactive Internet mechanisms, to communicate and
share their views and ideas.
• An individuals or groups are encouraged to participate
in ongoing interaction with the common purpose.
• Types of communities model
1. Relationship centered community model
– Informal communities that revolve around interest, ideas,
goals
– The development of relationship is primary goal in this
model

2. Task centered community model

– More formal, structured and impersonal
– Web communities are established between business
partners
 Value Chain Model
• A value chain is a business model that describes the full range of
activities needed to create a product or service or to deliver it to the
market.
• For companies that produce goods, a value chain comprises the steps
that involve bringing a product from conception to distribution, and
everything in between—such as procuring raw materials, manufacturing
functions, and marketing activities.
• The purpose of a value-chain analysis is to increase production efficiency
so that a company can deliver maximum value for the least possible cost.
• Value chains help increase a business's efficiency so the business can
deliver the most value for the least possible cost.
• The goal is to develop full and continuous interaction among all the
members of chain resulting lower inventories and higher customer
satisfaction.
• The primary activities of Michael Porter's value chain are
– inbound logistics : activities related to receiving, storing and distributing
input internally(relation with supplier matters here most)
– Operations: activities that change input to output
– outbound logistics: deliver product or service to the customer
– marketing and sales: promoting
• Support activities :
– Procurement: finding vendors and negotiating on
best prices
– HR: hiring, training, rewarding workers
– Technology deployment : maintaining technical
advances and protecting databases
– Firm infrastructure : support system of company
like accounting, administrative, general
management
 Manufacture Model
• In a manufacturing model, a resource is
usually referred to as a “machine”; a task that
has to be done on a machine is typically
referred to as a “job”.
• Manufacturer reaches buyers directly and
thereby compress the distribution channel.
• In this model manufacturer sells its products
through the use of its websites.
 Subscription model
• The ecommerce subscription model is a
business model where a company provides
ongoing services on a regular basis in
exchange for regular payments from the
customer.
• The organization makes money on the basis of
subscription.
• Users are charged a periodic i.e. daily,
monthly, annual fee to subscribe a service
 Advertising Model
• An advertising model is the strategic use of an advertising
medium, with the goal of reaching a specific target
audience.
• Web advertising model is an extension of traditional
media broadcast model.
• This model works only when the viewer traffic is large or
high
• In advertising model, a site offer free access to something
and shows advertisements on every page.
• The advertising model only works when the volume of
viewer traffic is large or highly specialized.
 Affiliate model
• The affiliate (or click-through) model is a popular e-commerce
relationship in which an online merchant agrees to pay an affiliate
in exchange for providing an advertisement and link to the
merchant's site.
• Each sale generated as a result of a customer ”clicking through” from
an affiliate to the merchant results in a small commission for
affiliate.
• The affiliate model requires an advertiser-the person bringing in
sales.
• In this model both partners are making money but in different ways.
• Example youtuber saying or advertising to buy product with their
discount code, website providing link.

online merchant is someone who sells products or services exclusively over the Internet
 Community structure model
• Community structure means the internal structure of a
society which includes the population and housing, jobs
and production, service and leisure time areas, along
with transport routes and technical networks, their
location and relationships.
• An online community or internet community is a group
of people with a shared interest or purpose who use
the internet to communicate with each other. Online
communities have their own set of guidelines and
needs, like online community engagement, moderation,
and management.
• The internet community include
• Newsletter
– A newsletter is a printed or electronic report
containing news concerning the activities of a
business or an organization that is sent to its
members, customers, employees or other
subscribers. A list server software send the same
message to the entire list of people.
• Discussion List
– A Discussion List is a common email address that is
shared with list subscribers.
– When you send an email to the Discussion List, it
automatically sends that email out to each of the
list's subscribers.
• Bulletin board
– A bulletin board (pin board, notice board) is a surface intended for
the posting of public messages, for example, to advertise items
wanted or for sale, announce events, or provide information.
– Anyone can read, search, research the information later
– Internet forums are a replacement for traditional bulletin boards
– A bulletin board system is a computer server
running software that allows users to connect to the system
using a terminal program. Once logged in, the user can perform
functions such as uploading and downloading software and data,
reading news and bulletins, and exchanging messages with other
users through public message boards and sometimes via
direct chatting
• Chat room
– The chat room works as a virtual room, where
groups of people send messages that others can
read instantaneously.
– It is primarily used to describe any form
of informal conferencing, occasionally even formal
conferencing.
– The primary use of a chat room is to share
information via text with a group of other users.