Emerging E-Business
Models in the Network
Economy
2
Introduction
The rapid development of the Internet and related technologies,
Combined with the changing nature of the economy and other changes
in the business environment,
Has facilitated the emergence of new business strategies.
Some of the new strategies have been discussed in the last three
chapters.
One of the main aims of a good strategy is to lead to circumstances in
the long term that are favorable to profit generation.
However, strategies do not automatically translate into profit. Instead
profit is earned through the day-to-day operation of the company.
Structural profit potential, as derived from the ability to create value for
customers and make a unique contribution, is specified systematically by
what is known as the business model.
3
Introduction
In other words, to implement new strategies and to
translate them into new structures, processes and day-to-
day activities, the missing link that needs to be explored is
the business model.
Since the mid-1990s, numerous studies have been
undertaken to identify, describe and conceptualize them.
This chapter will highlight some of the key research findings
in recent years.
4
What Is a Business Model?
Definitions of a business model vary but a common description is
about how a business works and the logic that creates its value.
Jutla, a business model determines processes and transactions.
Timmers defined a business model as
The organization, or architecture, of product, service and information
flows, and the sources of revenue and benefits for suppliers and
customers.
Afuah and Tucci defined the business model
As the method by which a firm builds and uses its resources to offer its
customers better value than its competitors and to make money in
doing so.
In particular, a business model details
How a firm makes money now and in the future, and it enables a firm to
have sustainable competitive advantages over its competitors.
5
What Is an E-Business Model?
Like the concept of the business model,
e-Business model is also a multidimensional concept.
Many authors have attempted to conceptualize e-Business models in
a systematic fashion.
E-Business models generally describe emerging business
models that exploit the new capabilities of the Internet and
related technologies.
6
What Is an E-Business Model?
Since the dot.com boom of the late 1990s, many studies
have been carried out.
Early studies have mainly focused on identifying and
describing various e-Business models and classifying them
into different categories.
Based on a comprehensive review of literature, Yousept
classified studies of e-Business models into three main
categories:
7
What Is an E-Business Model?
1. E-Business models building blocks
Outlined the main components and building blocks that make up the
architectural configuration of e-Business.
2. E-Business model content and evaluation
E-Business model content framework focuses on what is and should
be the core of a good e-Business model (viability, value creation and
capture potential);
E-Business model evaluation provides tools and frameworks to
systematically assess the viability of the e-Business model.
3. E-Business model classification
focuses on the classifications of various models (Purpose of e-
Business).
8
Current E-Business Models
Timmers made a first attempt to classify different ways of doing
business on the Internet and provided some preliminary
categorizations of the phenomenon.
He started with a systematic approach of
Identifying architectures for business models,
Then based on the idea of value chain deconstruction and reconstruction
Identifying possible ways of integrating information along the chain
between the different components,
He then explored two dimensions of each of the business models
The extent of innovation of the business model,
The extent of integration of information and functions along the value
chain
9
Current E-Business Models
Timmers defined a business model as an architecture for
product, service, and information flows, including
A description of the various business actors and their roles,
A description of the potential benefits for the various business
actors,
And a description of the sources of revenue.
Based on this definition he illustrated, eleven e-Business
models
That can be observed in the real world.
Widely referred to in other studies of e-Business models.
Most of these models are self-explanatory.
10
Current E-Business Models
1. E-Shops – Web marketing by an organization or an online
shop
2. e-Procurement - the electronic tendering and procurement
of goods and services
3. e-Malls - a collection of e-Shops enhanced by a common
umbrella
4. e-Auctions - electronic implementation of bidding
mechanisms
5. Virtual communities - online communities of members
with common interests
11
Current E-Business Models
6. Collaboration platforms = the provision of tools and
information environment for collaboration between
enterprises
7. Third-party marketplaces - using a third party to provide
web marketing or online shop
8. Value-chain integrators - integrating multiple steps of the
value chain, with the potential to exploit the information
flows between those steps as further added value
9. Value-chain service providers - companies specializing in a
specific part of the value chain (e.g. e-Logistics, e-
Payments);
12
Current E-Business Models
10. Information brokerage - new information services such as
information search, customer profiling and business
opportunity brokerage
11. Trust and other services - trust services by certification
authorities or others. Other services include the delivery
of business information and consultancy services.
By mapping the business models onto a two-dimensional
framework, Timmers identified two opposite trends for the
future evolution of e-business models:-
One is the move toward increased integration of information flow
The other is the development of specialized, highly innovative
services.
13
Current E-Business Models
Classification of E-Business Models: 14
Michael Rappa, Allan Afuah and
Christopher Tucci
Rappa identified and conceptualized a series of e-Business
models primarily from
The perspective of revenue generation,
The main categories are summarized in the following table
Classification of E-Business Models: 15
Michael Rappa, Allan Afuah and
Christopher Tucci
E business model Meaning Sub-models
Market-makers, bringing buyers and
sellers together and facilitating
Marketplace exchange
Brokerage transaction. It makes its money by
System, auction broker
charging a fee for each transaction it
enables
The websites provides some kind of
portal
information and services (email, chat)
Advertising mixed with advertising messages,
User registration
Query-based paid
usually in the form of banner ads
Helping consumers both protect and
enrich themselves by capturing their
own customer information and then
Infomediary selling it to the many companies that
are now getting that information for
free
Subscription Charging users for access to the site
Classification of E-Business Models: 16
Michael Rappa, Allan Afuah and
Christopher Tucci
E business model Meaning Sub-models
The classic wholesaler and retailer of Virtual merchant
Merchant
goods and services Catalogue merchant
Manufacturer reach buyers directly licenses, brand
Manufacturer and thereby compress the distribution Purchase, lease
channel
Provides purchase-point through to Banner exchange
Affiliate merchant Pay-per-click and
revenue sharing
Group of people with a common Knowledge network
interest, end up as a cluster of people
Community with a critical mass purchasing power.
Revenue comes from advertising,
subscription fees
Utility Pay-as-you-go-approach
Classification of E-Business Models: 17
Michael Rappa, Allan Afuah and
Christopher Tucci
Afuah and Tucci moved beyond the identification of
individual categories of e-Business models to developing a
classification.
They have specifically emphasized the importance of
revenue generation in their classification of e-Business
models.
The key components the authors identified as part of the e-
Business model include:
The value that a firm offers its customers;
The segment of customers it targets to whom it will offer the value;
The scope of products and services it offers to each segment of
customers.
Classification of E-Business Models: 18
Michael Rappa, Allan Afuah and
Christopher Tucci
The profit site it chooses;
Its sources of revenue;
The prices it puts on the value offered to its customers;
The activities it must perform in offering that value;
The capabilities these activities rest on;
What a firm must do to sustain any advantages it has;
How well it can implement all these different elements.
Classification of E-Business Models: 19
Michael Rappa, Allan Afuah and
Christopher Tucci
The authors then argued that these components must work
in a system,
How well the system works depends on the key
components as well as the relationships between and
amongst them.
Furthermore, the relationship between the business model
and its environment is also very important,
A good business model needs to be capable of taking
advantage of any new opportunities and containing the
effects of emerging threats and challenges.
Classification of E-Business Models: 20
Michael Rappa, Allan Afuah and
Christopher Tucci
Afuah and Tucci considered the e-Business model as the
method by which a firm plans to make money long term
using the Internet.
It is the system that takes advantage of the properties of
the Internet to make money.
They identified seven possible revenue models to in their
classification of e-Business models:
Classification of E-Business Models: 21
Michael Rappa, Allan Afuah and
Christopher Tucci
1. Commission - fees levied on transactions based on the size of
the transaction;
2. Advertising - revenue generated by charging for advertising
rather than by charging the end users for using the website;
3. Mark-up - the primary source of revenue from mark-up on the
products it sells via the Internet;
4. Production - which Rappa called the manufacturing model,
where the manufacturer sells to the customers directly via the
Internet;
5. Referral-based - firms rely on fees for steering visitors to another
company's site;
Classification of E-Business Models: 22
Michael Rappa, Allan Afuah and
Christopher Tucci
6. Subscription-based - the company charges users a flat rate
on a periodic basis for certain services;
7. Fee-for-service based - activities are metered and the users
pay for what they consume, which Rappa calls the utility
model.
Classification of E-Business Models: 23
Michael Rappa, Allan Afuah and
Christopher Tucci
The authors recognized that their classification was based
on the dominant revenue model,
The revenue model is only one of at least four dimensions
that determine the classification of business models.
By analyzing and comparing previous studies of business
models along four dimensions –
Profit site, Revenue model, Commerce strategy and Pricing model,
they are able to describe the typology of e-Business models in a
systematic fashion.
Classification of E-Business Models: 24
Michael Rappa, Allan Afuah and
Christopher Tucci
Identified eleven profit sites within the Internet infrastructure, which are summarized
as
e-Commerce, content aggregators, brokers/agents, market-maker, service providers, backbone
operators, ISPs, last mile, content creators, software suppliers and hardware suppliers.
Identify the revenue model, which are summarized:
Commission, Advertising, Mark-up, Production, Referral-based, Subscription-based, and Fee-for-
service based
Along the dimension of commerce strategy, they identified five main categories,
namely, B2B (business to business), B2C (business to consumer), P2P (person to person or peer to
peer, also known as consumer to consumer - C2C), C2B (consumer to business), and B2E (business
to employee).
In terms of pricing models,
identified five separate categories - fixed pricing, one-to-one bargaining, auctions, reverse auctions
and barter.
By overlaying these four dimensions, the authors believe that most e-Business models
can be characterized.
25
An E-Business Model Ontology
Ostelwalder
Osterwalder believed that despite the significant progress
made by previous studies of e-Business models,
most previous studies dealt with only some aspects of the
concept while neglecting or downplaying others.
He defined a business model as the logic of a business
system for creating value that lies behind the actual
processes.
26
An E-Business Model Ontology
Ostelwalder
A business model needs to address
The revenue and product aspects,
The business actor and network aspects,
The marketing aspects of a business.
In order to provide an appropriate foundation for tools that
would allow the effective and consistent understanding,
sharing and communicating, changing, measuring and
simulating of the e-Business models, ..cont.
27
An E-Business Model Ontology
Ostelwalder
An ontology of e-Business models:
Is defined framework that provides a shared and common
understanding of a domain that can be communicated between
people and heterogeneous and widespread application systems.
Olsterwalder uses 'business model' to describe
The value a company offers to one or several segments of customers
The architecture of the firm and its network of partners
For creating, marketing and delivering this relationship capital, in
order to generate profitable and sustainable revenue streams.
28
An E-Business Model Ontology
Ostelwalder
The ontological framework of the e-Business model is based
on four main pillars:
Product innovation, customer relationship, infrastructure
management and financials.
Product innovation
Describes what business the company is in.
Customer relationship
Illustrates who the company's target customers are.
Infrastructure management describes
How the company efficiently deals with the logistical issue, and the
financials deal with the revenue model.
29
An E-Business Model Ontology
Ostelwalder
30
An E-Business Model Ontology
pillars and building blocks
Building blocks of
pillars description
business model
Product Overall view of company’s product and
Value proposition
innovation services that are of value to customer
Customer Is a segment of customer to whom a
Target customer
interface company wants to offer value
Is a means of getting in touch with the
Distribution channel
customer
Describe the kind of link a company
Relationship establishes between itself and the
customer
Financial Is the representation in money of all the
Cost structure
aspects means employed in the business model
Describes the way a company makes
Revenue model money through a variety of revenue
flows
31
An E-Business Model Ontology
pillars and building blocks
Building blocks of
pillars description
business model
Describes the arrangement of activities
Infrastructure
Value configuration and resources that are necessary to
management
create value for customers
Is the ability to execute a repeatable
Capability pattern of actions that is necessary in
order to create value for customers
Initiated a cooperative agreement
Partnership between two or more companies in
order to create value for customers
32
An E-Business Model Ontology
Ostelwalder
E-Business model domain can be structured into several
levels of decomposition with increasing depth and
complexity.
It provides a valuable toolkit that would enable
Business leaders to define, assess and change their business models,
Enable information system developers to undertake information
system requirement engineering
33
Summary
The rapidly changing business environment has put enormous pressure
on all organizations to explore new strategies and business models.
Many of these new strategies and business models have already been
implemented in different sectors and industries (e.g. banking,
telecommunications), and new ones are continuously being invented.
It is important that we continue this effort to identify, investigate and
conceptualize emerging strategies and business models within different
contexts.
Such studies will provide valuable guidance for business leaders to
capture emerging opportunities effectively and contain potential threats
and challenges,
By actively exploiting the new capabilities afforded to them by the
Internet and related technologies.
34
Increase your knowledge by reading
more in this part
To translate the new strategies and business models
discussed in this part of the book into real business
benefits,
It is essential that organizations redesign then structures,
processes and inter-organizational relations to reflect these
changes and capitalize on emerging opportunities.
