B2C BUSINESS MODELS
Lecture #2
E-COMMERCE BUSINESS MODELS—DEFINITIONS
• Business model
– Set of planned activities designed to result in a profit
in a marketplace
– A method of doing business by which a company can
generate revenue to sustain itself
• Business plan
– Describes a firm’s business model
• E-commerce business model
– Uses/leverages unique qualities of Internet and Web
for conducting business
COMPONENTS OF EC BUSINESS MODEL (TURBAN)
🞭 Value proposition
🞤 Choice of focal customer
benefits
🞤 Target segment
🞭 Scope of Offerings
🞤 Customer decision process
🞤 Product /service contents
🞭 Unique Resource System
🞤 Resources & capabilities
🞤 Logistics & delivery systems
🞭 Revenue & growth models
🞤 Revenue models
🞤 Financial growth models
🞭 Competitive strategy
🞤 Value chain positioning
🞤 Generic strategy
VALUE PROPOSITION (1)
• 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?
• Value proposition vs. value cluster
• Requires the specifications of:
1.Choice of target segment
2.Choice of combination of focal customer benefits
3.Rationale for why the firm & partners can deliver
the benefit package significantly better than
competitors
SCOPE OF OFFERINGS (2)
Identify scope of offering
Identify customer decision
process
Map the offering & decision
process
PRODUCT & SERVICE CONTENT
🞭 Core product or service
🞤 Do we understand which business we are in?
🞤 Do our products/services solve the customers’
problems?
🞭 Supplementary product or service
🞤 Do we build and maintain a set of digital assets in
order to know our customers better?
🞤 How do we leverage on customer information to
provide value across many different markets?
🞭 Core delivery process
🞤 What kind of channel do we need to deliver our
products/services?
🞤 How efficient and effective are the products/services
being delivered?
UNIQUE RESOURCE SYSTEMS (3)
🞭 The resource system shows how a
company must align its internal systems
(and partners) to deliver the benefits of
the value cluster.
🞭 Specifying a resource system:
1.Identify core benefits in the value cluster
2.Identify capabilities that relate to each benefit
3.Link resources to each capability
4.Identify to what degree the firm can deliver
each capability (logistics & delivery system)
5.Identify partners who can complete capabilities
REVENUE MODELS (4)
🞭 Describes how the firm will earn revenue,
generate profits, and produce a superior return
on invested capital
COMPETITIVE STRATEGY (5)
🞭 Value Chain positioning
🞤 Where do we position our
products/services in an industry value
chain? How do we create value?
🞭 Competitive Advantage
🞤 Do we have advantage over our
competitors? (marketing, cost structure,
product/service differentiation)
🞭 Generic Strategy
🞤 Competitive advantage
🞤 Which strategy should we pursue in order
B2C BUSINESS MODELS
🞭 Portals
🞭 E-Tailer
🞭 Content Provider
🞭 Transaction Broker
🞭 Market Creator
🞭 Service Provider
🞭 Community Provider
B2C BUSINESS MODELS: PORTAL (1)
• Offers powerful search tools plus an
integrated package of content and
services
• Typically utilizes a combined
subscription/advertising
revenues/transaction fee
model/affiliate model
• Examples: Yahoo, MSN/Windows Live,
AOL, Google (search services)
• May be general or specialized (vortal)–
e.g. Sailnet
B2C BUSINESS MODELS: E-TAILER (2)
• Online version of traditional retailer
• Revenue model – sale of goods
• Types include:
– Virtual merchants – Amazon.com, BlueNile.com,
Drugstore.com
– Bricks-and-clicks – JCPenney, Barnes&Noble,
Walmart, Staples, Sears
– Catalog merchants – LLBean.com
– Manufacturer-direct – Dell.com, Sony.com
VIRTUAL MERCHANTS
🞭 Single channel Web firms that
generate almost all revenues from
online sales
🞭 Example: Amazon
MULTI-CHANNEL MERCHANTS: BRICKS AND CLICKS
▪ Companies that have network of
physical stores as primary retail
channel, but also online offerings
CATALOG MERCHANTS
▪ Established companies
that have national
offline catalog
operation as largest
retail channel, but also
have online capabilities
▪ Examples: Lands’ End,
L.L. Bean, Eddie Bauer,
Victoria’s Secret, Lillian
Vernon
MANUFACTURER-DIRECT
▪ Single or multi-channel manufacturers who
sell directly online to consumers without
intervention of retailers
B2C BUSINESS MODELS: CONTENT PROVIDER (3)
🞭 Distributes information content such
as, digital news, music, photos, video
and artworks over the Web
🞭 Intellectual Property🡪 all forms of
human expression that can be put into
a tangible medium such as text, CD,
or the Web
🞭 Typically utilizes a subscription, pay
for download, or advertising revenue
model
🞭 Examples: WSJ.com, Sportline.com,
CNN.com, STARonline.com,
B2C BUSINESS MODELS: TRANSACTION BROKER (4)
🞭 Sites that processes online transactions for
consumers that are normally handled in person,
by phone, or by mail.
🞭 Primary value proposition—saving time and
money
🞭 Typical revenue model—transaction fee
🞭 Examples: travelocity, E-Trade,
Expedia,monster.com
🞭 Industries using this model include:
🞤 Financial services
🞤 Travel services
🞤 Job placement services
BANKING AND
PERSONAL FINANCE ONLINE
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TRAVEL AND TOURISM SERVICES ONLINE
🞭 Benefits of Online Travel Services
🞤 To travelers
🞫 Free information accessible at any time from
any place
🞫 Substantial discounts are available
🞤 To travel services providers
🞫 Airlines, hotels, and cruise lines sell otherwise-
empty spaces
🞫 Direct selling saves the provider’s commission
and its processing
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EMPLOYMENT, PLACEMENT,
AND THE JOB MARKET ONLINE
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EMPLOYMENT, PLACEMENT,
AND THE JOB MARKET ONLINE
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B2C BUSINESS MODELS: MARKET CREATOR (5)
🞭 Builds a digital environment where
buyers and sellers can meet, display
products, search for products, and
establish a price for products
🞭 Examples:
🞤 Priceline.com (travel accomodation ++)
🞤 eBay.com (2006: 82 million active users!)
🞭 Typically uses a transaction fee
revenue model
B2C BUSINESS MODELS: SERVICE PROVIDER (6)
🞭 Offers services online
🞭 Photo-sharing, video-sharing, blogs,
etc.
🞭 Examples: Google🡪 googleMaps,
Google Docs, Gmail, BlueFlag.com
🞭 Value proposition: valuable,
convenient, time-saving, low-cost
alternatives to traditional service
providers
🞭 Revenue models: subscription fees or
one-time payment
B2C BUSINESS MODELS: COMMUNITY PROVIDER (7)
🞭 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
🞤 MySpace,Friendster
🞤 About.com
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ISSUES IN E-TAILING
🞭 Disintermediation
The removal of organizations or business
process layers responsible for certain
intermediary steps in a given supply chain
🞭 Reintermediation
The process whereby intermediaries (either
new ones or those that had been
disintermediated) take on new intermediary
roles
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ISSUES IN E-TAILING
🞭 Channel Conflict
🡪Situation in which an online marketing
channel upsets the traditional channels
due to real or perceived damage from
competition
🞭 Determining the Right Price
🞭 Personalization
🞭 Fraud and Other Illegal Activities
🞭 How to Make Customers Happy 🡪 e-
loyalty
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