Chapter 2 Bus 174
E-Commerce Business Model
A business model that aims to use and leverage the unique qualities of the internet and the world wide web.
Transaction fee revenue model
A company receives a fee for enabling or executing a transaction.
Subscription revenue model
A company that offers content or services charges a subscription fee for access to some or all of its offerings.
Advertising Revenue Model
A company that offers content, services, and/or products also provides a forum for advertisements and receives fees from advertisers.
First-Mover Advantage
A competitive market advantage for a firm that result from being the first into a marketplace with a serviceable product or service. -If first movers develop a loyal following or a unique interface that is difficult to imitate, they can sustain their first mover advantage for long periods.
Business Plan
A document that describes a firm's business model.
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.
Business Model
A set of planned activities designed to result in a profit in a marketplace.
Market Creator
Build a digital environment in which buyers and sellers can meet, display and search for products and services, and establish prices. -Prior to the internet and the web, market creators relied on physical places to establish a market. -The web changed digital network marketplaces by making it possible to separate markets from physical space. -Market creators make money by either charging a percentage of every transaction made, or charging merchants for access to the market. The market opportunity for market creators is potentially vast, but only if the firm has the financial resources and marketing plan to attract sufficient sellers and buyers to the marketplace. -On-demand service companies are market creators that have developed online platforms that allow people to sell services, such as transportation or spare rooms, in a marketplace that operates in the cloud and relies on the web or smartphone apps to conduct transactions.
E-Commerce Business Models: Some Difficulties
Categorizing business models based on B2C and B2B.
Sales Revenue Model
Companies derive revenue by selling goods, content, or services to customers. Companies such as amazon have sales revenue models.
Affiliate Revenue Model
Companies that steer business to an "affiliate" receive a referral fee or percentage of the revenue from any resulting sales.
Community Provider
Creates an online environment where people with similar interest can transact (buy and sell goods); share interests; photos; and videos; communicate with like-minded people; and receive interest-related information. -The basic value proposition of community providers is to create a fast, convenient, one-stop site where users can focus on their most important concerns and interests, share the experience with friends, and learn more about their own interests. -Community providers typically rely on a hybrid revenue model that includes subscription fees, sales revenues, transaction fees, affiliate fees, and advertising fees from other firms that are attracted by a tightly focused audience. -Community providers make money from advertising and through affiliate relationships with retailers. -Community is arguably the fastest growing online activity. -These companies struggle to become profitable, but over time most become successful with advertising being their main source of revenue. -Lack of experienced personnel can severely hamper the growth of a community, which needs facilitators and managers to keep discussions on course and relevant. -For the newer community social network sites, the most important ingredients of success appear to be ease and flexibility of use, and a strong customer value proposition. -Online communities benefit significantly from offline word-of-mouth, viral marketing. -They tend to reflect offline relationships.
Value Proposition
Defines how a company's product or service fulfills the needs of customers. -To develop a firm's value proposition, you need to understand why customers will choose to do business with the firm instead of another company and what the firm provides that other firms do not offer. -Product offerings, customization, reduction is search and delivery costs, etc.
Organizational Development
Describes how the company will organize the work that needs to be accomplished. -Typically, work is divided into functional departments, such as production, shipping, marketing, customer support, and finance.
Revenue Model
Describes how the firm will earn revenue, generate profits, and product a superior return on invested capital.
Content Provider
Distribute information content, such as digital video, music, photos, text, and artwork. -It is estimated that consumers will spend more than 22 billion for online content such as movies, music, videos, tv shows, e-books, and newspapers in 2015 in the US. -Content providers can make money via a variety of different revenue models, including advertising, subscription fees, and sales of digital goods, and partner promotions. -Generally, the key to becoming a successful content provider is owning the content. -Traditional owners of copyrighted content - publishers of books and newspapers, broadcasters of radio and television content, music publishers, and movie studios - have power advantages over newcomers who simply offer distribution channels and must pay for content, often at very high prices. -Some content providers, however, do not own content, but syndicate (aggregate) and then distribute content produced by others. This is a major variation of the standard content provider model. -Aggregators, who collect information from a wide variety of sources and then add value to that information through post-aggregation services.
Management Team
Employees of the company responsible for making the business model work.
Asymmetry
Exists whenever one participant in a market has more resources- financial backing, knowledge, information, and/or power- than other participants.
Venture Capital Investors
Invest funds they manage for other investors such as investment banks, pension funds, insurance companies, or other businesses, and usually want to obtain a larger stake in the business and exercise more control over the operation of the business.
Crowdfunding
Involves using the internet to enable individuals to collectively contribute money to support a project.
Portal
Offers users powerful search tools as well as an integrated package of content and services all in one place. -Portals such as yahoo, msn, and aol offer powerful search tools as well as an integrated package of content and services, such as news, email, instant messaging, calendars, shopping, music download, video streaming, and more. -Portal business models today are based on being a destination site (stay a long time to search for information and entertainment, etc.). -they do not sell anything directly, and in that sense they can present themselves as unbiased. -The market opportunity is very large: in 2015, around 260 million people in the US accessed the internet for ad placement, collecting referral fees for steering customers to other site, and charging for premium services. -Being first confers advantage because customers come to trust a reliable provider and experience switching costs if they change to late arrivals in the market. -Yahoo, AOL, and others like them are considered to be HORIZONTAL portals because they define their marketspace to include all users of the internet. -VERTICAL portals attempt to provide similar services as horizontal portals, but are focused around a particular subject matter or market segment. -Visitors to specialized niche vortals spend more money than the average Yahoo visitor. -Google and Ask can also be considered portals of a sort, but focus primarily on offering search and advertising services. (they generate revenues primarily from search engine advertising sales and also from affiliate referral fees.
2.2 Start (B2C): E-Tailer
Online Retail Store -
Transaction Broker
Processes transaction for consumers that are normally handled in person, by phone, or by mail. -The largest industries using this model are financial services, travel services, and job placement services. -The primary value propositions are savings of money and time. -Most brokers provide timely information and opinions. -Many people are still skeptical about switching from their traditional broker who provides personal advice and a brand name. -Transaction brokers make money each time a transaction occurs. -Attracting new customers and encouraging them to trade frequently are they keys to generating more revenue for these companies.
Market Opportunity
Refers to the company's intended marketspace and the overall potential financial opportunities available to the firm in that marketspace.
Complementary Resources
Resources and assets not directly involved in the production of the product but required for success, such as marketing, management, financial assets, and reputation.
Elevator Pitch
Short, 2-3 min presentation aimed at convincing investors to invest.
MarketSpace
The area of actual or potential commercial value in which a company intends to operate.
Freemium Strategy
The companies give away a certain level of product or services for free, but then charge a subscription fee for premium levels of the product or service.
Market Strategy
The plan you put together that details exactly how you intend to enter a new market and attract new customers.
Barriers To Entry
The total cost of entering a new marketplace
Incubators
Typically provide a small amount of funding and also an array of services to start-up companies.
Angel Investors
Typically wealthy individuals or a group of individuals who invest their own money in exchange for an equity share in the stock of a business; often are the first outside investors in a start-up.
Seed Capital
Typically, an entrepreneur's personal funds derived from savings, credit card advances, home equity loans, or from family and friends.
Key Elements of a Business Model
Value Proposition, Revenue Model, Market Opportunity, Competitive environment, Competitive Advantage, Market Strategy, Organizational Development, Management Team
Leverage
When a company uses its competitive advantages to achieve more advantage in surrounding markets.
Competitive Advantage
When a firm can product a superior product and/or bring the product to market at a lower price than most, or all, of their competitors. -Some firms can develop global markets, while other firms can develop only a national or regional market. -Firms that can provide superior products at the lowest cost on a global basis are truly advantaged.
Service Provider
While e-tailers sell products online, Service Providers offer services online. -Service Providers use a variety of revenue models. Some charge fees or monthly subscription, while others generate revenue from other sources such as advertising and by collecting personal info useful in direct marketing. -Many service providers employ a freemium revenue model. -The basic value proposition of service providers is that they offer consumers valuable, convenient, time-saving, and low-cost alternatives to traditional service providers or provide services that are truly unique. -The market opportunity for service providers is as large as the market opportunity for physical goods.