E-Business Models

Business Model-Definition

• It defines a revenue stream to the provider.

• It provides benefits to the consumer.

• It provides architecture to deliver those benefits.

Simply put, it is how an organization makes money.

E-business Models A business model defines a revenue stream to

the provider, benefits to the consumer, and an architecture to deliver those benefits.

Online intermediaries are classified by the way they make money:

1. Content sponsorship2. Direct selling3. Infomediary4. Intermediary model

E-business Models Intermediary Models:

1. Brokerage Models:– Online Exchange e.g. E-trade

– Online Auction e.g. eBay

2. Agent Models:

Agent Model Representing Sellers Selling AgentManufacture’s AgentMetamediaryVirtual Mall

Agent Model representing Buyers Shopping AgentReverse AuctionBuyer Cooperative

 E-tailing Model Bit VendorTangible Products

 1.     sponsorship2.       Direct selling3.       Infomediary4.        Content IntermediariesBroker: Online exchange Online auctionAgent: Agent models representing seller

Selling agent (affiliate program)Manufacturer’s agent (catalog aggregator)MetamediaryVirtual mall

Agent models representing buyer (purchasing agent)Shopping agent Reverse auctionBuyer cooperative

E-Tailer: Bit vendor Tangible products 

E-Business Models

Content Sponsorship E-Business Model

Firms create web sites, attract a lot of traffic, and sell advertising.

Involves using a niche strategy to draw special interest audiences (e.g. www.homearts.com, travel, gardening, dance, transport, food and drink.)

The product sold is a space on the Web.

Similar to traditional media, where television, magazines, and other media sell space and air time.

Major portals such as AOL, Yahoo, MSN, Lycos, Excite use this models. Sometimes used with other models to generate a revenue stream e.g., an online e-tailer(www.buy.com), sells ads on its site to generate additional revenue, which helps them to lower prices.

Direct Selling E-Business Model

Manufacturers sell directly to customers instead of using intermediaries. (e.g. Cisco systems, Dell Computer)

Wholesalers and retailers are not needed, causing disintermediation.

The Internet makes it easier to bypass intermediaries. Used in business-to-business markets-saves millions of

dollars at times in sales related expenses, such as, personnel, product configuration, and order processing costs.

Also used in consumer markets with sales of digital, software, and music, that require no inventory, pick-up, packing and shipping.(e.g. CNET shareware. Com.

Wall Street Journal Online)

Direct Selling Considerations

Perishable products, such as fresh foods and flowers are sold using this method. (e.g. pro-flowers delivers flowers fresh from the grower.)

Benefits include cost savings and rapid delivery for the consumer.

Benefits to the manufacturer include an ability to claim a piece of the middleman’s margin.

Infomediary E-Business Model

Refers to an online organization that gathers and distributes information (e.g. Market Research Firms, such as, Media Metrix ).

Usually compensates the consumer for sharing information.

Others like DoubleClick use cookies to track users as they surf the web without compensation.

Consumers are paid to buy space on the permission marketers website, thereby generating attention-the scarcest commodity in cyberspace.(e.g. www.alladvantage.com and www.sharkhunt.com

Infomediary Considerations

The space is resold to other advertisers.

Consumers have the benefit of receiving ads targeted to their interests, thereby providing them with control concerning the ads they receive

Benefit to the infomediary is that consumer information increases the value of its ad inventory.

Benefit to advertisers is that they can reach a highly targeted audience even while the consumer is on a competitor’s site.

Brokerage Models The broker creates a market in which buyers and

sellers negotiate and complete transactions. They typically charge a fee.

e.g.1.Offline Exchange: NYSE

2.Online Exchange:

C2C www.E*Trade.com

www.Ameritrade.com

www.TradeCast.com

B2C Carpoint, AutoByTel

B2B NECX, Paper Exchange, E-Steel, Altra

3.Online Auction: C2C e Bay

B2C Ubid

B2B Spottrader

Brokerage Model Considerations

Benefits to the Buyer:

1. Convenience2. Speed of order execution 3. Transaction processing4. Cost savings through lower prices5. Decreased search time6. Savings of energy and frustration in

locating appropriate sellers.

Brokerage Model Continued

Benefits to the Seller

1. Creation of a pool of interested buyers.

2. Cost savings in the form of lowered customer

acquisition costs and transaction costs.

3. Unloading surplus inventory and obtaining market price for their goods.

Agent Models Representing Sellers

Agents do represent either the buyer or seller depending on who pays their fees.

Selling Agents:

Represent a single firm to help it move products and normally work for a commission. For example, affiliate programs pay commissions to web site owners for customer referrals. e.g. Amazon Associates Program and www.tennisserver.com.

Agent Models Representing Seller Continued

Manufacturer’s Agent:

Represent more than one seller.1. B2C (Seller aggregators) www.travelcity.com www.expedia.com2. B2B (Catalog aggregators)www.Chemdex.comwww.MRO.com

Agent Models Representing Seller Continued

Metamediary

An agent that represents a cluster of manufacturers, e-tailers and content providers organized around a life event or major asset purchase.

www.peoplefirst.com www.edmunds.com www.the knot.com

Agent Models Representing Seller Continued

Benefits of Metamediaries They solve four major consumer problems:1. Reduce search times2. Provide quality assurance about vendors3. Facilitate transactions for a group of related purchases.4. Provide relevant and unbiased content information about the

purchase.

They benefit business partners by :1. Having traffic directed to their sites2. Co-branding with the metamediary

Agent Models Representing Seller Continued

Virtual Malls Host multiple online merchants in a model similar to a shopping mall. Hosted merchants gain exposure from traffic coming to the mall.

e.g. www.yahoo.com( Yahoo!Store) www.women.comSix benefits:1. Branding2. Digital wallets3. Frequent shopper programs4. Gift registry5. Search facility6. Recommendation service

Agent Models Representing Buyers(Purchasing agent)

Shopping Agents conduct product searches for consumers and display a list of merchants and the price at which they will sell the item.

e.g. www. pricescan. com

Second –generation shopping agents measure value not just price.

e.g.www.evenbetter.com www.bizrate.com www.frictionless.com (Frictionless Value Shopper)

Agent Models Representing Buyers(Purchasing agent)

Reverse Auction serves as purchasing agent for individual buyers. The buyers specifies a price and sellers bid for the buyer’s business.

e.g. www.nextag.com

www. priceline.com

benefits to the seller1.unloading excess inventory, especially perishable

inventory

benefits to the buyer1.lower prices

2.the satisfactions of being able to name one’s price.

Buyer Cooperative (buyer aggregator)

e.g. PowerBuys

Buy-Cycle

Agent Models Representing Buyer Continued

E-Tailing Models E-tailing model set up an on-line storefront and

sell to businesses and for consumers.

1. Use of bit vendors Any content that can be digitized can be transmitted over

the Internet:text, graphics, audio and content.

e.g. www.nytimes.com

www.hotwired.com

2. Tangible products

The EndThe End