Page 46 - Introduction to Electronic Commerce and Social Commerce

1.6 Electronic Commerce Business Models 23

of the marketing plan of any product or service. For 50 value
transaction fee to the broker. The higher the value of propositions in B2C e-commerce, see CPC Andrew (2012).
the sale, the higher the total transaction fee. Alterna-
tively, transaction fees can be levied per transaction. Functions of a Business Model
With online stock trades, for example, there is usu-
ally a fixed fee per trade, regardless of the volume. Business models have the following major functions or
Subscription Fees. Customers pay a fixed amount, objectives:
usually monthly, to get some type of service. An
example would be the fee you pay to an Internet
access provider (fixed monthly payments). • Describe the supply and value chains.
Advertising Fees. Companies charge others for • Formulate the venture’s competitive strategy and its
allowing them to place a banner on their sites (see long-range plans.
Chapter 4). • Present the customer value proposition.
Affiliate Fees. Companies receive commissions for • Identify who will use the technology for what pur-
referring customers to certain websites. A good pose; specify the revenue-generation process; where
program is available at Amazon.com. the company will operate.
Licensing Fees. Another revenue source is licensing • Estimate the cost structure and amount and profit
fees (e.g., see progress.com/datadirect- connectors). potential.
Licensing fees can be assessed as an annual fee or a
per usage fee. Microsoft receives fees from each
workstation that uses Windows NT, for example. Typical EC Business Models
Other Revenue Sources. Some companies allow people
to play games for a fee or to watch a sports competition There are many types of EC business models. Examples and
in real time for a fee (e.g., see espn.go.com).
details of EC business models can be found throughout this
text, and in Rappa (2010). The following are five common
models. Additional models are listed in Online File W1.3.
A company uses its revenue model to describe how it will 1. Online direct marketing. The most obvious EC model is
generate revenue and its business model to describe the
that of selling products or services online. Sales may be from
process it will use to do so.
a manufacturer to a customer, eliminating intermediaries or
physical stores (e.g., Dell), or from retailers to consumers,
Innovative Revenue Models for Individuals making distribution more efficient (e.g., Net- a- Porter,
The Internet allows for innovative revenue models, some of
Walmart online). This model is especially efficient for
which can be utilized even by individuals, as demonstrated digitizable products and services (those that can be delivered
by the following example.
electronically). This model has several variations (see
Example: Buy Low–Sell High. This strategy has been Chapters 3 and 4) and uses different mechanisms (e.g., auc-
known for generations, but now you have a better chance.
tions). It is practiced in B2C (where it is called e-tailing).
How about buying stuff cheap on Craigslist (or other online 2. Electronic tendering systems. Large organizational buy-
classified ad sites) and resell it for a 50–200% profit at an
ers usually make large-volume or large-value purchases
auction on eBay? Try it, you might make money. Some peo- through a tendering (bidding) system, also known as a
ple make it even bigger. The person who bought the domain
reverse auction. Such tendering can be done online, saving
name pizza.com for $20 in 1994 sold it for $2.6 million in time and money. Pioneered by General Electric Corp.,
April 2008 (one of the many he purchased). The revenue
e-tendering systems are gaining popularity. Indeed, many
model can be part of the value proposition or it may supple- government agencies mandate that most of their procure-
ment it.
ment must be done through e-tendering. (Details are pro-
vided in Chapter 4.)
Value Proposition 3. Electronic marketplaces and exchanges. Electronic
marketplaces existed in isolated applications for decades
Business models also include a value-proposition statement. A
(e.g., stock and commodities exchanges). But as of 1996,
value proposition refers to the benefits, including the intangi- hundreds of e-marketplaces (old and new) have introduced
ble ones that a company hopes to derive from using its business new methods and efficiencies to the trading process. If
model. In B2C EC, for example, the customer value proposi- they are well organized and managed, e-marketplaces can
tion defines how a company’s product or service fulfills the
provide significant benefits to both buyers and sellers. Of
needs of customers. In other words, it describes the total ben- special interest are vertical marketplaces that concentrate
efits to the customer. The value proposition is an important part
on one industry. For details see Chapter 4.