Chapter 2

Question 1

Business model

Answer 1

Set of planned activities designed to result in a profit
in a marketplace

Question 2

Business plan

Answer 2

Describes a firm’s business model

Question 3

E-commerce business model

Answer 3

Uses/leverages unique qualities of Internet and Web

Question 4

8 key elements of a business model:

Answer 4

1. Value Proposition
2. Revenue model
3. Market opportunity
4. Competitive environment
5. Competitive advantage
6. Market strategy
7. Organizational development
8. Management team

Question 5

Marketspace:

Answer 5

Area of actual or potential commercial
value in which company intends to operate

Question 6

Realistic market opportunity:

Answer 6

Defined by revenue
potential in each market niche in which company hopes to compete

Question 7

Value proposition

Answer 7

“Why should the customer buy from you?”
* Successful e-commerce value propositions:
– Personalization/customization
– Reduction of product search, price discovery costs
– Facilitation of transactions by managing product
delivery

Question 8

Revenue model

Answer 8

“How will you earn money?”
- Advertising
- Subscription
- Transaction fee
- Sales
- Affiliate
- Freemium

Question 9

Market opportunity

Answer 9

“What marketspace do you intend to serve and what is its size?”
– Marketspace: Area of actual or potential commercial
value in which company intends to operate
– Realistic market opportunity: Defined by revenue
potential in each market niche in which company hopes to compete
* Market opportunity
typically divided into smaller niches

Question 10

Competitive environment

Answer 10

• “Who else occupies your intended marketspace?”
  – Other companies selling similar products in the same
  marketspace
  – Includes both direct and indirect competitors
• Influenced by:
  – Number and size of active competitors
  – Each competitor’s market share
  – Competitors’ profitability
  – Competitors’ pricing

Question 11

Competitive advantage

Answer 11

“What special advantages does your firm bring to the
marketspace?”
– Is your product superior to or cheaper to produce
than your competitors’?
* Important concepts:
– Asymmetries
– First-mover advantage, complementary resources
– Unfair competitive advantage
– Leverage
– Perfect markets

Question 12

Market strategy

Answer 12

“How do you plan to promote your products or services
to attract your target audience?”
– Details how a company intends to enter market and
attract customers
– Best business concepts will fail if not properly
marketed to potential customers

Question 13

Organizational development

Answer 13

“What types of organizational structures within the firm
are necessary to carry out the business plan?”
* Describes how firm will organize work
– Typically, divided into functional departments
– As company grows, hiring moves from generalists to
specialists

Question 14

Management team

Answer 14

“What kind of backgrounds should the company’s
leaders have?”
* A strong management team:
– Can make the business model work
– Can give credibility to outside investors
– Has market-specific knowledge
– Has experience in implementing business plans

Question 15

Raising capital:

Answer 15

Elevator pitch
* Seed capital (early stage, own resources, F&F)
* Traditional sources
– Incubators, Accelerators (provide a small amount of funding)
– Angel investors (wealthy people investing own money for equity share)
– Commercial banks,
– Venture capital firms (invest funds they manage for other investors)
– Strategic partners
* Crowdfunding (collectively get money from the crowd)
* Grants, Subsidy, etc

Question 16

E-commerce enablers

Answer 16

Group of companies whose business model is focused on providing the infrastructure necessary for e-commerce companies to exits, grow and prosper.

Question 17

B2C Business models:

Answer 17

1. E-tailer
2. Community provider
3. Content provider
4. Portal
5. Transaction broker
6. Market creator
7. Service provider

Question 18

E-tailer

Answer 18

• Virtual merchant: online version of retail store, where cutsomers can shop at any hour of the day or night without leaving their home or office
• Bricks-and-clicks: online disctribution channel for a company that also has physical stores
• catalog merchant: online version of direct mailing catalog
• manufacturer-direct: manufacturer uses online channel to sell direct to customers
  revenue model: sales of goods

Question 19

Community provider

Answer 19

Creates an online environment where people with similar interests can transact, share interests, photos and videos, communicate with likeminded people, and receive interest related information.
Revenue model: Advertising, subscription, affiliate referral fee.

Question 20

Content provider

Answer 20

Offers customers newspapers, magazines, books, films, television, music, games, and other forms of online content.
Revenue model: Advertising, subscription, sales of digital goods.
Key to success: owning the content
2 variations:
- Syndication: syndicate (aggregate) the content, and distribute content produced by others
- Aggregation: Aggregators who collect information from a wide variety of sources and then add value to that information

Question 21

Portal

Answer 21

Horizontal/generalized: Offers an integrated package of content, search and social network services: news, e-mail, chat, music downloads, video streaming, calendars. Seeks to be a users home base.
Vertical/specialized: Focuses on a particular subject matter or market segment
Revenue model: Advertising, subscription, transaction
Search: Focuses primarily on search services
Revenue model: advertising, affiliate referral

Question 22

Transaction broker

Answer 22

Processors of online transactors, such as stock brokers or travel agents, that increase customers’ productivity by helping them get things done faster and more cheaply.
Revenue model: transaction fees.

Question 23

Market creator

Answer 23

Businesses that use internet technology to create markets that bring buyers and sellers together
Revenue model: transaction fees

Question 24

Service provider

Answer 24

Companies that make money by selling users a service rather than a product.
Revenue model: Sales of services.
Example: Google maps, Gmail.
Valueable, convenient, time saving,

Question 25

B2B Business models:

Answer 25

Net marketplace:
1. E-distributor: Single firm online version of retail and wholesale store: supply maintainance, repair, operation goods, indirect inputs
Revenue model: sales of goods
2. E-procurement: Single firm creating digital markets where sellers and buyers transact for indirect inputs
Revenue model: fees for marketing service, supply chain management, fullfillment services
3. Exchange: independently owned vertical digital marketplace for direct inputs
Revenue model: fees and commissions for transactions
4. Industry consortium: industry owned vertical digital market open to select suppliers
Revenue model: fees and commision on transactions

Private industrial network: Company owned network that coordinates supply chains with a limited set of partners
Revenue model: cost absorbed by network owner and recovered through production and distribution efficiencies.

Question 26

Value chain:

Answer 26

suppliers, manufacturers, distributors, retailers, customers

Question 27

Industry value chain

Answer 27

• Set of activities performed by suppliers, manufacturers,
  transporters, distributors, and retailers that transform raw
  inputs into final products and services
• Internet reduces cost of information and other
  transactional costs
• Leads to greater operational efficiencies, lowering cost,
  prices, adding value for customers

Question 28

Primary value chain activities:

Answer 28

• inbound logistics
• operations
• outbound logistics
• sales and marketing
• after sales services

Question 29

secondary value chain activities:

Answer 29

administration
Human Resources
information systems
procurement
finance/accounting

Question 30

Firm value chain

Answer 30

• Activities that a firm engages in to create final products
  from raw inputs
• Each step adds value
• Effect of Internet:
  – Increases operational efficiency
  – Enables product differentiation
  – Enables precise coordination of steps in chain

Question 31

Firm value webs

Answer 31

• Networked business ecosystem
• Uses Internet technology to coordinate the value chains
  of business partners
• Coordinates a firm’s suppliers with its own production
  needs using an Internet-based supply chain
  management system

Question 32

Business strategy

Answer 32

plan for achieving superior long-term returns on capital invested, profit
5 strategies:
- Differentiation: all the ways producers can make their products/services unique and distinguish
- Cost competition: offering products and services at a lower cost than competitors.
- Scope: Competing in all markets around the globe, rather than just local, regional or national markets.
- Focus/market niche: competing within a narrow market or product segment.
- Customer intimacy: developing strong ties with customers in order to increase switching costs and thereby enhancing a firm’s competitive advantage.

Question 33

Disruptive technology

Answer 33

When technologies are at the core of a change in the way business is done, they are reffered to as

Question 34

Sustaining technology:

Answer 34

incremental improvement of products and services

Question 35

Stages in disruptive technology:

Answer 35

• Disruptors introduce new products of lower quality
  – Disruptors improve products
  – New products become superior to existing products
  – Incumbent companies lose market share