Chapter 5: E-commerce business strategies

Question 1

How are firm value and industry value impacted by the internet ?

Answer 1

Firm value = 
Effect of the internet:
- Increases operational efficiency
- Enables product differentiation
- Enables precise coordination of steps in the value chain

Industry value =
Effect of internet:
- Allows creation of business ecosystems in order to coordinate the value chains of business partners within the industry or within a group of firms.
- Allows coordination of production needs with suppliers through a supply chain management system.

Question 2

What is a business strategy? And what are some strategies that an e-commerce/e-business firm can adopt?

Answer 2

Business strategy = plan for achieving superior long-term returns on capital invested.

There are 5 generic strategies that a firm can adopt:
1. Product/service differentiation = distinguishing a product or service from others. The internet has made it possible for companies to differentiate as wel (ex. made.com)

2. Cost competition = big companies can achieve economies of scale because of their size.
3. Scope = companies that want to be worldwide and available for everyone can do this very easily through the internet.
4. Focus = companies can also focus on certain countries, market, groups, … way more easily thanks to the internet.
5. Customer intimacy = companies look to create intimacy with their customers through studying their behavior, attitude, preferences, …
   - -> Ecosystem creation.

Question 3

What elements should be defined within a web business model?
Describe the sub-components of a value proposition and the types of revenue models.

Answer 3

The components of a web business model consist of:

1. Value propositions = Why should customers buy from you? What value do you ad?
2. Revenue models = How will the firm earn revenue, generate profits, and produce a superior return on invested capital?
3. Online offering = what is the online product, service or information offering?
4. Resource system = How does the company need to align its resources to fulfill the value proposition? Does the company have the capabilities to deliver the value that it describes in the value proposition.

The value proposition consists of 3 core parts:

1. Target segments/target groups
2. Benefits that the company will offer, that customers expect.
3. Unique/core capabilities or competences.

There are 5 major revenue models:

1. Advertising revenue models
2. Subscription revenue model ( + freemium strategy)
3. Transaction fee revenue model
4. Sales revenue model
5. Affiliate revenue model

Question 4

What different types of E-commerce business models exist within a B2C setting?

Answer 4

There are several types of e-commerce business models in the B2C setting:
1. E-tailer
Online version of traditional retailers:
- Virtual merchant = sell exclusively online
- Brick and clicks = traditional brick and mortar retailers that have extended online
- Catalog merchant = companies that sell exclusively out of an online catalog
- Manufacturer-direct = manufacturer eliminates the intermediary and sells directly to customers

–> Dominant revenue model is sales

2. Community provider
   = Provide online environments where people with similar interests can transact, share content, and communicate. (social networks)

–> Multiple revenue models at play

3. Content provider
   = Provide several forms of information (content): news, music, video, text, artwork.
   There are several variations of this business model:
   - Syndication = all content used and showed on the site is their own (ex. News sites)
   - Aggregator = almost all content shown on the site comes from other parties, there is no content creation from the company itself. They add value in the way that the content is shown and provided (ex. Youtube).

–> Several revenue models

4. Portal
   = Search plus an integrated package of content and services.
   The variations of portals include:
   - Horizontal portal = general portal that enables you to look up a variety of information (ex. msn)
   - Vertical portal = specialized portal that goes more in dept about certain topics (ex. Sailnet gives you all possible information about sailing)
   - Pure search = portals that enable you to look up all possible information (ex. Google, bing, …)

–> Revenue models usually consist of advertising, subscription fees, and transaction fees.

5. Transaction broker
= Process online transactions for consumers. Their primary value proposition is that they save their customers time and money. Industries using this model include:
- Financial services
- Travel services
- Job placement services

–> Primary revenue model: transaction fees

6. Market creator
   = Create digital environment where buyers and sellers can meet and transact (examples: Priceline, eBay). There are also on-demand service companies (sharing economy): platforms that allow people to sell services (examples: Uber, Airbnb).

–> Revenue models include transaction fees, and fees to merchants for access.

7. Service provider
   = Online services (e.g., Google: Google Maps, Google Docs, and so on). Their value proposition consists of the fact that they are valuable, convenient, time-saving, low-cost alternatives to traditional service providers.

–> Revenue models that include: sales of services, subscription fees, advertising, and sales of marketing data

Question 5

Through what methods can capital be raised for e-commerce businesses ?

Answer 5

The primary sources of capital in e-commerce are:
1. Seed capital = Any form of capital that is invested in the company. The money can come from anywhere

2. the Elevator pitch
3. Traditional sources
   - Incubators = initiatives or organizations that partly fund startups, but mostly provide necessary services to them.
   - Venture capital = venture capitalists manage money of other people and actively look out investment opportunities to make a return on their money
   - Angel investors
   - Venture capital firms
   - Strategic partners
4. Crowdfunding

Question 6

What types of online business models exist? Describe their components & provide examples.

Answer 6

There are several types of e-commerce business models in the B2B setting:

1. Net marketplaces: includes businesses such as:
   - E-distributor = Version of retail and wholesale store, MRO goods, and indirect goods
   - E-procurement = Creates digital markets where participants transact for indirect goods. Examples: B2B service providers, SaaS (Servises as a Service) and PaaS (Platform as a Service) providers
   - Exchange = Independently owned vertical (= specialized) digital marketplace for direct inputs
   - Industry consortium = Industry-owned vertical marketplaces that serve specific industries (e.g., automobile, chemical)
2. Private industrial network = Digital network used to coordinate among firms engaged in business together. These typically evolve out of company’s internal enterprise system. Example: Walmart’s network for suppliers.

There are several types of e-commerce business models in the B2C setting:
1. E-tailer
Online version of traditional retailers:
- Virtual merchant = sell exclusively online
- Brick and clicks = traditional brick and mortar retailers that have extended online
- Catalog merchant = companies that sell exclusively out of an online catalog
- Manufacturer-direct = manufacturer eliminates the intermediary and sells directly to customers

–> Dominant revenue model is sales

2. Community provider
   = Provide online environments where people with similar interests can transact, share content, and communicate. (social networks)

–> Multiple revenue models at play

3. Content provider
   = Provide several forms of information (content): news, music, video, text, artwork.
   There are several variations of this business model:
   - Syndication = all content used and showed on the site is their own (ex. News sites)
   - Aggregator = almost all content shown on the site comes from other parties, there is no content creation from the company itself. They add value in the way that the content is shown and provided (ex. Youtube).

–> Several revenue models

4. Portal
   = Search plus an integrated package of content and services.
   The variations of portals include:
   - Horizontal portal = general portal that enables you to look up a variety of information (ex. msn)
   - Vertical portal = specialized portal that goes more in dept about certain topics (ex. Sailnet gives you all possible information about sailing)
   - Pure search = portals that enable you to look up all possible information (ex. Google, bing, …)

–> Revenue models usually consist of advertising, subscription fees, and transaction fees.

5. Transaction broker
= Process online transactions for consumers. Their primary value proposition is that they save their customers time and money. Industries using this model include:
- Financial services
- Travel services
- Job placement services

–> Primary revenue model: transaction fees

6. Market creator
   = Create digital environment where buyers and sellers can meet and transact (examples: Priceline, eBay). There are also on-demand service companies (sharing economy): platforms that allow people to sell services (examples: Uber, Airbnb).

–> Revenue models include transaction fees, and fees to merchants for access.

7. Service provider
   = Online services (e.g., Google: Google Maps, Google Docs, and so on). Their value proposition consists of the fact that they are valuable, convenient, time-saving, low-cost alternatives to traditional service providers.

–> Revenue models that include: sales of services, subscription fees, advertising, and sales of marketing data

Question 7

What different types of E-commerce business models exist within a B2B setting?

Answer 7

There are several types of e-commerce business models in the B2B setting:

1. Net marketplaces: includes businesses such as:
   - E-distributor = Version of retail and wholesale store, MRO goods, and indirect goods
   - E-procurement = Creates digital markets where participants transact for indirect goods. Examples: B2B service providers, SaaS (Servises as a Service) and PaaS (Platform as a Service) providers
   - Exchange = Independently owned vertical (= specialized) digital marketplace for direct inputs
   - Industry consortium = Industry-owned vertical marketplaces that serve specific industries (e.g., automobile, chemical)
2. Private industrial network = Digital network used to coordinate among firms engaged in business together. These typically evolve out of company’s internal enterprise system. Example: Walmart’s network for suppliers.