Lesson 3 - Questions Flashcards
Note 1
Note 1: Business Models Defined
Slywotzky (1996) uses a systems definition in referring to a business model as
the totality of how a company selects its customers, defines and differentiates its offerings, defines the tasks it will perform itself and those it will outsource, configures its resource, goes to market, creates utility for customers, and captures profits. It is the entire system for delivering utility to customers and earning a profit from that activity (p. 4).
Timmers (1998) provides a structural definition in describing a business model as “an architecture for the product, service and information flows, including a description of the various business actors and their roles; and a description of the potential benefits for the various business actors; and a description of the sources of revenues” (p. 4).
For a functional definition, refer to Rappa (2000) where business model is defined as “the method of doing business by which a company can sustain itself—that is, generate revenue. The business model spells-out [sic] how a company makes money by specifying where it is positioned in the value chain” (p. 1).
Finally, Afuah and Tucci (2000) consider a business model as
a set of Internet and non-Internet related activities, planned or evolving, that allows a firm to make money using the Internet and to keep the money coming . . . . business model should include the answers to these questions: what value to offer customers, which customers to provide the value to, how to price the value, who to charge for it, what strategies to undertake in providing the value, how to provide that value, and how to sustain any advantage from providing the value (p. 45).
While these definitions seem to be different, they have some things in common. A business model is designed to make money (profit) in the long term, to promote growth, and to gain a sustainable competitive advantage.
Note 2
Note 2: Viable Business Models
The e-commerce literature describes a viable business model as a system that
generates growth opportunities
responds flexibly
quickly and profitably takes advantage of any opportunity in its environment
builds trust relationships between the company and its customers through e-business communities and e-webs
creates and maintains customer loyalty
effectively manages knowledge and people processes.
Note 3
Note 3: Other Business Models
The development of the Internet enables consumers to share resources, products, and services with other consumers. These opportunities vary from simply sharing information with each other to doing business online. The following are some new business models.
Consumer-to-consumer (C2C) models consist of transactions between consumers selling products/services to other consumers. The largest sites are kijiji.com, ebay.com, and craigslist.com.
Peer-to-peer (P2P) models, like C2C, link consumers together by enabling them to share files and computer resources without a common server, and usually for free. Examples include YouTube and The Pirate Bay. In the early days of e-commerce, P2P was used to share copyrighted music, video, and image files in violation of digital copyright law.
Mobile commerce models are another variation of e-commerce business models that are supported by mobile technology such as smartphones and netbooks, as well as broadband wireless technologies.
Business-to-government (B2G) models include products and services that businesses offer to support government activities such as developing solutions, platforms, and systems.
Government-to-business (G2B) models support government/public relationships and transactions such as corporate/personal tax, GST, grants, registration, and so on.
Note 4
Note 4: Effects of IOT on Business Models
With the advance of e-commerce and information technologies, mobile smart devices have transformed many elements of regular e-commerce business models. In particular, the Internet of Things is enabling companies to leverage innovative solutions such as mobile devices and applications, interactive marketing technologies, and intelligent personalized recommendations to sustain their market, serve their customers, and gain competitive advantage. Managers must reinvent their business models by linking the IOT with some of the classic offline elements of their business models such as those related to communication, customer support, and recommendations.
Yen and Yao (2015) argue that the IOT will transform e-commerce business models. He suggests that IOT will enable companies to achieve optimized inventory management, offer convenient shopping, enhance after-sale relationships, and most important, target location-based or real-time personalized recommendations.
Good examples are Amazon Prime, and the Amazon Dash Button and Dash Replenishment Service.
Note 5
Note 5: Business Models and Managerial Issues
In many ways, e-commerce is a disruptive innovation that makes traditional business models irrelevant. In the face of this disruption, managers must redefine or reinvent business models in order to compete in the complex environment of the future. Many of the issues and challenges faced by management are discussed in the textbook. This lesson note summarizes the key questions managers need to consider and analyze as they develop new Internet business models.
Revenue balance and channel conflict
What impact will the new model have on the existing one?
What percentage of revenues will be generated from the Internet?
What other sales channels need to be considered?
Cost of business
What cost behaviour will the company demonstrate with the new model?
What impact will the new model have on existing business processes and resources? What new resources will be required?
Customer loyalty
How will trust relationships with customers be built and maintained? How will customer privacy and security be assured?
How will the company interact and communicate with customers?
Value proposition
How might the company differentiate its products and services from its competitors? What digital goods could be created and offered?
What new values could be offered?
Delivery model and partners’ relationships
What delivery model should the company adopt to create the best value for their customers?
How will the issue of disintermediation be addressed?
What new value and services could these intermediaries offer?
Organizational models
What effect will the new model have on organizational structure?
What changes will be needed in the organizational culture, and how will these be fostered?
Question 1: What is a business model? Is it a new concept that emerged with e-commerce?
A business model is a set of planned activities (business processes) designed to result in a profit in the marketplace, and as explained in your lesson notes, there is no single definition. A business model is the heart of any business whether traditional, brick-and-mortar or online. The growth of the Internet and e-commerce has seen the emergence of Internet business models—a new set of business models that use the Internet and technology as a central tool for doing business online. In e-commerce’s first phase, innovation, companies expanded their markets by adding Internet business models to their traditional brick-and-mortar business models.
Question 2: Describe the eight elements of a business model.
The following are the elements of a business model.
Value proposition: the expected benefits that the company’s offerings provide to the company and its stakeholders. Examples include personalization, customization, and convenience.
Revenue model: the formula the company will adopt to earn money from its operations such as sales model, advertising model, subscription model, and so on.
Market opportunity: the revenue potential within a company’s intended marketspace.
Competitive environment: map of the direct and indirect competitors offering the same/similar products and services.
Competitive advantage: set of unique values and advantages the company could offer to distinguish its offering from the competition.
Market strategy: strategic plan that outlines how the company will enter the target market and attract customers.
Organizational development: the process of defining all functions within the business and determining the set of skills necessary to perform the job and the hiring process.
Management team: the leading team responsible for guiding the company’s growth and expansion.
Question 3: Compare the transaction fee revenue model with the subscription revenue model.
The transaction fee revenue model and subscription revenue model both generate revenue through offering services, usually in the context of B2C business. However, these revenue models differ in the form of service they offer. For example, revenue in the transaction fee model is generated from fees for enabling or executing a transaction as an intermediary. In the subscription model, companies charge a subscription fee for accessing their content and resources.
Question 4: What is the difference between a horizontal and a vertical portal?
Portals are platforms that offer users powerful web search tools as well as an integrated package of content and services all in one place. Portals also include functionalities such as news, stock prices, entertainment, and other values. The main difference between a horizontal and a vertical portal is that horizontal portals support several companies in the same economic sector. A vertical portal is a specialized entry point to a specific market or industry niche.
Question 5: What is the difference between a market opportunity and a marketspace?
Marketspace is the area of actual or potential commercial value in which a company intends to operate. Market opportunity refers to the overall potential financial opportunities available to the firm in that marketspace.
Question 6: What critical success factors do content providers need to consider?
The critical success factors for content providers to consider include: a) the ownership of the content, b) a unique information source, and c) the revenue model adopted.
Question 7: What are the main benefits of exchanges?
An exchange is a digital marketplace where suppliers and commercial buyers can conduct commercial transactions. Exchanges offer various benefits for sellers as well as buyers.
Question 8: What revenue models are associated with an industry consortium?
An industry consortium is an industry-owned vertical marketplace that serves specific industries such as chemical, pharmaceutical, oil, automobiles, and so on. This B2B business model earns revenues mainly from fees and commissions on transactions.
Question 9: What motivates companies to use online auctions?
Selling through auctions has several advantages, including: a) low overhead and operational costs (if using a third-party auction); b) the ability to sell one-of-a-kind items easily; c) the ability to sell at the prevailing market price; and d) the ability to change products and pricing quickly. Possible disadvantages include limited selling times and reduced control over price.
Question 10: Why is it difficult to categorize e-commerce business models?
It is difficult to categorize e-commerce business models because the number of models is limited only by the human imagination, and new business models are being invented daily. Even within the broad-based generic types, there are overlaps, and fundamentally similar business models may appear in more than one group. The type of e-commerce technology used can also affect the classification of a business model. Also, some companies may employ multiple business models. For example, eBay is essentially a C2C marketplace, but also functions as a B2C market maker, and in addition, has an m-commerce business model.
