Learning objectives

• Understand the e-Business environment

• Understand the e-Commerce models and
Categories
eCommerce Lecture Series • Be able to discuss dis-intermediation and re-
intermediation
Lecture 3 • Be able to understand and define various
E-Commerce & E-Business business models
Models

Keeran Jamil
•2

The e-business environment Environment constraints and

opportunities
• Customers – which services are they offering via their web site that your
organization could support them in?
• Competitors – need to be benchmarked in order to review the online services
they are offering – do they have a competitive advantage?
• Intermediaries – are new or existing intermediaries offering products or services
from your competitors while you are not represented?
• Suppliers – are suppliers offering different methods of procurement to
competitors that give them a competitive advantage?

• Macro-environment
• Society – what is the ethical and moral consensus on holding personal
information?
• Country specific, international legal – what are the local and global legal
constraints for example on holding personal information, or taxation rules on sale
of goods?
• Country specific, international economic – what are the economic constraints
of operating within a country or global constraints?
• Technology – what new technologies are emerging by which to deliver online
services such as interactive digital TV and mobile phone-based access?
•The environment in which e-business services are provided
•3 •4
 E-Commerce Models The Merchant & Brokerage Model

• According to Afuah, Allan and Tucci(2000) • Merchant model – transferring of an old

these are the most popular e-Commerce retail model to e-commerce world using
models are: the Internet
– Merchant • Brokerage Model is all about bringing
– Brokerage sellers and buyers together and collect
– Advertising commission on transactions
– Mixed
– Informediary
– Subscription
•5 •6

Sales Revenue Model Amazon Uses a Sales Revenue Model

• Company derives revenue by selling

goods, information, or services to
customers
• Examples:
ƒ Amazon.com
ƒ LLBean.com
ƒ Gap.com

•www.wiley.com/go/ebusiness •8

Transaction Fee Revenue
Model
• Company that receives a fee for
enabling or executing a transaction
• Examples:
ƒ eBay.com
ƒ E-Trade.com
Advertising Revenue Model
• Web site that offers content, services
and/or products also provides a forum
for advertisements and receives fees
from advertisers
• Example: Yahoo.com
Advertising, Mixed, Informediary and
Subscription Models
• Advertising model is an extension of
traditional advertising media
• Mixed model generates revenue both
from advertising and subscription
• Informediary is all about collecting
information about consumers and then
selling the information
• Subscription is about selling digital
products through subscription
•10
Subscription Revenue Model
• Web site that offers users content or
services charges a subscription fee for
access to some or all of its offerings
• Examples:
ƒ Consumer Reports Online
ƒ Yahoo! Platinum
 Yahoo Uses a Subscription
Affiliate Revenue Model
Business Model for Yahoo Platinum
• Sites that steer business to an “affiliate”
receive a referral fee or percentage of
the revenue from any resulting sales
• Example:
ƒ MyPoints.com

•www.wiley.com/go/ebusiness •13

B2B and B2C models

Categories of E-Commerce
• Categories of e-Commerce in use today are
classified based on the nature of the
transactions. These include:
• Business to Consumer (B2C)
• Business to Business (B2B)
• Consumer to Consumer (C2C)
• Consumer to Business (C2B)
• Nonbusiness and Government
• Organisational (Intra Business)
•B2B and B2C interactions between an organization, its suppliers and its
•15 customers •16
 Business to Consumer (B2C)
• In the B2C type of e-Commerce activity
businesses sell their products or services
directly to consumers. Amazon.com is a
good example of this type of e-Commerce
activity
•17
Consumer to Consumer (C2C)
• C2C type of e-Commerce activity is all
about consumers / individuals selling
goods and services to one another using
the Internet and Web technologies
•19
Business to Business (B2B)
• We have already talked about EDI in the
previous lecture. B2B is also all about
electronic transactions among and
between businesses. A good example of
B2B is auto exchange formed by Ford,
Daimler Chrysler and General Motors
(www.covisint.com)
•18
Consumer to Business (C2B)
• C2B type of eCommerce activity is all
about consumers selling goods and
products to businesses. (web designers
advertising their services to businesses is
a good example of this type of e-
Commerce acitivity)
•20
 E-procurement applications
NonBusiness and Government
4. Purchase order is
• The e-Commerce activity amongst 3. Order approvation
electronically placed

governmental and non-business compliant to company

standards and procedures
organisations are on the rise. Most 2. Purchase request is
performed by employees
government agencies have e-Procurement via a Web interface
5. Order is fulfilled by
the supplier
guidelines (many published on the Web) Indirect goods e-
e-procurement
1. Product selection
and are using the web channel for their from available
catalogues
procurement activity
6. Product delivery

8. Payment request
electronically forwarded 7. Product receipt
•21

Transaction alternatives between

Organisational and Intra-business businesses and consumers

• This type of e-Commerce activity is all

about electronic commerce transactions
that takes place within an organisation.

•Summary of transaction alternatives between businesses and consumers

•23 •24
 B2B and B2C characteristics
Characteristic B2C
Proportion of adopters with Low to medium
access
Complexity of buying Relatively simple –
decisions individual and influencers
Channel Relatively simple – direct or
from retailer
Purchasing characteristics Low value, high volume or
high value, low volume.
May be high involvement
Product characteristic Often standardized items
B2C E-Commerce Cycle
B2B
High to very high
• The B2C E-Commerce Cycle can be
summarised as:
More complex – buying
process involves users, • Information Sharing
specifiers, buyers, etc.
More complex, direct or via • Ordering
wholesaler, agent or
distributor • Payment
Similar volume/value. May
be high involvement. • Fulfilment
Repeat orders (rebuys)
more common • Service and Support
Standardized items or
bespoke for sale
•25 •26
Write the advantages and
disadvantages of B2C
applications
 B2C applications:
advantages and disadvantages
• Advantages:
– Allow company to extend existing services to
customers
– Allow company to increase its customers
– Offer a wider choice and allow cheaper prices
– May give to the company a worldwide visibility
– Online shops are accessible 24h a day
• Disadvantages:
– Low order conversion rates
– High risk (Cyberphobia)
Order conversion rates
• Defined as:
– # of orders / # of contacts
– By month or year, four-month periods, etc.
• Measure the capability of a certain B2C
application to convert an user into a buyer
• A survey carried out in August 2000
showed that order conversion rates in
USA were of 1.9% (Boston Consulting
Group and Shop.org)

Cyberphobia and the .com

Major Models of B2B E-Commerce
crash
•“Cyberphobia” is the market’s irrational fear of the • B2B is the fastest growing segment of the
Internet due to the several bankruptcies occured in e-Commerce applications. The literature
the past years identifies 3 types of B2B e-Commerce
•B2C represent 75% of bankruptcies models depending who controls the
Internet shutdowns marketplace. These are:
2000 2001 2002 • Seller-controlled
Jan-Apr 6 220 66 • Buyer-controlled
Source:Webmergers.com • Third party exchange
•32
 Seller-controlled B2B Buyer-controlled B2B
• This is the most popular B2B model for • Larger corporations (like
both consumers and businesses. General Electric or
Businesses and consumers use sellers Boeing) with significant
buying power use this
catalogue to order products. model. In this model a
buyer or group of
buyers set up and
electronic market place
and invite sellers to bid
on announced products
•33 •34

Third Party Exchange Support Tools for B2B E-Commerce

• A third party market place is not controlled
by buyers or sellers, but rather by a third
party.
• The marketplace generates fees from
matching buyers and sellers
• With the growth of B2B e-Commerce the
need for appropriate technologies to
support B2B has gained importance.
• Over the past decade Intranets and
Extranets technologies have been used in
the e-Commerce environment and their
popularity is on the rise

•35 •36
B2B Applications
• If Buyers and Sellers are
Write the advantages and
Fragmented, Independent
Intermediaries are likely to be
disadvantages of B2B
successful. applications

• If Sellers are Concentrated,

Sellers are likely to dominate.

• If Buyers are Concentrated,

Buyers are likely to dominate.

B2B applications:
Intranets
advantages and disadvantages
• Advantages: • What is a Intranet?
– Help to automate communications between • How are they useful?
companies making them easier and quicker
• Technology behind Intranets
– Allow to cut prices drastically
• Typical Usage of Intranets within
– Help in reducing mistakes
organisations
• Disadvantages:
– Often need legacy integration

•40
 Intranets Continued Extranets
• What is a Extranet?
• How are they useful?
• Technology behind Extranets
• Typical Usage of Extranets between
organisations

•From: www.skullbox.net/intranet.php •41 •42

Extranets Continued

•From: www.sonicwall-solutions.com/
•43
 Channel Structures: Disintermediation

•Disintermediation of a consumer distribution channel showing

(a) the original situation, (b) disintermediation omitting the wholesaler, and
(c) disintermediation omitting both wholesaler and retailer
•46

Reintermediation
Example – Vauxhall

•Reintermediation process: (a) original situation, (b) reintermediation contacts

•47 •48
 Example - Kelkoo Countermediation
• Creation of a new intermediary
• Example:
– B&Q www.diy.com
– Opodo www.opodo.com
– Boots www.wellbeing.com www.handbag.com
– Ford, DaimlerChrysler (www.covisint.com)
• Partnering with existing intermediary –
Mortgage broker Charcol and Freeserve
•49 •50

Traditional Organisational
Organisational Issues
Structure
• The vertical bureaucratic structure in a firm is built on • Vertical and hierarchical
the assumption that concentrating similar activities within • Function-based
functions, and thus separating activities which are not
similar,would result in economies of scale. • Product-based
• The internet and related technologies reduce • Geography-based
coordination costs and transaction costs. • Matrix-based
• Traditional business models focused on creating value • High coordination costs (costs of sending,
at the line-of-business level while the new business storing and retrieving information)
models focus on the customers and creating value at the
• Seller- or product-driven, aiming to generate
relationship level across products and channels.
value at the of line-of -business level

•51 •52
 5 Business Models
New Organisational Structure
Classifications
• Hierarchical, procedural and other new
coordination mechanisms which leads to • Internet-enabled
network based business models. • Value-web
• Team-based structure. • E-business enabled
• Customer focused: value is generated at the • Market participant
relations level, across products and channels.
• Creation of internet based business models (5 • Cyber-intermediary
Business models Classifications)

•53 •54

Internet Enabled Business models Value-web Business Model

P. Timmers (1998)
• Value-web business model: A conception of an emerging
• E-shop • Value chain service provider form of a fluid and flexible organization.
• E-procurement • Value chain integrator • Value-web brokers: Having the central value web
function of coordinator, integrator and interface.
• E-auction • Collaboration platform • Consisting of several key building blocks:
• E-mall • Information brokerage, trust – Markets
– Hierarchies
• Third party marketplace and other services – Networks
• Trust services – Information Technology
• Virtual communities
– New-old business models

•55 •56
 The Market Participants
Cybermediaries Business Model
Business Model
• Eleven models are proposed:
Producers
Producers Internet Distributors
Distributors
Horizontal
1. Directories
Horizontal
2. Search Services
3. Malls
Focussed
Focussed Portals Vertical
4. Virtual Resellers
distributors Portals Vertical
distributors 5. Web Site Evaluators
6. Publishers
7. Auditors
Affinity
Affinity 8. Forums
Retailers
Retailers Infomediaries
Infomediaries
9. Financial Intermediaries
10.Spot Market Makers
11.Intelligent Agents
Exchanges
Exchanges Marketplaces
Marketplaces Aggregators
Aggregators
•57 •58

Online Auctions Online Auctions

• Why are they important? • Auctions help to determine the price of goods
and services for which there is no predetermined
• An overview of how it works price.
• An online auction is a straightforward yet
• Auction Terminology revolutionary business concept.
• Types of Auctions • It brings traditional auctions to the Web by
providing services to a geographically dispersed
• Managing online auctions customer base and thus increases significantly
the number of goods and services auctioned.
• Based on the brokerage business model,
auctions bring the buyers and sellers together in
a virtual marketplace.
•59

• Usually consumers participate in auctions
for two specific reasons:
1. To buy an item for personal use, such as
buying a piece of jewelry
2. To buy an item for resale, such as
antiques
Types of Auctions
• Consumer Auctions : Online consumer auctions
offer buyers the opportunity to purchase
products or services that are not easily available
at a fair price.
• Business to Business auctions : As opposed to
consumers, corporations use B2B auctions. A
very creative B2B model is the one used by
FreeMarkets.com
• English Auctions : open-outcry, or open
auctions, the bidder openly offers a price and
the maximum bid wins. In this type of auction,
usually there is a minimum bid
•63
BASIC AUCTION TERMINOLOGY
• Bidding. The act of placing a bid on an item that is being auctioned.
• Bid cancellation. The cancellation of a bid by a seller or a buyer.
• Bid increment. The predetermined amount by which a bid will be
raised, based on the current high bid. This amount depends on the
price of the product or service being auctioned.
• Minimum bid. The lowest amount that can be entered as a bid for a
specific auction.
• Relisting. Relisting is when an item has not sold and the seller
wishes to list it again.
• Close date. Depending on a specific auction site, listings close at
the hour specified by the seller.
• Bid history. The list of bidders and activities for the item, including
the customer, the bidder ID, bid amount, quantity won, bid date, as
well as the status of each bidder, winning or losing.
• Dutch Auctions : (also called descending-price
auction), usually more than one item is up for bid
at a time. The winning bidder pays the same
price for all the items, which is the lowest
winning bid on the items. In contrast with the
English auction, the Dutch auction starts at a
specific price and goes down.
• Example #1: Single item requested: If 40 bids
were made for 20 items, each bidder is bidding
for one item, and the 20th highest bid was $65,
all 20 high bidders will pay $65—even if the
highest bidder bid was $95.
• Sealed Bid Auctions : Using sealed-bid auctions the bidder
submits only one bid, and the bid is kept secret from the other
bidders. The bidder with the highest bid wins and pays his or
her bid.
• Double Auctions : Using double auctions both sellers and
buyers submit bids, which are then ranked from highest to
lowest to generate demand-and-supply profiles. From the
profiles, the maximum quantity exchanged can be determined
by matching selling offers (starting with the lowest price and
moving up) with demand bids (starting with the highest price
and moving down).
• Second-Price or Vickery Auctions :named after William
Vickrey, winner of the 1996 Nobel Prize in Economic
Sciences. Similar to sealed-bid auctions, the bids are sealed,
and each bidder is unaware of other bids. The item is
awarded to the highest bidder at a price equal to the second-
highest bid (or highest losing bid). In other words, a winner
pays less than the highest bid.

Commercial Arrangements for

Portal Services and Revenue Models
Transactions
• What are “Portals”? • Traditional arrangements vs. new
• Type of Portals
– Access portal : Empower users in their decision-making process.
approaches
– Horizontal or functional portal : These are web portals which • Types of CATs
focus on a wide array of interests and topics
– Vertical portal : These are web portals which focus only on one – Negotiated deals
specific industry,
– Geographical : Enable a geographically dispersed workforce to – Brokered deals
interact around projects and business-as-usual tasks through a
common access. – Auctions
– Market place : Marketspace portals exist to support the – Fixed price sales
business-to-business and business-to-customer e-commerce
– Media : Bringing together email, voice, mobile, web feeds etc – Pure markets
– Barter : An equal exchange
•67 •68