A business model is a method of doing business by which a company can generate revenue to sustain itself .

The components that are contained within a business model address all functions of a business, including such factors as the expenses, revenues, operating strategies, corporate structure, and sales and marketing procedures.

A business model explains how the different pieces of a business fit together.
It ensures that everyone in an organization is focused on the kind of value a company wants to create.

subscription model Sell digital products to its customers. The Wall Street Journal and Consumer Reports are two examples Informediary model Collect information on consumers and businesses and then sell this information to interested parties for marketing purposes. E-businesses such as bizrate.com

brokerage model
brings the sellers and buyers together on the Web and collects a commission on the transactions. The best example of this type is an online auction site such as eBay.

advertising model
an extension of traditional advertising media, such as radio and television. Search engines and directories such as AltaVista and Yahoo

mixed model
generates revenue both from advertising and subscriptions. Internet service providers (ISPs) such as America On-line (AOL) Time Warner merchant model transferring of an old retail model to the e-commerce world by using the Internet.

Major Categories of E-Commerce

Business-to-business (B2B), Business-to-consumer (B2C) also called e-tailing, Consumer-to-consumer (C2C) e.g. individuals selling residential property in classified ads, People-to-people (P2P) is a special type of C2C where people exchange CDs, videos, software etc. (e.g. www.napster.com ), Consumer-to-business (C2B), Government-to-citizens (G2C) Intra-business (organizational) EC, including all internal organizational activities, usually performed on intranets or corporate portals - Business-to-employees (B2E)

Collaborative commerce (c-commerce) Mobile commerce (m-commerce)

Business-To-Business e-commerce (B2B) The largest category of e-commerce is business-to-business (B2B) commerce. This involves companies conducting: e-procurement, supply chain management, network alliances, and negotiating purchase transactions over the internet. Many B2B models try to eliminate the middleman by using the Web to deliver products and services directly to their customers. By doing this they may be able to offer cheaper products and better customer service to their customers.

The end result would be a differentiation between them and their competitors, increased market share, and increased customer loyalty.

This technology has been around for many years through EDI and electronic funds transfer (EFT). In recent years the Internet has significantly increased B2B transactions and has made B2B the fastest growing segment within the e-commerce environment. Extranets have been effectively used for B2B operations. The reliance of all businesses upon other companies for supplies, utilities, and services has enhanced the popularity of B2B ecommerce.

Wal-Mart Stores are major player in B2B e-commerce. WalMarts major suppliers (e.g., Proctor & Gamble, Johnson and Johnson, and others) sell to Wal-Mart Stores electronically; all the paperwork is handled electronically. These suppliers can access online the inventory status in each store and replenish needed products in a timely manner. In a B2B environment, purchase orders, invoices, inventory status, shipping logistics, and business contracts handled directly through the network result in increased speed, reduced errors, and cost savings. The Gartner Group (www.gartner.com) estimates B2B revenue worldwide to be $7.29 trillion dollars by 2004.

Share of B2B and B2C E-Commerce in Total Global E-Commerce

As a % of worldwide B2B commerce, 2004 57.7 10.8 28.7 2.1 0.6 100.0

Region North America Asia/Pacific Rim Europe Latin America Africa/Middle East TOTAL

2000 159.2 36.2 26.2 2.9 1.7 226.2

2001 316.8 68.6 52.4 7.9 3.2 448.9

2002 563.9 121.2 132.7 17.4 5.9 841.1

2003 964.3 199.3 334.1 33.6 10.6 1,541.9

2004 1,600.8 300.6 797.3 58.4 17.7 2,774.8

Projected B2B E-Commerce by Region, 2000-2004 ($billions)

The B2B e-commerce model uses a similar cycle as B2C; however, businesses use the following four additional technologies extensively: Intranets Extranets EDI (electronic data interchange) EFT (electronic funds transfer)

Features of B2B B2B transactions are more complex as compared to B2C transactions (Multi-step buying process, longer sales cycle)

B2B transactions involve lot of negotiations over price, delivery and product specifications.

B2B transactions require integration with the other companies' systems. This is important for communication. B2C on the other hand does not require any integration with their customers. B2B websites sell big value items or services. Their products are specialised and specific (Small, focused target market). The buying process on a B2B site may involve different people or departments at different stages of the buying process. B2B site has to provide information that caters for people with varying needs and requirements.

B2B websites involve a long-term business relationship, support services, upgrades and modifications (Relationship driven). B2B transaction requires setting up an account with the company (prior agreements or contracts between the partners involved in the e-commerce business cycle, requiring a much higher level of documentation). The revenue from B2B market is significantly larger than B2C market. Multiple levels of authorization of purchases, each level having its own limits on expenditure or even types of goods

Multiple forms of electronic payment and other payment methods permitted. In B2C e-commerce, credit cards (or perhaps smart cards) are the main forms of payment, whereas in B2B ecommerce, several other banking instruments and internet payment schemes are also permitted Major Models of Business-To-Business E-Commerce The three major B2B e-commerce models are determined by who controls the marketplace: seller, buyer, or intermediary (third party). As a result, the following three marketplaces have been created: Seller-controlled marketplace Buyer-controlled marketplace Third-party exchanges marketplace

Seller-Controlled Marketplace The most popular type of B2B model for both consumers and businesses is the seller-controlled marketplace. Businesses and consumers use the sellers product catalogue to order products and services online. Buyer-Controlled Marketplace Large corporations (e.g., General Electric or Boeing) with significant buying power or a consortium of several large companies use this model. In this case a buyer or a group of buyers opens an electronic marketplace and invites sellers to bid on the announced products or RFQs (request for quotation)

Third-Party-Controlled Marketplace The marketplace generates revenue from the fees generated by matching buyers and sellers. A vertical market concentrates on a specific industry or market. A horizontal market concentrates on a specific function or business process.

Benefits of B2B E-commerce

B2B E-commerce helps to remove barriers raised by geographic fragmentation of the market. B2B also helps in eliminating unnecessary inventory build-up

B2B promotes information flow and enhances transparency The Revenue Model

The B2B initiatives earn primarily through transaction fees

Others charge an annual subscription fees irrespective of the number of orders. Revenue is also earned through membership fees, auction fees and licence fee for the use of any specialised customised software that is offered.

Revenue is also generated by providing specialised content. This could be in the form of analysis, statistics, price and product data, industry news, forecast reports and other technical services.

The Market Size / Opportunity Consumer markets are measured in the millions. While B2B has only few firms as base, B2C has customer base of over thousands. Long-term purchases long-term products and services required by businesses are more likely to require service back-up from the supplier than is the case in consumer markets. B2B typically employs a sales force whose primary responsibility is to find new opportunities and new companies to do business with. Wholesalers, distributors and manufacturers fall in this category

A B2B site deals primarily with other businesses, not the general public, a B2C site sells directly to the end user. Management Team Unlike B2C selling where there's usually one or just a very small group of decision makers, B2B selling tends to involve larger groups of decision makers, influencers, end users etc. B2B customer service comes into play prior to even making that first sale and begins with a customers very first contact with your company, whether you call them or they call you.

B2C customer service helps build customer loyalty where customers will be willing to pay a slightly higher price to know that they can return the product easily and can trust the source they are dealing with.

B2B concerns itself primarily with supply chain management.

Business-To-Consumer e-commerce Business-to-consumer (B2C) e-commerce involves businesses introducing products and services to consumers via internet technologies. This includes companies selling software and hardware through the internet, taking orders for products that are subsequently delivered to the consumer, and providing digital services such as online magazines and search engines. B2C websites sell small items and mostly one time sale. B2C websites are more directly responsible for sales as compared to B2B websites. B2C transactions are mostly done through credit cards.
Amazon.com,

Some features / benefits B2C e-commerce reduces transactions costs B2C e-commerce also reduces market entry barriers since the cost of putting up and maintaining a Web site is much cheaper than installing a brick-and-mortar structure for a firm. In the case of information goods, B2C e-commerce is even more attractive because it saves firms from factoring in the additional cost of a physical distribution network. Selling goods in a B2C environment typically requires a website with an online shop front. Consumers anywhere in the world can browse your online shop.

B2C marketing needs to convince the person to buy and build trust and loyalty with their customers.
Product driven Large target market Single step buying process, shorter sales cycle

A business-to-consumer (B2C) e-commerce configuration

Five major activities involved in conducting B2C e-commerce (cycle)

Information sharing A B2C e-commerce model may use some or all of the following applications and technologies to share information with customers:

Company web site Online catalogues E-mail Online advertisements Multiparty conferencing Bulletin board systems Message board systems Newsgroups and discussion groups

Ordering Payment Fulfilment The fulfilment function could be very complex depending upon the delivery of physical products or digital products (software, music, electronic documents).

Service and support Service and support are even more important in e-commerce than traditional businesses. E-mail confirmation Periodic news flash Online surveys Help desk Guaranteed secure transactions Guaranteed online auctions

B2C Financial Transactions

In online B2C commerce, credit cards are by far the most common payment method used.

In 2008, Amazon was the biggest online retailer with sales of EUR 13 billion (+29%), followed by the Otto Group with EUR 5.5 billion (12.5%). Source: www.yStats.com Consumer-To-Consumer e-commerce

Consumer-to-consumer (C2C) e-commerce is concerned with the use of e-commerce by individuals to trade and exchange information with other individuals.
There has been a huge growth in consumer-to-consumer auctions sites such as e-Bay and sites enabling consumers to offer goods and services to other consumers on an individual basis.

This type of e-commerce comes in at least three forms: auctions facilitated at a portal, such as eBay, which allows online real-time bidding on items being sold in the Web; peer-to-peer systems, such as the Napster model (a protocol for sharing files between users used by chat forums) and other file exchange and later money exchange models; classified ads at portal sites such as Excite Classifieds (an interactive, online marketplace where buyers and sellers can negotiate).

Challenges of C2C Reputation and trust challenges C2C e-commerce is trust; compared to B2C commerce, gaining trust is more complicated when the buyer and seller are both individuals, and with Internet come the disadvantages of anonymity - the potential for fraud or misrepresentation is much greater online than in the physical world.