Business Models for E–Commerce:


E-Commerce

 

It simply means buying and selling goods and services over the internet. E-Commerce can be defined as any form of business transaction in which the parties interact electronically. It is the technology-mediated exchange between parties as well as the electronically-based intra or inter-organisational activities that facilitate such exchanges.

 

Models

The e-Business model, like any business model, describes how a company functions; how it provides a product or service, how it generates revenue, and how it will create and adapt to new markets and technologies. A Business Model is the method of doing business by which a company can sustain itself by generating revenue. The Business Model spells out how a company makes money by specifying  where it is positioned in the value of chain. Example Radio and TV aired free.

 

Although there are many different ways to categorize  e- business models, they can be broadly categorized as:

 

  1. E- business Model based on the relationship of transaction parties
  2. E- business Model based on the relationship of transaction types

 

 

I. E- business Model based on the relationship of transaction parties

 

  1. B2C : Sells products or services directly to customers, eg amazon.com. Website following B2C business models sells its products directly  to a customer. A customer can view products on the website of business organization. The customer can choose a product and order the same. Website will send a notification to the business organizations via email and organization will dispatch the products to the customer.
  2. B2B : Sells products or services to other business, or brings multiple buyers and sellers together in a central market place, eg. Chemdex.com.
  3. B2G: Business selling to local, state and federal agencies, eg. iGov.com
  4. C2C : Consumers sell directly to other consumers, eg ebay.com
  5. C2B : Consumers fix price on their own, which business accept or decline. Eg Priceline.com
  6. G2B Government  uses  B2G  model  website   to  approach  business   organization s . Such  websites   support   auctions , tenders   and  application   submission
  7. G2C (Government to Citizen) Government uses this model to approach citizens directly. Such websites support auctions of vehicles, machinery or any other material. Such websites also provide services like registration for birth, marriage, or death certificates. The main objective of G2C is to reduce average time for fulfilling people’s requirement for various government services.

 

 

  1. How B2C works

 

  • Visiting the virtual mall
  • Customer registration
  • Customer buys the product
  • Merchant process the order
  • Credit card is processed
  • Operations management :eg quality management
  • Shipment or delivery
  • Customer receives
  • After sales service

Benefits of B2C

  • Inexpensive cost
  • Big Opportunities
  • Globalization
  • Reduced operational coast
  • Customer convenience
  • Knowledge management

Barriers of B2C

  • You can see but you can not touch, feel and smell
  • Digital Photographs are not color accurate
  • Consumer expects high service standards
  • Trusting the company/brand
  • Financial security
  • Personal Data
  1. How B2B works: Tools and techniques
  • Use of pricing as a tool
  • Use of application service provider Model
  • Use of generic Model which are known for efficiency as well as personalized attention to various business customers
  • Use of Comparison shopping

 

B2B Transaction Model

  • B2B Storefronts: Provide business with purchase, order fulfillment and other value added services. Eg Staples.com
  • B2B vertical Markets: Provide a trading community for specifying industry. Eg HotelResource.com
  • B2B aggregators: Provide a single marketplace for business purchasing for multiple suppliers egChemdex.com
  • B2B trading hubs: Provide a market place for multiple vertical markets. Eg VerticalNet.com
  • B2B Post and browse Markets: Provide Marketplace where participants post buy and sell opportunities eg CATEX.com
  • B2B auction markets: Provide a market place for buyers and sellers to enter competitive bids and contracts eg FreeMarkets.com
  • B2B fully automated exchanges: : Provide a market place for the automatic matching of standardized buy and sell contracts. Eg PaperExcange.com

Benefits of B2B

  • Direct interaction with customers
  • Focussed sales promotion
  • Building customer loyalty
  • Scalability
  • Savings in distribution cost

 

II. E- business Model based on the relationship of transaction types

 

This business model is usually controlled by two parameters namely control and value Integration. Based on this five types of transaction can be identified:

  1. Brokerage:
  2. Aggregator : Connects buyers and sellers
  3. Info-mediary: Provides information e.g. yahoo.com
  4. Community:
  5. Value chain: portals e.g. yahoo.com
  6. Subscription
  7. Affiliate

 

  1. Brokerage

Price-discovery mechanism

Meeting point for sellers and buyers

Actions and exchanges are the modes of transactions

It is a free-market

Global network of buyers and sellers

It is a virtual market place

Advantages

Allows buyers and sellers to trade directly bypassing intermediaries which reduces cost for both the parties

Global reach

24/7 hours trading and provides continuous up to date  information

Alleviation of risk of anonymous trading

Price discovery mechanism

  1. Auction
  2. Reverse action
  3. Market exchange
  4. Aggregator Model

Electronic commerce business model where a firm (that does not produce or warehouse

any item) collects (aggregates) information on goods and/or services from several competing sources at its website. They are known as Information aggregators. Information aggregators are entities that collect information from a wide range of sources, with or without prior arrangements, and add value by providing post-aggregation services. Usually information aggregators collect information from various sources, such as the Internet, diverse databases, company websites, and results of searching engines.

Types of aggregators

  1. Content aggregators. They are the large-scale sites on the web and mostly represent large publishing companies. Eg pathefinder.com
  2. Mainstream aggregators. They include sites like yahoo providing a web directory and a search engine, along with a bunch of attractive tools like email services etc.
  3. Event aggregators. These are sites that provide in-depth content and tools tailored to the needs of a particular group that acts clearly defined customer base.
  4. Shopping aggregators. They let consumers roam through hundred of sites and catalogues and find the best price in seconds. They help consumers sift through dozens of e-commerce sites.

 

  1. Info- mediary Model

An organiser of virtual community is called an information intermediary or info-mediary, who helps sellers to collect, mange, and maximize the value of information about consumers. A major Internet business model, the infomediary model is characterized by the capture and/or sharing of information. The simplest form of an infomediary model is the registration model. In this scenario, companies require users to register before gaining access to information on their Web sites, even if the information itself is provided at no charge. Registration is a condition for viewing or downloading the articles so the company can capture contact information and other data from the interested party and use it to make sales calls and potentially acquire new clients for its consultants.
Data about consumers and their buying habits are extremely valuable, especially when that information is carefully analysed and used to target marketing campaigns. They are information business, implying that they compete on their ability to capture and manipulate information in a manner that adds value for their clients who could be sellers or buyers.

Classification of info- mediaries

Info- mediaries can be classified on the basis of their relationship with sellers and buyers into four types:

  1. Specialize agents. These infomediaries usually mange a specialized market.
  2. Generic agents. These infomediaries maintain open relationship with both buyers and suppliers and involve no relationship-specific investment. They create value through their comprehensive and unbiased service, often generating revenue from advertising.
  3. Supplier agents. They are sponsored either by specific companies with a vested interest in selling their products or by close affiliation to the core group of sellers.
  4. Buyer agents. They establish relationship with a core set of buyers, working on their behalf and any number of
  5. Community model

The e-communities are formed when groups of people meet online to fulfill certain needs or serve their common interest, exchange information, share interests, trade goods and services, entertain and seek help. The community model is a method of developing an online presence in which several individuals or groups are encouraged to join and participate in ongoing interaction designed around a common purpose. Web communities, or virtual communities, are not only a way for like-minded people to come together online, they also are an increasingly important element of business plans. Communities utilize electronic tools such as forums, chat rooms, e-mail lists, message boards, and other interactive Internet mechanisms, which are usually tailored to the particular community.

The community model comes in two basic varieties: those centered on relationships and those centered on tasks. The former typically are informal, grassroots-oriented communities that revolve around shared interests, ideas, topics, and goals. In these communities, the development of relationships is the primary goal. To maximize member involvement, community sites must offer maximum degrees of interactivity and personalization. For example, GeoCities offers space and tools for members to set up their own Web sites and establish virtual communities within the broader GeoCities community. Task-centered communities generally are more structured and impersonal. The relationships established or augmented online are a means to a mutual end, such as enhanced profits. More specifically, web communities are established between business partners, between businesses and their customers, between different groups of customers, within companies, and between individuals and groups devoted to particular topics.

  1. Value chain model

Value chain Model- value chain moves business away discrete streams of data about the product being made to one unified pool of information-one that even extends outside the company to suppliers and customers. The goal is to develop full and seamless interaction among all members of the chain, resulting in lower inventories, higher customer satisfaction, and shorter time to the market.

 

  1. Generalized Portal : AltaVista as a Value Chain Model

AltaVista Company is the premier knowledge resource on the Internet. It strong engine tool and patented technology. By capitalizing on the unique Web-wide features and services, the AltaVista network provides a distinct Internet experience through multiple integrated platforms, as in the following:

  1. AltaVista search
  2. AltaVista shopping.com
  3. AltaVista live!
  4. AltaVista raging bull
  5. AltaVista free access
  6. AltaVista international

 

  1. Personalized Portal: My Yahoo! As a Value Chain Model

Some of the topics that Yahoo offers are:

  1. Pick your weather cities
  2. Track your stock quotes
  3. Read your choice of news
  4. Find local movie Showtime
  5. Follow your favorite sports team

 

The manufacturer or “direct model

The manufacturer or “direct model”, it is predicated on the power of the web to allow a manufacturer (i.e., a company that creates a product or service) to reach buyers directly and thereby compress the distribution channel. The manufacturer model can be based on efficiency, improved customer service, and a better understanding of customer preferences.

 

Purchase — the sale of a product in which the right of ownership is transferred to the buyer.

Lease — in exchange for a rental fee, the buyer receives the right to use the product under a “terms of use” agreement. The product is returned to the seller upon expiration or default of the lease agreement. One type of agreement may include a right of purchase upon expiration of the lease.

License — the sale of a product that involves only the transfer of usage rights to the buyer, in accordance with a “terms of use” agreement. Ownership rights remain with the manufacturer (e.g., with software licensing).

Brand Integrated Content — in contrast to the sponsored-content approach (i.e., the advertising model), brand-integrated content is created by the manufacturer itself for the sole basis of product placement

 


 

  1. The Affiliate model

The affiliate (or click-through) model is a popular e-commerce relationship in which an online merchant agrees to pay an affiliate in exchange for providing an advertisement and link to the merchant’s site. Each sale generated as a result of a customer “clicking through” from an affiliate to the merchant results in a small commission for the affiliate. The deal provides a stream of cash to affiliates and brings the merchant, which owns the affiliate network, a host of new traffic, cutting customer-acquisition costs and allowing it to target its desired audience.

 

  1. Subscription model

Users are charged a periodic — daily, monthly or annual — fee to subscribe to a service. It is not uncommon for sites to combine free content with “premium” (i.e., subscriber- or member-only) content. Subscription fees are incurred irrespective of actual usage rates. Subscription and advertising models are frequently combined.

 

Content Services — provide text, audio, or video content to users who subscribe for a fee to gain access to the service.

Person-to-Person Networking Services — are conduits for the distribution of user-submitted information, such as individuals searching for former schoolmates.

Trust Services — come in the form of membership associations that abide by an explicit code of conduct, and in which members pay a subscription fee.

Internet Services Providers — offer network connectivity and related services on a monthly subscription.