Lecture E-Commerce - Chapter 12: E-commerce business model and concepts (part I)

CSC 330 E-Commerce
Teacher

Ahmed Mumtaz Mustehsan
GM-IT CIIT Islamabad

Virtual Campus, CIIT
COMSATS Institute of Information Technology

T1-Lecture-12

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

1-1


T1-Lecture-12
E Commerce Business Model and
Concepts
Chapter-05
Part -II

For Lecture Material/Slides Thanks to: Copyright © 2010 Pearson Education, Inc

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

1-2


Objectives
 Describe

the major B2B business models.
 Recognize business models in other emerging areas
of e-commerce.
 Understand key business concepts and strategies
applicable to e-commerce.

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

1-3


B2B Business Models
Business sells to other Business, 10 times the size of
B2C $ 256 billions vs $ 3.6 trillions.
Net marketplaces
E-distributor
E-procurement

Exchange
Industry consortium
Private industrial network
Single firm
Industry-wide

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

1-4


B2B Models: E-distributor
 Companies

that supplies products and services
directly to individual businesses

 Owned

by one company seeking to serve many
companies/ customers.

 Revenue

model: Sales of goods

Examples:
Grainger.com, FindMRO.com, Staples.com

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

1-5


B2B Models: E-procurement
 Creates

and sells access to digital electronic markets.
 They offer purchasing firms a sophisticated set of
sourcing and supply chain management tools that
permit firms to reduce supply chain costs.
 Includes B2B service providers, are able to offer firms
much lower costs of software by achieving scale
economies.
 Purchasers can buy together and receive larger
discounts for larger orders.
 Application Service Providers (ASPs), a company that
sells access to Internet-based software applications to
other companies
Revenue model: Transaction fees, usage fees, annual
licensing fees
Example: Ariba

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

1-6


B2B Models: Exchanges
 Electronic

digital marketplace where suppliers and
purchasers conduct transactions

 Owned

by independent firms whose business is
making a market

 Usually

serve a single vertical industry such as steel,
polymers, or aluminum and focus on the exchange of
direct inputs to production and short-term contracts or
spot purchasing.
 For buyers, B2B exchanges make it possible to gather
information, check out suppliers, collect prices, and
keep up to date on the latest happenings all in one
place.

 Sellers, on the other hand, benefit from expanded
access to buyers.
T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

1-7


B2B Models: Exchanges (contd…)
 The

greater the number of sellers and buyers, the
lower the sales cost and the higher the chances of
making a sale.
 Create powerful competition between suppliers
 The ease, speed, and volume of transactions are
referred to as market liquidity
 Revenue model: Transaction, commission fees
Example: CommerceOne.com have shown extraordinary
growth

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

1-8


B2B Models: Industry Consortia
 Industry-owned

vertical marketplaces that serve
specific industries, such as the automobile, aerospace,
chemical, floral, or logging industries.
 In contrast to horizontal marketplaces sell specific
products and services to a wide range of companies.
 More successful than exchanges
◦Sponsored by powerful industry players
Revenue model: traditional purchasing behavior
Example: One of the largest vertical B2B industry
consortia is Covisint, the auto parts exchange backed
by DaimlerChrysler, Ford, General Motors, Renault,
CommerceOne, and Oracle
 other example is Exostar
T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

1-9


Private Industrial Networks
Digital Networks designed to coordinate flow of

communication among firms engaged in business
together.
Single

firm networks.
 Industry-wide networks; Often evolve out of industry
associations
Examples:
Wal-Mart operates one of the largest private industrial
networks in the world for its suppliers.
Electronic data interchange (EDI), for one-to-one
relationships between a single supplier and a single
purchaser.
Other
T1-Lecture-12

Example: Agentrics

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

110


B2B Business Models

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

111


B2B Business Models

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

112


Business Models in Emerging
E-commerce Areas
 Consumer-to-consumer

(C2C) ventures provide a way
for consumers to sell to each other, with the help of an
online business.
 The best example is eBay.com, utilizing a market
creator business model.
 Half.com (also owned by eBay),Unlike eBay, it allows
sellers to set a fixed-price for each item, rather than
putting it up for bid.
 Half.com facilitate a transaction, charges15%

commission on the sale, plus a fraction of the shipping
fee.

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

113


Business Models in Emerging
E-commerce Areas
 Peer-to-peer

(P2P): business models link users,
enabling them to share files and computer resources
without a common server.
 The challenge for P2P ventures is to develop viable,
legal business models that will enable them to make
money
Examples: Kazaa.com, one of the most prominent
examples of a P2P business model in action.
Other Examples are The Pirate Bay, Cloudmark

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

114


Business Models in Emerging
E-commerce Areas
 M-commerce:

short for mobile-commerce, takes
traditional e-commerce models and leverages emerging
new wireless technologies.
 These technologies have already taken off in Japan and
Europe.
 The key technologies here are telephone-based 3G and
4G (third generation and fourth generation wireless),
Wi-Fi (wireless local area networks), and Bluetooth
(short range radio frequency Web devices). Worldwide
expansion in 3G telephone networks.
 Location based services are gaining popularties.

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

115

Business Models in Emerging
E-commerce Areas

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

116


E-commerce Enablers: The Gold Rush Model
 E-commerce

infrastructure companies:

◦Hardware, software, networking, security
◦E-commerce software systems, payment systems
◦Media solutions, performance enhancement
◦CRM software
◦Databases
◦Hosting services, etc.

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

117


E-commerce Enablers:

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

118


How the Internet and the Web Change
Business

E-commerce changes industry structure by changing:
Basis of competition among rivals
Barriers to entry
Threat of new substitute products
Strength of suppliers
Bargaining power of buyers

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

119


How the
Internet
and the
Web
Change
Business

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

120


Industry Value Chains
 Set

of activities performed by suppliers, manufacturers,
transporters, distributors, and retailers that transform
raw inputs into final products and services.

 Each

of these activities adds economic value to the
final product; hence, the term value chain

 Internet reduces cost of information and other
transactional costs
 Leads

to greater operational efficiencies, lowering cost,
prices, adding value for customers

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

121


E-commerce and Industry Value Chains

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

122


Firm Value Chains
 Activities

that a firm engages in to create final
products from raw inputs

 Each
 Effect

step adds value
of Internet:

◦Increases operational efficiency
◦Enables product differentiation
◦Enables precise coordination of steps in chain

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

123


E-commerce and Firm Value Chains

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

124


Firm Value Webs
 Networked

business ecosystem

 Uses

Internet technology to coordinate the value chains
of business partners
◦Within an industry
◦ Within a group of firms

 Coordinates

a firm’s suppliers with its own production
needs using an Internet-based supply chain
management system

T1-Lecture-12

Ahmed Mumtaz Mustehsan

Copyright © 2010 Pearson Education, Inc

125