Electronic and Mobile Commerce

Week 4 - Business Models (extended), Technology, and Behaviour

After browsing through internet for many reference, i found out that business models are perhaps the most discussed and least understood aspect of the web. There is so much talk about how the web changes traditional business models. But there is little clear-cut evidence of exactly what this means.

In our 4th meeting, i gained some clarifications from what the lecturer said. Business model might not be the same year after the year. i.e, amazon.com. If you want to know what business model it applied, you have to specified the month and the year. Dynamics is one of the characteristic of Business model. Another one is the components and linkages, which combine together wih environment points, more or less the same with SWOT analysis. All of them, with the 'change' variable, will decide how well is your performance

In the most basic sense, a business model is the method of doing business by which a company can sustain itself -- that is, generate revenue. The business model spells-out how a company makes money by specifying where it is positioned in the value chain. (for more information about value chain, you can refer to our text book, chapter 1 :D)

Some models are quite simple. A company produces a good or service and sells it to customers. If all goes well, the revenues from sales exceed the cost of operation and the company realizes a profit. Other models can be more intricately woven. Broadcasting is a good example. Radio and later television programming has been broadcasted over the airwaves free to anyone with a receiver for much of the past century. The broadcaster is part of a complex network of distributors, content creators, advertisers (and their agencies), and listeners or viewers. Who makes money and how much is not always clear at the outset. The bottom line depends on many competing factors.

Internet commerce will give rise to new kinds of business models. There are some properties of internet that potentially impact inter- and intra- firm activities, such as:
- Mediating technology - improve flexibility
- Universality - when everybody can reach everybody
- Network externalities - adding new value by adding new network
- Distribution channel - as one way of spreading news
- Time moderator - can reduce the time constrain (eg: one job can be done by several people across country
- Information asymmetry shrinker - in internet, we can search news from everywhere (Eg: ebay)
- Infinite virtual capacity
- Low cost common standard
- Creative destroyer
- Transaction cost reducer

That much is certain. But the web is also likely to reinvent tried-and-true models. Auctions are a perfect example. One of the oldest forms of brokering, auctions have been widely used throughout the world to set prices for such items as agricultural commodities, financial instruments, and unique items like fine art and antiquities. The Web has popularized the auction model and broadened its applicability to a wide array of goods and services.

Business models have been defined and categorized in many different ways. This is one attempt to present a comprehensive and cogent taxonomy of business models observable on the web, which is not the same like what shown in lecture notes. The proposed taxonomy is not meant to be exhaustive or definitive. Internet business models continue to evolve. New and interesting variations can be expected in the future.
The basic categories of 9 business models summarized from an article are:

- Brokerage
Brokers are market-makers: they bring buyers and sellers together and facilitate transactions. Brokers play a frequent role in business-to-business (B2B), business-to-consumer (B2C), or consumer-to-consumer (C2C) markets. Usually a broker charges a fee or commission for each transaction it enables.

- Advertising
The web advertising model is an extension of the traditional media broadcast model. The broadcaster, in this case, a web site, provides content (usually, but not necessarily, for free) and services (like email, IM, blogs) mixed with advertising messages in the form of banner ads. The banner ads may be the major or sole source of revenue for the broadcaster. The broadcaster may be a content creator or a distributor of content created elsewhere. The advertising model works best when the volume of viewer traffic is large or highly specialized.

- Infomediary
Data about consumers and their consumption habits are valuable, especially when that information is carefully analyzed and used to target marketing campaigns. Independently collected data about producers and their products are useful to consumers when considering a purchase. Some firms function as infomediaries (information intermediaries) assisting buyers and/or sellers understand a given market.

- Merchant
Wholesalers and retailers of goods and services. Sales may be made based on list prices or through auction.

- Manufacturer (Direct)
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.

- Affiliate
In contrast to the generalized portal, which seeks to drive a high volume of traffic to one site, the affiliate model, provides purchase opportunities wherever people may be surfing. It does this by offering financial incentives (in the form of a percentage of revenue) to affiliated partner sites. The affiliates provide purchase-point click-through to the merchant. It is a pay-for-performance model -- if an affiliate does not generate sales, it represents no cost to the merchant. The affiliate model is inherently well-suited to the web, which explains its popularity. Variations include, banner exchange, pay-per-click, and revenue sharing programs.

- Community
The viability of the community model is based on user loyalty. Users have a high investment in both time and emotion. Revenue can be based on the sale of ancillary products and services or voluntary contributions; or revenue may be tied to contextual advertising and subscriptions for premium services. The Internet is inherently suited to community business models and today this is one of the more fertile areas of development, as seen in rise of social networking.

- Subscription
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.

- Utility
The utility or "on-demand" model is based on metering usage, or a "pay as you go" approach. Unlike subscriber services, metered services are based on actual usage rates. Traditionally, metering has been used for essential services (e.g., electricity water, long-distance telephone services). Internet service providers (ISPs) in some parts of the world operate as utilities, charging customers for connection minutes, as opposed to the subscriber model common in the U.S.

The models are implemented in a variety of ways. For further example and explanation, you can click on this link. Moreover, a firm may combine several different models as part of its overall Internet business strategy. For example, it is not uncommon for content driven businesses to blend advertising with a subscription model.

Business models have taken on greater importance recently as a form of intellectual property that can be protected with a patent. Indeed, business models (or more broadly speaking, "business methods") have fallen increasingly within the realm of patent law. A number of business method patents relevant to e-commerce have been granted, where amazon.com is noted as one of the biggest holder.

One personal opinion thing that i noted after one month of this course: Amazon kept being a good example through different chapters of this course. Seems like Amazon becomes the best not only because of luck - they should have really put effort in studying the business theory(business trend, web marketing strategies, segmentation, customer relationship, etc) like what we're learning, and find the best business model for themselves. Then who said that theory is useless, and never going to work in real world? :P

posted by Unknown @ 1:12 AM