Components of the online business model

BBA 3331, Introduction to E-commerce 1

Course Learning Outcomes for Unit II Upon completion of this unit, students should be able to:

1. Discuss components of the online business model. 1.1 Describe a major business model of e-commerce.

3. Develop strategies for running an e-commerce company.

3.1 Describe the key e-commerce concepts and strategies of a selected business.

Course/Unit Learning Outcomes

Learning Activity

1.1

Unit Lesson Chapter 2, pp. 53–81 Article: “The Changing Face of Retail: Can Innovation by Traditional Retailers Overcome the Disruptive Force of E-Commerce?” Video: Business Model Generation – Amazon/Authors Case Study Unit II Case Study

3.1

Unit Lesson Chapter 2, pp. 53–81 Article: “The Changing Face of Retail: Can Innovation by Traditional Retailers Overcome the Disruptive Force of E-Commerce?” Unit II Case Study

Reading Assignment Chapter 2: E-commerce Business Models and Concepts, pp. 53–81 To access the following resources, click the links below. Katz, D. M. (2016). The changing face of retail: Can innovation by traditional retailers overcome the disruptive

force of e-commerce? CFO, 32(9), 24–29. Retrieved from http://go.galegroup.com.libraryresources.columbiasouthern.edu/ps/i.do?p=ITBC&sw=w&u=oran95108 &v=2.1&it=r&id=GALE%7CA470694313&asid=023b5cbc1a6ce0b669709eea920dd02b

The following video, which was provided in the Unit II Lesson, provides an overview of Amazon’s business model. Lichetenberg, R. (2014, July 24). Business model generation – Amazon/authors case study [Video file].

Retrieved from https://www.youtube.com/watch?v=Qz1IdedWltA Click here to access the transcript for the video above.

Unit Lesson Unit I provided a historical overview of e-commerce, the Internet, and the web. As we have already established, e-commerce is defined as purchasing products and services over the Internet. In this unit, we cover the business model concept and its contribution to the growth and definition of e-commerce businesses. Ovans (2015) articulated that a business model is simply a plan on how the proposed business will generate revenue. When conceptualizing and creating a business, company founders invent or find the best plan to use

UNIT II STUDY GUIDE

E-commerce Models

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for launching their businesses (i.e., a narrative or story on how the business is supposed to work and produce profits). Web-enabling a business brings many benefits. Once online, businesses can offer unmatched customer service, targeted personalized service, and custom supply chain management. The early e-commerce pioneers, such as Amazon (amazon.com) and eBay (ebay.com), have assisted in the definition of an online business model. Entrepreneurs thinking of starting an online business or taking their business online must be aware of the different e-commerce business models and how to implement a sound strategy effectively. E- commerce businesses need to apply the proper business model, which entails deciphering the best use of the web and the Internet in relation to mobile technologies. Timmers (1998) advanced the definition of a business model to include the product, service, and data processes of the new enterprise along with the many different elements and roles of the various business actors, including target markets and investors, as a source of revenue. Laudon and Traver (2018) defined a business model as “set of planned activities (sometimes referred to as business processes) designed to result in a profit in a marketplace” (p. 56). For specifics, review the video below to learn about Amazon’s business model. To access the following resource, click the link below.

Lichetenberg, R. (2014, July 24). Business model generation – Amazon/authors case study [Video file].

Retrieved from https://www.youtube.com/watch?v=Qz1IdedWltA Click here to access the transcript for the video above. Once an organization decides what its purpose is going to be, one of the business-to-consumer (B2C) or business-to-business (B2B) models may be adopted. Timmers’ (1998) early definition of an e-commerce business model and Laudon and Traver’s (2018) definition share many similarities. Both identify specific building blocks: processes (sales), customer relationships (business activities), revenue, and marketplace (sources of revenue). There are many business models for e-commerce; Section 2.2 in your textbook highlights the major B2C business models, and Section 2.3 highlights the major B2B business models. According to Laudon and Traver (2018), the most successful business models share eight key properties, which are listed below.

1. Value proposition: This is the promise that value will be received by the customer and the belief by the buyer that value will be a part of the transaction.

2. Revenue model: This refers to the business framework regarding how the enterprise will generate income. In this framework or model, a target market is identified, a value is defined from the product or service, and the selling price is calculated.

3. Market opportunity: This element of a business model refers to an unfulfilled need of a product or service in the marketplace. This includes a need or want that is not being realized by already established businesses in the market.

4. Competitive environment: This is the market in which the new enterprise will be competing. It encompasses the current state of the market and other companies selling similar products or services.

5. Competitive advantage: This is the distinction of the new enterprise that is outperforming others. It includes a more cost effective access or use of resources and a new process or technology, which is bringing an advantage over other competitors in the market.

6. Market strategy: This element of the model includes how the new enterprise will create and sustain a competitive advantage over the competition. This includes how the enterprise plans to acquire customers and gain revenue.

7. Organizational development: This refers to the effective development of the enterprise and how it can adapt to changing business conditions while remaining efficient and delivering performance.

8. Management team: This refers to the top executive leadership who is running the operations of the new enterprise. Frequently, this is not the same as the board of directors making high-level decisions for the business.

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Electronic Storefronts Storefront models are what buyers think of when shopping online. Most e-commerce business models use electronic storefronts to provide and organize product or service catalogs, to accept orders, to process transactions in a secured manner, to send and track merchandise to customers, and to manage customers’ information. The security of customer information will be further explored in the last unit. Although the term e-commerce came about because of the ubiquity of the Internet, many large corporations had been conducting electronic business for decades before that. According to Stallings (1999), large corporations networked their systems with the systems of their clients and partners via private communication lines. Many organizations used electronic data interchange (EDI) to exchange information with partners, customers, and vendors. These private networks were used mainly to transfer orders and invoices. Before the Internet, organizations involved in EDI relied on private firms for setup and support. These firms were referred to as value-added networks or VANs (Stallings, 1999). Today, millions of businesses are using the Internet for EDI transactions. A well-known company that uses and provides EDI services is CompuServe. The financial industry still uses what is called electronic funds transfer (EFT) to send and receive funds between banks and accounts. Most financial institutions, such as banks and large financial clearinghouses, use EDI for financial transactions.

Most electronic storefront models are e-tailers or electronic retailers. E-tailers provide goods and services to online shoppers. Since most e-tailers are a part of the online shopping marketplace, the online e-commerce environment is extremely competitive. Although many business models for e-tailers look the same, each is different in its own way, and each has its own value proposition, strategy, and revenue streams (Laudon & Traver, 2018). Successful online storefront model companies, or e-tailers, are B2C. For example, Amazon, a trailblazer in online shopping technologies, provides a shopping cart and a one-click checkout option. Ticketmaster (ticketmaster.com) uses the online experience to provide unique customer service, which allows ticket buyers to have access to seating plans of venues, event listings, and ticket discounts. Even though both companies have chosen storefront models to offer their products and services, each differs in their approach to e- commerce. Amazon concentrates on offering the best value possible for available items, while Ticketmaster aims to improve its customer experience and choices for events. E-commerce Business Models E-commerce business models must be chosen carefully. A business model must be able to set the right strategy, deliver value, and generate revenue. Ranjan (2013) found that when organizations choose a model, it paves the way for how the business will operate in the future. Such a model will need to compensate sufficiently for market conditions and organizational risks. Thus, the choice of a business model is paramount as it ensures the business is sound from the start and has the capabilities to operate smoothly. The image below depicts the different e-business models.

Core concepts (Laudon & Traver, 2018)

CORE CONCEPTS

E-commerce had been taking place before the popularity of the Internet. Large organizations used private networks to conduct business transactions between business partners, vendors, and customers.

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Concepts and Strategies Laudon and Traver (2018) articulate, “A business strategy is a set of plans for achieving superior long-term returns on the capital invested in a business firm” (p. 91). The Internet is in constant change, and although this presents a dynamic marketplace, the principle of a sound strategy still applies. Successful businesses have a unique strategy that leverages the e-commerce environment to their advantage. These strategies must include unique products and innovative services with distinguishing elements that set them apart from the competition (Laudon & Traver, 2018). E-commerce businesses must identify their e-business model carefully as it is a fundamental factor for the success of the company. The business model should be designed with different perspectives or strategic approaches, which is crucial for the development and sustainment of e-commerce systems. Key elements of e-business strategies include production or service innovation, which will be significant to the value proposition that target customers are willing to pay. Examples of this include Uber and Lyft, which provide a unique approach to on-demand ride services. Another important concept to e-commerce is infrastructure management. In other words, what is the technology, and who are the technology partners the business relies on to be successful? Another key aspect of e-commerce is customer relationship management (CRM). CRM is significant for online companies because of the interaction of online social shopping. Last is the financial aspect of e-commerce enterprises. The return on investment (ROI) for online companies usually takes a long time to materialize—a very long time (Laudon & Traver, 2018). The business must be able to sustain its finances while entering the market. As an example, according to Edwards’ (2017) analysis of Uber through the end of 2016, Uber’s losses have far exceeded its revenue. Though Uber has taken over $12 billion in investments and is valued at over $70 billion, the company is still losing money (Edwards, 2017). While this is not the norm, this example is typical of a tech startup in e-commerce. Conclusion From the inception of the e-commerce concepts, online storefronts have experienced significant growth. Entire industries have surfaced from e-business and e-commerce. Different business models have also come about to fill an ever-growing e-commerce environment. A significant aspect of e-commerce is technology. Technology must be a central part of forming the business strategy. In many cases, technology is the driver for the business model; we will be discussing technology in e-commerce in the next unit. Another critical aspect of an e-commerce business models is the enhancement of the customer experience around the product or service. The customer should see value in visiting the online storefront. Amazon, for example, provides a full customer experience.

E-business models

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What about existing brick-and-mortar businesses? Brick-and-mortar businesses are finding new ways to compete. Bricks-and-clicks refers to a model where consumers touch, feel, or try a product before buying it or ordering it online. With this approach, salespeople can assist customers by providing answers to customer questions or getting feedback and suggestions at a personal level and with a human touch. Another model is where customers order online and have it delivered to the nearest provider’s brick-and-mortar store. This is the case with Walmart, where pick-up and payment can be done at the store for products ordered online.

References Edwards, J. (2017, February 27). Uber’s leaked finances show the company might — just might — be able to

turn a profit. Business Insider. Retrieved from http://www.businessinsider.com/uber-leaked-finances- accounts-revenues-profits-2017-2

Laudon, K. C., & Traver, C. G. (2018). E-Commerce 2017: Business, technology, society (13th ed.). Boston,

MA: Pearson Education. Ovans, A. (2015, January 23). What is a business model? Harvard Business Review. Retrieved from

https://hbr.org/2015/01/what-is-a-business-model Ranjan, R. (2013, October 29). 8 key elements of a business model [Blog post]. Retrieved from

http://imtebiz2013.blogspot.com/2013/10/8-key-elements-of-business-model.html Stallings, W. (1999). Data and computer communications (6th ed.). Upper Saddle River, NJ: Prentice Hall. Timmers, P. (1998). Business models for electronic markets. Electronic Markets, 8(2), 3–8.