EC Fundamentals andBusiness Models for EC

AgendaWhat is EC? What is a business model?Business models on the Web

()Qantas Airways(I)The problemIncreased fuel prices arrived quickly and without warningCompetitorsImpulseVirgin BlueHigher fees at Sydney International AirportNeeded to upgrade its fleetPurchase new 500-seat planesAustralian economy slowed down in 2000 and the Australian dollar was sinkingWill Qantas, the worlds second oldest airline, survive?

()Qantas Airways(II)Business-to-business (B2B) E-marketplace memberBusiness-to-customer (B2C): Online booking & wireless communicationsBusiness-to-employee (B2E): Online training & banking

() Qantas Airways(III)Business-to-business (B2B) E-marketplace memberJoined Airnew Co.links major airlines with suppliersFuelFuel servicesLight maintenance servicesCatering Joined corprocure.com.auPurchase general goods and services

() Qantas Airways(IV)Business-to-customer (B2C): Online bookingWireless communications

()Qantas Airways(V)Business-to-employee (B2E): Online traininggdstrainingQantas.com.augfcollege.edu.auOnline bankingQantascu.com.au

()Qantas Airways(VI) The ResultsLeading an old-economy company into e-commerce was not going to be easyInterfering with existing power structure and fitting new-economy strategies with old-economy ways of thinkingQantas knows that this is the path it must takeResults are not to be expected overnightIt will takes years and hundreds of millions of dollars to implement the entire EC initiativeQantas expects to see an estimated AUD 85 millions in cost reductions per yearIt will increase annual revenues by AUD 700 millions from nontravel sales

()Rosenbluth International (I)Threats to international travel agency industryOnline booking by airlines, hotels, etc.Commission caps for agents reducedOnline companies penetrating corporate market as well as individual travelersCompetition among major players is rebate-basedInnovative business models (i.e., name your own price, auctions) embraced by companies in the industry

()Rosenbluth International (II)SolutionBecame a purely corporate travel agencyRebate customers with entire commissionStrategic Information SystemsDACODA: optimizes corporation's travel savingsDiscount Analysis Containing Optimal Decision AlgorithmsA patented yield management systemsE-messaging services: reservation requests and results via e-mailE-ticket tracking: deals with and reduces number of unused e-tickets

()Rosenbluth International (III)SolutionStrategic Information SystemsRes-Monitor: low-fare search system, finds additional savings for 1 of 4 reservationsGlobal distribution network: enables instant access to travelers itinerary, travel preferences, corporate travel policyCustom-Res:ensures policy compliance, consistent service, accurate reservationsIntelliCenters: innovative telecommunications technology was to manage multiple accountsNetwork Operations Center (NOC): monitors weather, current events, air traffic

EC Definition ()(I)"the sharing of business information, maintaining business relationships, and conducting business transactions by means of telecommunications networks; includes not only the buying and selling of goods, but also the various processes within individual organizations which support that goal. " (Zwass)

EC Definition ()(II)"...more than simply buying and selling goods electronically; involves using network communications technology to engage in a wide range of activities up and down the value-added chain both within and outside the organization. " (Applegate, et.al.)

EC Definition ()(III)"... a modern business methodology that addresses the needs of organizations, merchants, and consumers to cut costs while improving the quality of goods and services and increasing the speed of service delivery. The term also applies to the use of computer networks to search and retrieve information in support of human and corporate decision making. " (Kalakota and Whinston)

A better EC Definition?(I)What are we looking for in a definition?Something that guides us toward consideration of the strategic importance of electronic commerce technologies to the business.The best definitions view EC as a strategy to support the total delivery of products and services to the customer, rather than just another set of tools and technologies. (Donna Huffman and Tom Novak)

-- Donna Huffman and Tom Novak

A better EC Definition?(II)...the strategic deployment of computer-mediated business tools and information technologies to satisfy business objectives. As such, electronic commerce offers fundamentally new ways of doing business, rather than mere extensions of existing business practices.

(I)24

(II)

EC(Kalakota & Winston, 1997)

The Dimensions of Electronic CommerceSource: Choi et al. (1997), p. 18.

Porters Competitive AnalysisSource: Reprinted with the permission of the Free Press, a Division of Simon & Schuster, Inc. , from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter, p. 67. Copyright 1985, 1998 by Michael E. Porter.

Bargaining Power of SuppliersProcurement using the Internet tends to raise bargaining power over suppliers, though it can also give suppliers access to more customers (+/-)The Internet provides a channel for suppliers to reach end users, reducing the leverage of intervening companies (-) Internet procurement and digital markets tend to give all companies equal access to suppliers, and gravitate procurement to standardized products that reduce differentiation (-) Reduced barriers to entry and the proliferation of competitors downstream shifts power to supplier (-)

BuyersBargaining power of channelsEliminates powerful channels or improves bargaining power over traditional channels (+) Bargaining power of end usersShifts bargaining power to end consumers (-)Reduces switching costs (-)

Threat of Substitute Products or ServicesBy making the overall industry more efficient, the Internet can expand the size of the market (+)The proliferation of Internet approaches creates new substitution threats (-)

Barriers to EntryReduces barriers to entry such as the need for a sales force, access to channels and physical assets anything that Internet technology eliminates or makes easier to do reduces barriers to entry (-)Internet applications are difficult to keep proprietary from new entrants (-)A flood of new entrants has come into many industries (-)

Rivalry among Existing CompetitorsReduces differences among competitors as offerings are difficult to keep proprietary (-)Migrates competition to price (-)Widens the geographic market, increasing the number of competitors (-)Lowers variable cost relative to fixed cost, increasing pressures for price discounting (-)

Kalakota & Whinston

Kalakola & Whinston (I) (EC Applications))(Video on Demand)(Remote Banking)(Procurement and Purchasing)(Online Marketing and Advertising)(Horne Shopping) (Common Business Services Infrastructure)(Security)(Authentication)(Directories/Catalogs) (Messaging and Information Distribution Infrastructure)(Middleware)(Electronic Data Interchange, EDI)(E-mail)(Hypertext Transport Protocol, HTTP)

Kalakola & Whinston (II) (Multimedia Content and Network Publishing Infrastructure)HTMLJAVAWWW (Network Infrastructure)(Information Transport Providers)(Telecommunication)(CableTV,CATV)(Wireless)(Private or Public Data Networks) America Online(AOL)(Router) (Public PolicyLegal and Privacy Issues)(Technical Standards for Documents, Security and Network Protocols)

What is a Business Model?(I)The structure and actions by which an organization operates within the marketplaceA business model is a representation of the activities of a businessThere are three ways of modeling a businessActivity models What a business does?Process models How a business accomplishes what it does?Data models Describe the information structure of a business

What is a Business Model?(II)The method of doing business by which a company can sustain itself Generate revenueSome model are quite simpleA company produces a good and service and sells it to customersOther model can be more intricately wovenRadio and televisionE-commerce will give rise to new kinds of business modelsThe web is also likely to reinvent tried-and true modelsAuctions are a perfect example Business model has taken on new meaning and greater importance in the last few years in the realm of intellectual property protection

Classifications of eCommerce Business ModelsMichael RappaBusiness Models on the WebHoward RosenbaumBusiness models for EcommerceDeitel, Deitel , and SteinbuhlereBusiness ModelsHansonWeb Business ModelsTurban, Lee, King, ChungBusiness Models of Electronic Marketing

Business Models on the WebRappaBrokerageAdvertisingInfomediaryMerchantManufacturerAffiliateCommunitySubscriptionUtility

Business Models for EcommerceRosenbaumBusiness to consumerEshops, Emalls, 3rd party marketplace, virtual community, information brokerage and other servicesBusiness to businessE-procurement, value-chain service providers, value chain integrators, collaboration platforms Transaction basedMerchandise sales, per use, timed usage, subscription, advertising, auction, sponsorship, public support

eBusiness ModelsDeitel, Deitel, and SteinbuhlerStorefront modelShopping cartShopping mallsAuction modeleBay.comReverse auction model (liquidprice.com, www.promeria.com)Portal modelHorizontal (Search engine)Vertical (Specific, single area of interest)Dynamic-pricing modelsOther Web-business models

Dynamic-pricing ModelsName-your-price modelPriceline.comComparison-pricing modelBottomdollar.comDemand-sensitive pricing modelwww.mercata.comBartering modelUbarter.comRebateseBates.comOffering free products and serviceswww.hsx.com

Other Web-business ModelsB2B E-commerce and EDIClick-and-Mortar business

Web Business ModelsHansonImprovement-based business modelsEnhancementEfficiencyEffectivenessRevenue-based business modelsProviders paysUser pays

Improvement-based ModelsEnhancementBrand building(Disney)Category building(Intel)Quality(NPR)EfficiencyCost reduction(Cisco, Banks)Free trial(Encyclopedia Britannica)EffectivenessDealer Support(GM)Supplier support(GE)Information collection(DoubleClick)

Provider-Based Revenue ModelsContent sponsorshipRetail alliancesBanner advertisingProspect feesSales commissionsACO and DibertExcite and AmazonTechWebEdmundsAmazon Associates

User-Based Revenue ModelsProduct salesPay per useSubscriptionsBundle sales

Dell ComputersWet Foot PressWSJScience magazine

Business Models of Electronic MarketingTurban, Lee, King, and ChungDirect marketing versus indirect marketingFull cybermarketing versus partial cybermarketingElectronic distributor versus electronic brokerElectronic store versus electronic shopping mallGeneralized e-malls/stores versus specialized e-malls/storesProactive versus reactive strategic posture toward cybermarketingGlobal versus regional marketingSales versus customer service

Four Choices for Business ModelA value proposition or a value cluster for targeted customers A marketspace offering Which could be a product, service, information or all threeA unique, defendable resource system A financial model -- Rayport & Jaworski