Ebusiness and Commerce second version.ppt

PART 1
 Ebusiness Models and
Strategies

PART 1
Chapter 1: Introduction to Ebusiness
Chapter 2: Internet Business Models and
Strategies
Copyright © 2013 Pearson Canada Inc. 2-2

Learning Objectives
1. Describe the key elements of an internet business
model.
2. Explain the similarities and differences between
B2C and B2B models.
3. Explain the similarities and differences between
models based on “bricks”, “bricks and clicks” and
“clicks”.
4. Describe key revenue-generating approaches used
by internet business models.

Learning Objectives
5. Define and explain the importance of ebusiness
strategy.
6. Describe the relationship between internet business
models and business strategy.
7. Identify the key areas addressed by a strategic plan.

Introduction
 A business model may be defined as the manner in
which a business organizes itself to achieve its
objectives which normally involve the generation of
profits.
 Although there are various views about what
components should make up a business model, eight
components are addressed here (slide 13).

Introduction
 An internet business model represents the
manner in which a business uses the
internet to support, amplify or develop its
overall business model. This is an integral
part of a business’ strategy.

Introduction
 An ebusiness strategy is the sum of all the
choices that a business makes to offer
unique value to its customers that
differentiates its business model from
those of its competitors.

Introduction
 The term “business model” denotes a
general description of how a business
structures its activities to earn profits,
while the term “strategy” focuses on the
specific choices in that set of activities that
are aimed at giving the entity a unique
position in its industry and, thereby, a
competitive advantage.

Introduction
 According to Michael E. Porter, “the essence
of strategy is choosing to perform activities
differently than rivals do….Competitive
Strategy is about being different. It means
deliberately choosing a different set of
activities to deliver a mix of value”.

Introduction
 The Internet is a very competitive
environment that can lead to relentless price
reductions, to the point where most entities
will find it difficult to earn a profit. Michael
Porter recommends competing on quality,
features and service.

Introduction
 With changing environments, businesses
continue to focus their efforts on a service or
related package of services, hired people
with the skills to provide these services and
sold their time and skills to their clients at a
price in excess of the costs they had to pay.

Business model
 Although there are various views about what
components should make up a business model, the
following eight components of a business model are
discussed:
 External forces
 Markets and forces
 Customers
 Core business processes
 Core products and services
 Alliances
 Strategic management process
 Resource management processes.

External forces
 Political, economic, social and technological
factors; pressures and forces from outside the
entity that create opportunities for the entity or
threaten its business objectives.
 During the tech boom from August 1995 to March
2000, numerous media reports and articles by
influential business executives suggested that the
internet “changes everything”, so that “old
economy” business models no longer apply.

External forces
 This view gained widespread acceptance
as companies like Amazon.com and
E*TRADE Financial raised huge amounts
of capital in the stock market without
making profit. These ventures were
praised for helping to raise huge capital.

Markets/formats & Customers
 Markets refer to the domains in which
the entity may choose to operate, and
the design and location of the facilities.
Customers include the individuals and
organizations that purchase the entity’s
output.

Markets/formats & Customers
 Markets are often defined based on the
business model.
 These include B2C models e.g. auctions by eBay, travel
reservations by expedia, and financial services by
president’s choice.
 B2B models represent a higher proportion of ebusiness
activity. Examples include Ariba’s reverse auction, Dell’s
computer sales and Workopolis’ job listings.
 Other categories include B2E (Business to Everyone), G2C
(Government to Consumer), G2B (Government to
Business)

Core Business Processes
 Most businesses today have some degree of
internet presence.
 The “bricks vs. clicks” label is used to distinguish the degree to
which core business processes depend on the internet.
Examples include Sears, Canadian Tire and Shoppers Drug
Mart.
 The “clicks” label is applied to business models that are solely or
predominantly based on the internet (also called pure plays).
Examples include Windows Live Hotmail, Yahoo! And E*TRADE
 The “bricks” label is applied to business models that are solely or
predominantly based on provision of goods and services through
physical outlets such as stores or branch offices. Examples
include bakkaphoenixbooks.com.

Core Business Processes

Core Products/Services
Core products and services often define ebusiness
revenue models. 11 Revenue models are considered:
Merchant model
 Sales of non-digital and digital products (per unit or volume
price). Merchant models could be a pure-play e-tailer (e.g.
Apple iTunes) or surf-and-turf site (e.g. Sears).
Direct sales by manufacturer model: Non-digital and
digital products (per unit or volume price).
 Product manufacturers sell products online to customers
directly. Sometimes various sales channels are used by the
same manufacturer and they end up competing with each other.
This is called channel conflict. Examples include Dell and Levis.

11 Revenue models are considered:
Manufacturer service model: Indirect revenue.
 Product manufacturers use the web to provide customer
service support for their products. Example: Cisco systems
Subscription model:
 Some businesses have users subscribe to their site, paying a
monthly fee, in order to view some or all of the content or
obtain other services. Examples include Encyclopaedia
Britannica, Inc., Globe and Mail, and Business Week.
Utility model: Service fee.
 This is a user “pay as you go” site. It offers specific services
“on demand” for a fee. An example is CompuServe.

Infomediary model:
 Sites that build on the economic value of information about
people’s purchasing habits are referred to as infomediaries.
These sites offer something free to users and in return ask
users for information e.g. fill out forms on their spending habits.
An example is BizRate.com.
Licensing model: Licensing fee.
 These are often applied to long-lived intellectual property such
as software. The customer pays a one-time licensing fee to be
able to use or resell the software. Examples include Perfect
Commerce and i2 Technologies.

Advertising model:
 The site makes it profit from advertising content or messages e.g.
through banner ads and click-through counts. Examples include
Google and Altavista.
Affiliate model:
 Payment of commissions to sites hosting banner ads when sales
are made to customers using them to enter the site. It is a way of
building sales by the organizations that own the banner ads.
Community model:
 Community sites depend on user loyalty and community
identification for their viability. An example is Second Life .

Brokerage model:
 Brokers bring buyers and sellers together and facilitate
transactions between them. Revenues are generated through a
variety of transaction fees and commission charges for the
transactions they facilitate.
 Brokerage sites take on a variety of forms including:
 Classifieds: e.g. Workopolis; Virtual malls; market exchanges
 Buy/sell fulfillment sites e.g. E*TRADE Canada;
 Auction brokers e.g. eBay; reverse auctions e.g. Priceline.com;
 Transaction brokers e.g. PayPal;
 Metamediaries e.g. Edmunds.com;

Internet Business Models and
Business Strategy
 Business models can be combined in
various ways to achieve business
goals.
 The specific model or combination of
models that a business uses helps to
define its internet or ebusiness
strategy.

Internet Business Models and
Business Strategy
 The ebusiness strategy defines the
organization’s value proposition which
differentiates it’s business offerings from
those of its competitors.
 It is vital that organizations fit their
ebusiness strategy into the corporate
strategy in order to achieve success.

Fitting the Ebusiness Strategy into
the Corporate Strategy
 Strategic planning exercises involve
developing a broad vision, considering
constraints and assumptions that guide
the vision, and defining strategic
objectives for the business.

Fitting the Ebusiness Strategy
into the Corporate Strategy
 Strategic plans would often address 5 key
areas:
 Arenas where the entity will be active e.g. markets, products
etc.
 Vehicles for moving towards goal achievement e.g. acquisitions
 Differentiators that represent competitive advantages e.g.
image
 Staging the speed and sequence of moves e.g. expansion
speed
 Economic logic for obtaining returns on investment e.g. low cost
producer.

The Strategic Planning Process

Fitting the Ebusiness Strategy into
the Corporate Strategy
 Ebusiness strategy planning must be consistent with
the organization’s IT strategy and overall corporate
strategy.
 Ebusiness planning involves:
 Defining how ebusiness can help achieve the firm’s overall objectives.
 Assessing gaps between current IT resources and performance
capabilities and desired strategic objectives.
 Formulating strategies to fill gaps e.g. (1) competitive, (2) defensive and
(3) cooperative strategies
 Performing a risk assessment to identify weaknesses and controls
 Defining IT policies, infrastructures, applications and processes
 Defining a tactical plan
 Measuring ebusiness performance

Part 1 case study:
Google – Searching the World
 Read the Google case study – Page 44. Then
answer the following questions.
1. Comment on the interplay between Google’s business
strategy and its business model
2. How has Google’s company acquisition program supported
its business model and business strategy?
3. Which Google products have moved beyond the company’s
original strategic focus on searching information? What do
these products indicate about the strategic direction of
Google?
4. Does Facebook represent a threat to Google? Why?

Summary
 Business models often have a number of components
which influence organization’s business strategies.
 Internet business models shape ebusiness strategies.
 To achieve success, organizations need to ensure that
there is a fit between ebusiness strategy and the
corporate strategy
 The strategic planning process for ebusiness needs to
be carefully crafted and consistent with IT strategy and
overall corporate strategy.
 Ebusiness planning involves a number of activities.

Ebusiness and Commerce second version.ppt

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