E - Business Models

Module-I
Lecture 5

ARVIND BANGER
ASSISTANT PROFESSOR
DEAPARTMENT OF MANAGEMENT
FACULTY OF SOCIAL SCIENCES
D.E.I.
 E -Business Models
Business model describes a broad range of informal and formal
models that are used by enterprises to represent various aspects of
business, such as operational processes, organizational structures, and
financial forecasts.
Although the term can be traced to the 1950s, it achieved mainstream
usage only in the 1990s.
Many different conceptualizations of business models exist The
model proposed by Osterwalder (2004) synthesises the different
conceptualizations into a single reference model based on the
similarities of a large range of models.

The author's conceptualization describes a business model as

consisting of nine related business model building blocks. Thus, a
business model describes a company's business:
E- Business Model (Osterwalder)
 E- Business Models
Infrastructure
Core Capabilities: The capabilities and competencies
necessary to execute a company's business model.
Partner Network: The business alliances which
complement other aspects of the business model.
Value Configuration: The rationale which makes a
business mutually beneficial for a business and its
customers.

Offering : Value proposition: The products and services a

business offers.
 E-Business Models
Customers
Target Customer: The target audience for a business'
products and services.
Distribution Channel: The means by which a company
delivers products and services to customers. This
includes the company's marketing and distribution
strategy.
Customer Relationship: The links a company establishes
between itself and its different customer segments. The
process of managing customer relationships is referred to
as customer relationship management.
 E-Business Models
Finances

Cost Structure: The monetary consequences of the means

employed in the business model.

Revenue: The way a company makes money through a

variety of revenue flows. A company's income.
E-Business Models: An overview
The term business model or (e-business model) is particularly
popular among e-businesses and within researchers on e-
businesses.

Cherian (2001) identified 33 different e-business models,

Applegate (2001) classified 22 types of e-business models
and Timmers (1998) presented eleven generic e-business
models. Afuah & Tucci (2001) even claim that a well-
formulated business model will render a firm greater profit
than its competitors.
E-Business Models: An overview

The growing body of e-business model research, empirical or

conceptual, can be organized around two streams.

The first stream aims to describe and define the components

of a business model.

The other stream aims to develop descriptions of specific

business models.
 Timmers

An architecture for the flows of products, services and

information, including a description of the various business
activities and their roles;
A description of the potential benefits for the various
business actors; and
A description of the sources of revenue.
A marketing strategy
A marketing mix
A product-market strategy
 Weill & Vital

A description of the roles and relationships among a firm's

Consumers
Customers
Allies
Suppliers

that identifies the major flows of products, information and

money and the major benefits to participants.
 Amity & Zott

Content : the exchanged goods and information and the

resources required to facilitate the exchange;

Structure : the linkage between transaction stakeholders

Governance of transactions: the control of the flows of

goods, information and resources and the form of legal
association
 Afuah & Tucci
Customer value (distinctive offering or low cost);
Scope (which customer and what products and services)
The price of the offering
The sources of revenue
Connected activities: interdependence between different
activities within the business model
Implementation: what resources are needed, such as
structure, people and the fit between them
Capabilities: what skills are needed
Sustainability: what is difficult to imitate in the business
model
 Applegate
Applegate (2001) presented an industrial organization-
based framework consisting of concept, capabilities and
value.
The business concept defines a business market
opportunity, the products and services offered, competitive
dynamics, the strategy to obtain a dominant position and
strategic options for evolving the business.
The capabilities of an organization are built and delivered
through its people and partners, organizational structure,
culture, operating model, marketing and sales model,
management model, development model and infrastructure
model.
Value is how a business model is measured: return to all
stakeholders, return to the organization, market share,
brand and reputation and financial performance.
The components are interdependent, and traditional
strategic frameworks, such as value chain analysis, can be
applied to analyze e-business models.
 Rappa

E-commerce and e-business will give rise to new kinds of

business models.

According to Rappa:

"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."
E-Business Model (Hedman & Kalling)
E Business Models
 E-Business Models

The relationship between the generic e - business models and the business model.
 E -Business Models - Rappa

A business model is a method of doing business.

All business models specify

What a company does to create value

How it is situated among upstream and downstream

partners in the value chain

The type of arrangement it has with its customers to

generate revenue
 E -Business Models - Rappa

In any given industry the methods of doing

business may vary, but there are limits imposed by

Technological factors
Competitive dynamic among companies
Competitive dynamic between companies and their
channel partners
Customer expectations and preferences
Other things.
 E -Business Models
The Internet opened the door to new business opportunities,
but many Internet-based enterprises failed because they had
not clearly thought through their modelparticularly, how
money would be made.

Nonetheless, given the rapid adoption of the Internet, it may

no longer be possible to discuss business models without
taking it fully into account.
 E -Business Models
One approach to the classification of e-business models is a
comprehensive taxonomy using the customer relationship as the
primary dimension for defining categories.

Although by no means the only approach, this has proven to be a

useful framework because it builds upon a common parlance already
used in many industries to describe methods of business. Other
approaches may be more suitable for other purposes, but it is
unreasonable to expect that any single taxonomy can account for the
vast diversity of business models found in practice without becoming
unwieldy.
 E -Business Models

Nine major categories are used to classify a number of

different types of business models that have been identified in
practice among Web-based enterprises
 Brokerage Model
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. The formula for fees can vary.

Brokerage models include exchanges, demand collection

systems, and auction brokerages.
 Advertising Model
The advertising model on the Web 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 e-mail, chat, forums)
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.
Advertising models include portals, query-based paid placement,
contextual advertising, and content-targeted advertising.
 Information-Intermediary Model
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 who are considering a purchase.

Some firms function asinfomediaries(information intermediaries)

assisting buyers and/or sellers to understand a given market.
 Merchant Model

Merchants are wholesalers and retailers of goods and

services. Sales may be made based on list prices or through
auctioning.

Merchant models include virtual merchants or e-tailers,

mail order businesses with a Web-based catalog, and
traditional brick-and-mortar retail establishments with Web
storefronts.
 Manufacturer Direct Model
The maker of a product or service may sell (by purchase, lease,
or license) directly to the consumer.

The manufacturer or direct model is based on the power of the

Web to allow a manufacturer to reach buyers directly and
thereby compress the distribution channel.

The manufacturer model may be chosen for its efficiency,

improved customer service, or due to a better understanding of
customer preferences.
 Affiliate Model
The affiliate model provides purchase opportunities wherever people
may be surfing the Web.

Financial incentives (in the form of a percentage of revenue) are

offered to affiliated partner sites.

The affiliates provide purchase-point click-through (i.e. direct linking)

from their Web sites to the merchants Web site.

It is a pay-for-performance model if an affiliate does not generate

sales, no cost to the merchant is incurred.

Variations of this model include banner exchange, pay-per-click, and

revenue sharing programs.
 Community Model
The community model is based on user loyalty. Loyal users
invest both their time and emotions in a business.

Revenue can be generated based on the sale of ancillary

products and services or voluntary contributions.

The best known example of a community model is that of

open source computing.

The model is based on the creation of a community of

interested users who support the site through voluntary
donations.
 Subscription Model
It is not uncommon for sites to combine free content with
premium (i.e., subscriber only or member only) content.

Users are charged a periodic daily, monthly, or annual fee to

subscribe to a service.

Subscription fees are incurred regardless of actual usage rates.

Subscription and advertising models are frequently combined.

 Utility and Hybrid Models
The utility model is based on metering usage and constitutes a pay
as you go approach.

Unlike subscription services, metered services are based on actual

usage rates.

An interesting hybrid model on the Web, the metered subscription,

allows subscribers to purchase access to content in metered
portions, such as the number of pages viewed.
 Hedman & Kalling: Conclusion
So, does the Internet, dot-com and the networked economy require
new business models?

No. Every firm, wherever they compete (the Internet or the real
world), needs a market with customers and has to offer services
and/products at a certain price at a certain cost.

The offering has to be developed and produced through activities

and an organization that use resources to convert production inputs
into offers.

However, the so-called old business model might be greatly

affected by e-business models.

Thus, nothing has changed except alterations of the causality

between the components of the business model.