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Business Models and e-Commerce
Jason C.H. ChenProfessor, MIS
School of BusinessGonzaga UniversitySpokane, WA 99258 chen@gonzaga.edu
TM -2Business Models and e-Commerce; Dr. Chen
Widespread Use on ... Button
a 13 century invention, took 400 years Bicycle
appeared in 1818 and took 50 years to catch on Telephone
invented in 1876, needed 35 years to find the beginnings of a mass market
Television took 26 years
PCs took 16 years
TM -3Business Models and e-Commerce; Dr. Chen
Internet Society –Each Media Reach to 50 Million
Radio 38 years, Television 13 years, Cable TV 10 years, Internet users only took
5 years to reach this goal.
TM -4Business Models and e-Commerce; Dr. Chen
Business Model vs. Revenue Model Business model is the architectural
configuration of the components of transactions designed to exploit business opportunities.
Revenue model refers to “the specific ways in which a business model enables revenue generation.
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TM -5Business Models and e-Commerce; Dr. Chen
Business Model Revenue Model
Value creation Value appropriation
It describes the way in which a company enables transactions that create value for all participants, including partners, suppliers and customers.
It can be realized through a combination of - subscription fees, - advertising fees, - transactional income (e.g., fixed transactional fees, referral fees, fixed/variable commissions, etc)
Business vs. Revenue Model
TM -6Business Models and e-Commerce; Dr. Chen
What is Business Modeling? Business modeling is the activity of
representing aspects of or concepts from the business in a diagrammatic notation or simulation, using an abstraction to reveal only the desired elements.
TM -7Business Models and e-Commerce; Dr. Chen
Four Key Drivers 1. Efficiency 2.
Complementarities 3. Lock-In 4. Novelty
TM -8Business Models and e-Commerce; Dr. Chen
1. Efficiency Internet makes it possible to
increase efficiency in several ways. Information asymmetries between
buyers and sellers sellers provide information to buyer via
Internet reverse market (buyers …)
A business model can unlock hidden value by enhancing transactional efficiencies by enabling:- reduced search costs, - transaction spped,- reduced distribution costs, - reduced inventory costs, etc.
TM -9Business Models and e-Commerce; Dr. Chen
2. Complementarities Companies can leverage value
creation for their products (and services) from other suppliers be able to play a vital part in building
online virtual communities. be able to capture the benefits from
combining online with offline business
TM -10Business Models and e-Commerce; Dr. Chen
3. Lock-in The ability to prompt users to
engage in repeat transactions creating switching costs (from loyalty
programs) e.g., Amazon’s “one-click” ordering systems free e-mail services
providing transaction safety creating the perception of trust providing customization and
personalization
TM -11Business Models and e-Commerce; Dr. Chen
4. Novelty Innovation has always involved the
introduction of novel products or services or processes. Internet offers limitless possibilities to
innovate in the manner in which transactions are enabled - by introducing
new business and revenue models
Table Internet Revenue Models
Revenue Type Description
Product sales Sell or license physical or information-based product
Advertising Market other companies’ products or promotions
Subscription fee Charge for regular receipt or product or information
Membership fee Charge to belong to a private group or services
Commission or transaction fee
Agent, broker, or intermediary charges for service provided
Service/consulting fee Charge for services provided
Table Properties of Digital Information that Influence its Economic Value
Reusable Can be sold without transferring ownershipCan be consumed without being depleted
Customizable Can be presented in different forms (e.g., video, audio, text)Can be broken up and reconfigured
Time-valued The inherent time value of information can be exploitedValue can be degrade (or increase) over time
Productized Can be used to create new products and services or enhance the value of existing ones.
TM -13Business Models and e-Commerce; Dr. Chen
Conclusion Companies are rapidly changing
and evolving their business models in order to adapt to the rapidly changing market conditions. Traditional or legacy firms may
combine their online operations with existing offline business, are well positioned to
draw liquidity (I.e., transaction volume), and
take advantage of complementarities and create lock-in
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