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.

N

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

N