CS37420CS37420

Business Models 2Business Models 2

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Major B2C Business ModelsMajor B2C Business Models

Models where online businesses seek individual Models where online businesses seek individual customers: customers:

PortalPortal AOL, Yahoo, msn AOL, Yahoo, msn Content providerContent provider BBC, CNNBBC, CNN E-tailerE-tailer Amazon, Dell, LandsEnd, DebenhamsAmazon, Dell, LandsEnd, Debenhams Transaction brokerTransaction broker E-Trade, Expedia E-Trade, Expedia Market creatorMarket creator eBay eBay Service Provider Service Provider xDrive (online storage) xDrive (online storage) Community ServiceCommunity Service About, iVillage, MumsnetAbout, iVillage, Mumsnet

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PortalPortal

Originally a gateway to the Internet, now a destination site Originally a gateway to the Internet, now a destination site seeks to be a user’s home base. seeks to be a user’s home base.

offers an integrated package of content and services, e.g. offers an integrated package of content and services, e.g. – newsnews– search toolssearch tools– emailemail– instant messaging, instant messaging, – shoppingshopping– videostreamingvideostreaming– music downloading etc. music downloading etc.

revenue is from advertising, subscription and transaction fees; revenue is from advertising, subscription and transaction fees; ISPs also fall into this category and their revenue stream is ISPs also fall into this category and their revenue stream is

subscription fees. subscription fees.

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Content ProviderContent Provider

information and entertainment providers e.g. newspapers, sports information and entertainment providers e.g. newspapers, sports

sites, stockmarket magazines, ‘how to’ guidance etc.;sites, stockmarket magazines, ‘how to’ guidance etc.; revenue is generated by advertising, subscription fees, referral fees revenue is generated by advertising, subscription fees, referral fees

and download charges;and download charges; Online payment systems provide cost-effective methods for Online payment systems provide cost-effective methods for

processing high volumes of small payments;processing high volumes of small payments; key to success is owning the content;key to success is owning the content; traditional owners like publishers, newspapers , broadcasters have traditional owners like publishers, newspapers , broadcasters have

strong advantages over newcomers;strong advantages over newcomers; any e-commerce start up, unless it has a unique information source, any e-commerce start up, unless it has a unique information source,

will find it difficult to make money;will find it difficult to make money; more internet users retrieve information ( 70% ) than purchase more internet users retrieve information ( 70% ) than purchase

products ( 30% ).products ( 30% ).

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E -TailerE -Tailer

Many different sizes and shapes but basically a shop in all Many different sizes and shapes but basically a shop in all cases revenue is generated by sales of goods cases revenue is generated by sales of goods Examples illustrate diversity :-Examples illustrate diversity :-

Amazon - an online version of a retail store – a virtual merchant Amazon - an online version of a retail store – a virtual merchant shopping 24/24 and 7/7 without leaving home or office; shopping 24/24 and 7/7 without leaving home or office;

Walmart - online distribution but also physical stores (‘clicks and Walmart - online distribution but also physical stores (‘clicks and bricks’ or ‘clicks and mortar’); bricks’ or ‘clicks and mortar’);

LandsEnd - online direct mail catalogue (catalogue merchant);LandsEnd - online direct mail catalogue (catalogue merchant); Dell - online sales directly from manufacturer (manufacturer direct);Dell - online sales directly from manufacturer (manufacturer direct); ““time starved” people are hot prospects. time starved” people are hot prospects.

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E – TailerE – Tailer

highly competitive because barriers to entry are very low highly competitive because barriers to entry are very low e.g. someone selling old fashioned sweets from home; e.g. someone selling old fashioned sweets from home;

many thousands started – and went bust! many thousands started – and went bust! keys to success are :- keys to success are :-

– keeping expenses low;keeping expenses low;– offering as broad a selection as possible;offering as broad a selection as possible;– keeping a tight control on inventory - inventory is very difficult to keeping a tight control on inventory - inventory is very difficult to

gauge and in fact caused eToys to fail (now relaunched); gauge and in fact caused eToys to fail (now relaunched); – targeting a niche to start with.targeting a niche to start with.

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Transaction BrokerTransaction Broker

a site offering transactions in stock dealing, travel tickets, hotel a site offering transactions in stock dealing, travel tickets, hotel reservations, car rentals etc. and job vacancies;reservations, car rentals etc. and job vacancies;

supplants the personal phone, fax or mail; supplants the personal phone, fax or mail; advantages are :- advantages are :-

– faster handlingfaster handling– wider choicewider choice– reduced costsreduced costs– vacancies for seats and hotel – immediately vacancies for seats and hotel – immediately – rapid reaction to stock movementsrapid reaction to stock movements

the largest industries using this model are :-the largest industries using this model are :-– financial servicesfinancial services– travel services travel services – job placement services. job placement services.

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Transaction Broker – examplesTransaction Broker – examples

online stock brokers online stock brokers – E-Trade , Ameritrade , Datek , Schwab E-Trade , Ameritrade , Datek , Schwab – save time and money and give information and advicesave time and money and give information and advice– revenue stream is from commissions on trades revenue stream is from commissions on trades

travel servicestravel services– originally just airline tickets originally just airline tickets – now is general travel including hotels, car rentals, tours, packages and now is general travel including hotels, car rentals, tours, packages and

theatre ticketstheatre tickets– examples are Expedia and lastminuteexamples are Expedia and lastminute

job placement servicesjob placement services– offer both employers and job searchers a market space for talentoffer both employers and job searchers a market space for talent– revenue comes from fees for placements and increasingly for listings revenue comes from fees for placements and increasingly for listings – examples are Monster +Hotjobs and jobs.ac.uk.examples are Monster +Hotjobs and jobs.ac.uk.

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Market CreatorMarket Creator

Creates a digital environment where:- Creates a digital environment where:- buyers and sellers meet buyers and sellers meet display products display products search for products search for products establish a price for products establish a price for products they meet, agree price and transact they meet, agree price and transact revenue for the creator is a fee from each sale in addition to a listing revenue for the creator is a fee from each sale in addition to a listing

fee fee example eBay; example eBay; eBay has been profitable almost from the beginning – because it has eBay has been profitable almost from the beginning – because it has

no production or inventory costs.no production or inventory costs.

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Market Creator Market Creator ..cont..cont potential opportunity is very big potential opportunity is very big items being traded are now moving into different areas items being traded are now moving into different areas eBay started with simple items like VCRs and DVDs eBay started with simple items like VCRs and DVDs now automobiles have become the largest single sector now automobiles have become the largest single sector

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Service ProvidersService Providers

offer services onlineoffer services online trade knowledge , expertise and effort for revenue trade knowledge , expertise and effort for revenue revenue from - subscription fees , one time payments ,revenue from - subscription fees , one time payments , commissions and advertising commissions and advertising their service is – valuable , low cost , convenient and their service is – valuable , low cost , convenient and above all time – saving above all time – saving very valuable to busy people who are ‘time starved’ very valuable to busy people who are ‘time starved’ large variety of services – large variety of services – online information storage e.g. online information storage e.g. £ per month per Gbyte£ per month per Gbyte financial transaction brokers e.g. financial transaction brokers e.g. pension planning pension planning travel brokers - travel brokers - holiday planning holiday planning grocery shopping services - grocery shopping services - TescoTesco

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Community ProvidersCommunity Providers

sites which create a digital online environment where sites which create a digital online environment where people with similar interests can communicate , transact people with similar interests can communicate , transact and receive information of interest and receive information of interest

revenue is a hybrid model which includes subscription fees revenue is a hybrid model which includes subscription fees sales , transaction fees , referral fees and advertising feessales , transaction fees , referral fees and advertising fees from firms attracted by a very focussed audience from firms attracted by a very focussed audience

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Community ProvidersCommunity Providers

ExamplesExamples About (owned by Primedia) About (owned by Primedia)

– offers a site with practical tips and guides to a vast array offers a site with practical tips and guides to a vast array of activities of activities

– e.g. About recommends a book from Amazon and e.g. About recommends a book from Amazon and receives a fee if the book is bought receives a fee if the book is bought

MumsnetMumsnet– offers advice and tips on bring up a family etc. offers advice and tips on bring up a family etc. – gets advertising revenue from banner ads. Perhaps gets advertising revenue from banner ads. Perhaps

advertorialadvertorial

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Major B2B Business modelsMajor B2B Business models

Businesses sell to other businessesBusinesses sell to other businesses size of the market is some 4 times that of B2C size of the market is some 4 times that of B2C value is currently estimated at over $10 trillion value is currently estimated at over $10 trillion by 2006 it was estimated to be worth $5 trillionby 2006 it was estimated to be worth $5 trillion in 2006 it was about 1/3 of total inter-firm processing.in 2006 it was about 1/3 of total inter-firm processing.

Models:Models: Market place / exchange (B2B hub) Market place / exchange (B2B hub) E – distributor E – distributor B2B Service provider (ASP) B2B Service provider (ASP) Matchmaker Matchmaker Infomediary. Infomediary.

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Market place / Exchange / B2B hubMarket place / Exchange / B2B hub

vertical – brings buyers and sellers together to reduce procurement vertical – brings buyers and sellers together to reduce procurement costs for a specific industry; costs for a specific industry;

horizontal – as vertical but products and services across industries; horizontal – as vertical but products and services across industries; revenue is from transaction fees;revenue is from transaction fees; DirectAg (vertical) serves the agricultural market and provides farmers DirectAg (vertical) serves the agricultural market and provides farmers

etc with catalogues and news of commodities; etc with catalogues and news of commodities; TradeOut (horizontal) helps companies with excess inventory and idle TradeOut (horizontal) helps companies with excess inventory and idle

assets to sell these to other companies; assets to sell these to other companies; Covesint (vertical) the largest in the motor industry, formed in 2000 Covesint (vertical) the largest in the motor industry, formed in 2000

(by the big motor manufacturers) has had a chequered existence and (by the big motor manufacturers) has had a chequered existence and was bought by Compuware. was bought by Compuware.

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E-DistributorE-Distributor

Supplies products and services directly to other businessesSupplies products and services directly to other businesses revenue is from sales of goods and services revenue is from sales of goods and services example - Grainger , the largest distributor of MRO example - Grainger , the largest distributor of MRO

(maintenance, repair and operations supplies) (maintenance, repair and operations supplies) it added an online facility in 1995 which has become very it added an online facility in 1995 which has become very

popular popular

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MatchmakerMatchmaker

Links businesses and takes a fee for any business Links businesses and takes a fee for any business which occurs.which occurs.

similar to the B2C transaction broker;similar to the B2C transaction broker; revenue is from transaction or usage fee. revenue is from transaction or usage fee.

ExampleExample iShip was bought by UPS in 2001; iShip was bought by UPS in 2001; now finds the cheapest shipper for business packages;now finds the cheapest shipper for business packages; lets companies compare rates and conditions from major carriers like lets companies compare rates and conditions from major carriers like

Federal Express, Airborne, US postal services etc. Federal Express, Airborne, US postal services etc. then charges a fee to proceed with the shipment; then charges a fee to proceed with the shipment; its sophisticated software lets a company track its packages its sophisticated software lets a company track its packages

throughout their journey. throughout their journey.

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InfomediaryInfomediary

Gathers information about consumers and sells it Gathers information about consumers and sells it to other businessesto other businesses

revenue is from sales of information revenue is from sales of information a new breed of company acting as custodians, agents and brokers of a new breed of company acting as custodians, agents and brokers of

customer information while protecting their privacy.customer information while protecting their privacy.

Examples: Examples: Doubleclick (audience broker) develops tools that advertisers , direct Doubleclick (audience broker) develops tools that advertisers , direct

marketeers and web publishers use to plan, execute and analyse marketeers and web publishers use to plan, execute and analyse marketing programmes;marketing programmes;

Autobutel (lead generator) operates a network of car dealers to whom Autobutel (lead generator) operates a network of car dealers to whom web users are referred in return for a fee web users are referred in return for a fee

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ASP: Application Service ProviderASP: Application Service Provider

the second coming of the model ? the second coming of the model ? an outdated concept ? an outdated concept ? the future of software ? the future of software ? has public opinion changed ? has public opinion changed ? software companies do they service or do they software companies do they service or do they

sell ? sell ? are investors interested ? are investors interested ?

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What is an ASP ? What is an ASP ?

a behind-the-scenes business model;a behind-the-scenes business model; simply a way of selling and distributing software & software simply a way of selling and distributing software & software

services;services; also called: also called:

– ““software as a service “ software as a service “ – ““on-demand computing “ on-demand computing “ – ““utility computing “ utility computing “

drastically lowers the cost of software and services; drastically lowers the cost of software and services; very economical for small businesses and start-ups;very economical for small businesses and start-ups; ASPs in different forms have been in use for centuries. ASPs in different forms have been in use for centuries.

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Internet ASPs – common features Internet ASPs – common features

an ASP supplies software applications and/or an ASP supplies software applications and/or related services over the Internet;related services over the Internet;

owns and operates a software application;owns and operates a software application; owns and operates the servers that run the owns and operates the servers that run the

application;application; employs the people needed;employs the people needed; makes the application available everywhere; makes the application available everywhere; charges for the application on either by use or on charges for the application on either by use or on

the basis of a monthly or annual fee.the basis of a monthly or annual fee.

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Internet ASPs Internet ASPs

Two generations of Internet ASPsTwo generations of Internet ASPs the first generation was roughly from 1997 to 2001;the first generation was roughly from 1997 to 2001; it rode the dot.com boom but most of them went bust in the crash;it rode the dot.com boom but most of them went bust in the crash; they often did not own the software which they sold as a service;they often did not own the software which they sold as a service; they had to employ expensive experts to support their packages; they had to employ expensive experts to support their packages; the software was usually adapted from older packages;the software was usually adapted from older packages; to attract clients, marketing costs became exorbitant;to attract clients, marketing costs became exorbitant; the few which survived evolved a different business model. the few which survived evolved a different business model.

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Second Generation Internet ASPsSecond Generation Internet ASPs

the second generation was from 2001 to now; the second generation was from 2001 to now; second generation ASPs develop a product from scratch to second generation ASPs develop a product from scratch to

be delivered as a service;be delivered as a service; match the functionality of traditional client-server match the functionality of traditional client-server

applications;applications; build up customer bases steadily;build up customer bases steadily; enhance their financial stability;enhance their financial stability; the subscription-based model is more customer friendly; the subscription-based model is more customer friendly; now there is a core of proven ASPs with mature products, now there is a core of proven ASPs with mature products,

good service and very competitive pricing.good service and very competitive pricing.

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Advantages of using ASPs Advantages of using ASPs

low cost of entry; low cost of entry; extremely short set-up time; extremely short set-up time; pay-as-you-go model significantly less expensive for all but the most pay-as-you-go model significantly less expensive for all but the most

frequent users of the package;frequent users of the package; eliminates headcount – IT staff are usually specialised and very eliminates headcount – IT staff are usually specialised and very

expensive;expensive; avoids not only the need for the user to support the application but also avoids not only the need for the user to support the application but also

the need to support the specialised IT infrastructure (e.g. Oracle) the need to support the specialised IT infrastructure (e.g. Oracle) required for the application;required for the application;

enables companies to use complex software that they normally enables companies to use complex software that they normally couldn’t afford.couldn’t afford.

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Traditional software companies Traditional software companies and ASPsand ASPs

many traditional software vendors have dipped their many traditional software vendors have dipped their toes in the ASP pool;toes in the ASP pool;

companies like Oracle , Peoplesoft , SAP and Siebel companies like Oracle , Peoplesoft , SAP and Siebel have all tested the waters with varying successhave all tested the waters with varying success

there is a renewed focus on an ASP strategythere is a renewed focus on an ASP strategy initially they have simply hosted legacy applications initially they have simply hosted legacy applications

and made them available on lineand made them available on line now they have to develop an application from ground now they have to develop an application from ground

up. up.

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ASP - Salesforce.com ASP - Salesforce.com invested in and built an expensive but comprehensive sales force invested in and built an expensive but comprehensive sales force

management system; management system; offers a ‘best of breed’ system which is updated regularly;offers a ‘best of breed’ system which is updated regularly; it spreads the cost over many users – to date it has signed up some it spreads the cost over many users – to date it has signed up some

82,000 companies with some 2,150,000 subscribers;82,000 companies with some 2,150,000 subscribers; Salesforce’s target is the sales management sector of a company;Salesforce’s target is the sales management sector of a company; its software enables the sales people, wherever they are, to access its software enables the sales people, wherever they are, to access

and manage all their information on clients’ accounts and market and manage all their information on clients’ accounts and market through a simple web pagethrough a simple web page

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ASP Salesforce.com (cont )ASP Salesforce.com (cont )

all the computing is done on Salesforce’s machines;all the computing is done on Salesforce’s machines; firms rent the Salesforce software for $65 per user per firms rent the Salesforce software for $65 per user per

month;month; however, Salesforce only made its first profit in 2003; however, Salesforce only made its first profit in 2003; in 2003 it had profits of $3.5 million on sales of $96 millionin 2003 it had profits of $3.5 million on sales of $96 million In 2012 it had profits of $11.5 million on sales of $2200 In 2012 it had profits of $11.5 million on sales of $2200

million (recession)million (recession) expenditure on research and development, and marketing expenditure on research and development, and marketing

caused the earlier losses;caused the earlier losses; its IPO (June 2004) raised US$110 million; its IPO (June 2004) raised US$110 million; although still small, Salesforce has caused an upheaval in although still small, Salesforce has caused an upheaval in

the CRM industry the CRM industry