Business & Value Models for 2005

1. Business & Value Modelsfor 2005 • Chapter 4 of our book outlined answers to: • What is a business model? (4 steps) • What are the financial models available to firms? (consisting of…) • What are the revenue models? • What are the shareholder value models? • What are the growth models? Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

2. Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

3. What Are the Financial Models Available to Firms? Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

4. Revenue Models • Advertising-Earning revenue through the selling of ads (banner or interstitial), site sponsorships, event underwriting, or other forms of communication • Product, Service, or Information Sales- Income generated from the sale of goods on the site • Transaction- Revenue accrued from charging a fee or taking a portion of the transaction sum • Subscription- Revenue generated through subscriber fees for magazines, newspapers, or other information/service businesses • License Fees- Revenue generated from licensing of content Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

5. Growth Modeling Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

6. Shareholder Value Models • Metamarket Switchboard Model • Traditional and Reverse Auction Models • Freshest-Information Model • Highest-Quality Model • Widest-Assortment Model • Lowest-Price Model • Most-Personalized Model Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

7. Exhibit 4-6: Summary of Online Business Models Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

8. Another view on Business models:src: Paul Timmers, "Electronic Commerce", John Wiley & Sons, 1999. Business model - • is the organization of product, service and information flows through an architecture, • a source of revenues to the organization, • a source of benefits to suppliers and to customers. • A business model should have a marketing strategy. Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

9. Where is the value? Hidden or New? • The architecture for business models can be described by identifying the value-chain elements and identifying how to integrate information into the value-chain. • Primary elements of the value chain are: inbound logistics, operations, outbound logistics, marketing and sales, and service. • Supporting elements of the value chain are: technology development, procurement, human resource management, and corporate infrastructure. Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

10. The Value Chain Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

11. Example of an Information Value Chain Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

12. Information Value Chain Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

13. Value Networks • The value-chain is interrelated relevant business processes that bring value to the end-customer. That is why they are often referred to as Value-networks. • Business models can be mapped along dimensions of innovation and the extent to which information is integrated into functions along the value chain. Innovation means the product is something more than just an on-line version of the product in the physical world. Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

14. Timmers categories of business models.. • E-shops – on line shop, with order and pay. • E-procurement - Large firms may procure (gather together) goods and services on the Web. • E-malls - collection of e-shops. Shared services, may support payment or quality guarantees. • E-auctions - are electronic implementations of bidding mechanisms. • Virtual Communities -Members, customers or partners that share information. • Collaboration Platforms - Provide sets of tools and information for collaboration between enterprises. Can be in collaborative design and engineering, project support, virtual teams, consulting. • Third-party Marketplaces - enable an interface to the participants catalogues. Services can be branding, payment, logistics, ordering, security. • Value-chain Integrators - Integrating multiple steps in the value chain, to support information flows between those steps, to extract added value. (tracking orders). • Value-chain Service Providers - Specialize in specific functions on the value-chain such as electronic payments or logistics. Services can be provided by banks or in finance firms that do stock management. • Information Brokerage (through portals) - Services that are based on the management of information. • Trust Services - Certification authorities and electronic nortaries and other trusted third parties. They can also provide services for verifications of participants and non-repudiation of transactions. Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

15. Timmers: Trends of e-business models. Two trends are taking place in business models. • There is a move towards increased integration of information flows. • There is a development of specialized and very innovative services. How are business trends are related to marketing strategies: • Some firms will try to market related products and services (CDs and gifts, cross-sales). • Other firms will try to become specialist in a service (search agent, trust provider). • Companies may want to provide a global reach of the specialized service (some banks). • Some models depend heavily on advertising for revenues. But the effectiveness of web advertising is dropping. May need another revenue source like transaction or subscription fees. • Sometimes businesses use a combination of these models, (virtual communities and e-malls.) Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

16. Value-chain integrator multiple functions integrated third-party marketplace collaboration platform virtual community functional integration value-chain service provider e-mall e-auction e-procurement trust services e-shop single function info brokerage lower Degree of innovation higher Timmers: Summary of e-business trends. Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

17. Business Models on the Web Another definition by Michael Rappa: • 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. • http://digitalenterprise.org/models/models.html#Brokerage Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

18. Basic categories of business models • Brokerage – Intermediary gets a fee to enable the transaction. • Advertising – Revenue to the ad broadcaster. Need large volumes. • Infomediary – Assist buyers or sellers understand their market. • Merchant - Wholesalers and retailers of goods and services. Sales may be made based on list prices or through auction. • Manufacturer (Direct) - Allow a manufacturer to reach buyers directly & compress the distribution channel. Based on efficiency, improved customer service, better understanding cust-preferences. • Affiliate -The affiliates provide purchase-point click-through to the merchant. It is a pay-for-performance model -- if an affiliate does not generate sales. • Community - Revenue based on the sale of ancillary products and services or voluntary contributions.Based on user loyalty. • Subscription – users charged on periodic basis, not on actual usage rates. Can combine a free service with premium content. • Utility - The utility or "on-demand" model is based on metering usage, or a "pay as you go" approach. Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models

19. Brokerage Advertising Infomediary Merchant Manufacturer (Direct) Affiliate Community Subscription Utility Orbitz Yahoo! Pay-per-click Red Hat LandsEnd Monster.com Google – paid placement DoubleClick Apple iTunes Music Store Dell Computer ChemConnect American Online Netcom SmallTalk (mobile service) CarDirect Priceline.com eBay PayPal Amazon.com Basic categories of business models Based on Rayport and Jaworski: Introduction to e-commerce: Chapter 5: Business Models