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E-business models Making sense of the Internet business landscape Unprohibited want Massive channel disintermediation? Delineation between technology producers and technology users? Conducts of Dot-com Performance of vogue virtual integrations? The “ new ” economics of information

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E business models l.jpg

E-business models

Making sense of the Internet business landscape

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Unprohibited want

  • Massive channel disintermediation?

  • Delineation between technology producers and technology users?

  • Conducts of Dot-com

  • Performance of vogue virtual integrations?

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The “new” economics of information

  • Evan & Wurster

    • Less about any specific new technology than a new behavior for reaching critical mass;

    • The universal pervasion of open standards;

    • The precipitate changes of the structure of entire industry and the ways companies compete

  • M. Porter:

    • Return to the fundamental principles underlying the novelty of phenomena

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Operations of new business

  • Be shaped and reshaped by customers and the business community

  • Emerging through evolution and adaptation

  • A flexible Value web (network) dominated a single/dedicated value chain

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What is a model?

  • The properties of models

    • Enable study of the structure of a complex system, relationships among structural elements, assumptions, and a description of the system in action

    • Can be built before the real system to help predict how the system might respond if we change the structure, structure, relationships, and assumptions

  • A model in the world of business

    • A description of a complex business that enables study of its structure, the relationships among structural elements, and how it will respond in the real world

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What is the so-called business model?

A business model depicts the content, structure, and governance of transactions designed so as to create value through the exploitation of business opportunities.

Amit & Zott (SMJ, 2001, p.511)

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The Content of Business Model

  • The good or information that are being exchanged

  • The resources and capabilities that are required to enable the exchange

  • E.g., transparency of transaction, vertical & horizontal expansion of product/service, the degree of customization, technologies of transaction

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The Structure of Business Model

  • The parties that participate in the exchange

  • The ways in which these parties are linked

  • The order process and the adopted exchange mechanism

  • E.g., the providers of complementary assets, transaction speed, mode, simplicity, safety & reliability, integration of online & offline supply chains

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The Governance of Business Model

  • The ways in which flows of information, resources, and goods are controlled by the relative parties

  • The incentives for the participants in transactions

  • E.g.,cooperative and shared incentive among allied partners, commitment and investment of co-specialized assets, loyalty maintenance

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E-business Models

A description of roles and relationships among a firm’s consumers, customers, allies, and suppliers that identifies the major flows of product, information, and money, and the major benefits to participants, almost, over Internet .

(Weill & Vitale, Place to Space, 2001, p.34)

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E-business models & examples

  • Distributors models

    • Focused distributor models

      • Retailer, marketplace, aggregator/infomediary, exchange, E*trade, Amazon

    • Portal models

      • Horizontal, vertical, affinity, AOL, Yahoo!, iVillage

  • Producer models

    • Manufacturers, service providers, educators, advisors, information/news service, custom suppliers, Ford, GE, Boeing, Ernst & Yong, WSJ, McGraw-Hill

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E-business models & examples (cont.)

  • Infrastructure provider models: to construct business that deliver the technology infrastructure

    • Focused distributor

      • Infrastructure retailer/marketplace/exchange, CompUSA, Staples, IngramMicro, Egghead

    • Portal

      • Horizontal/vertical infrastructure portals, AOL, AT&T, Oracle

    • Producer

      • Equipment/component manufacturers, infrastructure software/services firms, IBM, Dell, Compaq, Oracle, Ariba, MS, Doubleclick

      • Custom software/hardware suppliers, Dell, Andersen Consulting

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Does Adam Smith’s law still work?

  • Three technological prerequisites to facilitate market economy

    • Excludability

    • Rivalry

    • Transparency

  • Could Internet technologies promote above three properties for the information-based economy?

    • If not all, some business mechanisms will be needed

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Indicators of survival business model

  • Customer value—segmentation, value proposition

  • Scope—core or by-products

  • Pricing—attractive willingness-to-pay prices

  • Revenue sources—exploitation & leverage of complements

  • Connected activities—the complete value chain

  • Construction—IT infrastructure, organization, and key champion

  • Capability—acquisition of necessary competence

  • Sustainability—setup firewall to prevent imitation

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Business models: a matter of perspective

  • The customer perspective

    • Efficiency, responsiveness, security

    • Anything valuable more than social contact & face-to-face interactions?

  • The business community perspective

    • Assets investment: current/tangible/intangible assets

    • Revenue flow: commerce/content/community/ infrastructure revenue sources

    • Cost allocation: M/I/T categories

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Crafting an e-business web

  • Attach to the gateway

  • Leverage with the complements

  • Search the common interface

    • Enhancement on functionality

    • Expansion of diversity on existing businesses

    • Extension on new businesses

    • Exit for far-leap

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Extended readings

  • Evans, P. and T. Wurster (1997), “Strategy and the New Economics of Information,”Harvard Business Review, 75(5), Sept.-Oct., pp.70-83.

  • Porter, M. E. (2001), “Strategy and the Internet,”Harvard Business Review, 79(3), March, pp.62-78.

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Referred papers

  • Chatterjee, Debabroto, Rajdeep Grewal and V. Sambamurthy (2002), “Shaping Up for E-commerce: Institutional Enablers of the Organizational Assimilation of Web Technologies,”MIS Quarterly, Volume 26, Number 2, pp.65-89.

    • Fichman, R. G. and Kemerer C. F. (1999), “The Illusion Diffusion of Innovation: An Examination of Assimilation Gaps,”Information Systems Research, Sept. pp, 255-275.

    • Kline, R. B. (1998), Principles and Practices of Structural Equation Modeling, The Guilford Press, New Work.

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Referred papers (cont.)

  • Grover, Varun, and Pradipkumar Ramanlal (1999), “Six Myths of Information and Markets: Information Technology Network, Electronic Commerce, and the Battle for Consumer Surplus,”MIS Quarterly, Volume 23, Number 4, pp.469-495.

    • Stigler, George (1961), "The Economics of Information", Journal of Political Economy.

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Distorted Market Signals

  • Attracting the base of customers by heavy discounts rather than true costs

  • Click-through is not the same as cash

  • Booming by the curiosity rather than utility

  • Revenue inflow from stocks rather prices

  • Enjoying subsidized inputs

  • Masking true costs but transferring them to shareholders

  • Understatement of the need of capital for asset building

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The Illusion of Prosperity

  • Dot-Coms multiplied so rapidly because of

    • Every low barriers to entry

    • Raising capital without having to demonstrate performance and viability.

  • Just going through a period of transition

    • Return to the fundamentals eventually

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A Return to Fundamentals

  • Industry structure

    • Five/six forces analysis

      • Competitors/complementarities

      • Customers

      • Suppliers

      • Substitutes

      • Entrants

  • Sustainable competitive advantage

    • Operational effectiveness

    • Strategic positioning