A summary of how a company will generate revenue, identifying its product offering, value-added services, revenue sources and target customers.
A consideration of the different business models made available through e-commerce is of particular importance to both existing and start-up companies. Venkatraman (2000) points out that existing businesses need to use the Internet to build on current business models while at the same time experimenting with new business models. New business models may be important to gain a competitive advantage over existing competitors and at the same time head off similar business models created by new entrants. For start-ups or dot-coms the viability of a business model will be crucial to funding from venture capitalists. But what is a business model? Timmers (1999) defines a 'business model' as:
An architecture for product, service and information flows, including a description of the various business actors and their roles; and a description of the potential benefits for the various business actors; and a description of the sources of revenue.
It can be suggested that a business model for e-commerce requires consideration of the marketplace from several different perspectives:
• Does the company operate in the B2B or B2C arena, or a combination?
• How is the company positioned in the value chain between customers and suppliers?
• What is its value proposition and for which target customers?
• What are the specific revenue models that will generate different income streams?
• What is its representation in the physical and virtual world, i.e. high-street presence, online only, intermediary, mixture?
Timmers (1999) identifies no less than eleven different types of business model that can be facilitated by the web as follows:
1 e-shop - marketing of a company or shop via the web;
2 e-procurement - electronic tendering and procurement of goods and services;
3 e-mall - a collection of e-shops such as BarclaySquare (www.barclays-square.com);
virtual communities - these can be B2C communities such as Habbo Hotel for teenagers (www.habbo.com) or B2B communities such as Clearlybusiness (www.clearlybusiness.com/community) which are both important for their potential in e-marketing and are described in the virtual communities section in Chapter 6;
7 third-party marketplaces - marketplaces are intermediaries that facilitate online trading by putting buyers and sellers in contact. They are sometimes also referred to as 'exchanges' or 'hubs';
8 value-chain integrators - offer a range of services across the value chain;
9 value-chain service providers - specialise in providing functions for a specific part of the value chain such as the logistics company UPS (www.ups.com); information brokerage - providing information for consumers and businesses, often to assist in making the buying decision or for business operations or leisure; trust and other services - examples of trust services include Internet Shopping is Safe (ISIS) (www.imrg.org/isis) or TRUSTe (www.truste.org) which authenticate the quality of service and privacy protection provided by companies trading on the web.
s lo ll
Figure 2.12 suggests a different perspective for reviewing alternative business models. There are three different perspectives from which a business model can be viewed. Any individual organisation can operate in different categories, as the examples below show,
1. Marketplace position
2. Revenue model
3. Commercial model
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