E-business models

1
E-business models

• Making sense of the Internet business landscape

2
Unprohibited want

• Massive channel disintermediation?
• Delineation between technology producers and
  technology users?
• Conducts of Dot-com
• Performance of vogue virtual integrations?

3
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

4
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

5
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
firms 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, Etrade, 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,
  ATT, 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 Smiths 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 valuesegmentation, value proposition
• Scopecore or by-products
• Pricingattractive willingness-to-pay prices
• Revenue sourcesexploitation leverage of
  complements
• Connected activitiesthe complete value chain
• ConstructionIT infrastructure, organization, and
  key champion
• Capabilityacquisition of necessary competence
• Sustainabilitysetup 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

21
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