Building a Business Plan with EBusiness Considerations

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Building a Business Planwith E-Business
Considerations

• Daniel J. McFarland, Ph.D.

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Defining the Business

• Business Model
• A set of planned activities designed to result in
  a profit in a marketplace
• Business Plan
• A document the describes a firms business model

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8 Components of a Business Plan

• ? Value Proposition (Why will customers buy)
• ? Revenue Model (How will firm make profits)
• ? Market Opportunity (What market, size of
  market)
• ? Competitive Environment (Identify competitors)
• ? Competitive Advantage (The firms advantage)
• ? Market Strategy (How will customers be
  attracted)
• ? Organizational Development (How will the firm
  provide the offerings)
• ? Management Team (Who is providing direction for
  the firm)

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? Value Proposition

• The value proposition describes why a customer
  would buy from your firm
• Will customers choose to do business with your
  firm instead of other companies?
• What does your firm provide that others do not?

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Value Proposition Capitalizing E-Commerce

• Ubiquity
• Consumer search cost, availability
• Global reach
• Delivery options
• Universal standards
• Good design, ease of use, browser compatibility,
  accessibility
• Richness
• How many different representations of the
  offerings support can be provided
• Interactivity
• To what extent can the consumer control the
  on-line experience
• Information density
• Ability to discover more information than anyone
  could want, un-bias/factual/unmediated 3rd party
  certifications/testimonies
• Personalization/Customization
• Ability to save/remember preferences and habits,
  ability to provide customized offerings and/or a
  personalized experience

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? Revenue Model

• The revenue model describes how the firm intends
  to make a profit
• It is not enough to make a profit
• The profit level must exceed the ROI of other
  investment alternatives

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Popular E-Commerce Revenue Models

• Advertising revenue model
• Advertisers pay to place ads on your firms page
  (e.g., a billboard)
• Subscription revenue model
• Your firm offers content or services for an
  access fee (e.g., a newspaper subscription)

• Transaction fee revenue model
• Your firm receives a fee for enabling or
  executing a transaction (e.g., consignment shop)
• Sales revenue model
• Your firm derives revenue by selling
  goods/services/content (e.g., a storefront)
• Affiliate revenue model
• Your firm receives a finders fee for referring
  customers to other sites

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Revenue Model Examples
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? Market Opportunity

• A firms Market Opportunity represents the
  revenue potential of the market niche where the
  firm competes

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? Competitive Environment

• Number of active competitors, the operating
  capacity of those competitors, what are the
  market shares, competitor profitability,
  competitor prices
• Direct competitor (one is a substitute for the
  other)
• Indirect competitor (firms from other industries
  who may have cross-over services or affiliates)

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? Competitive Advantage

• A competitive advantage exists when a firm brings
  a superior product to market and/or an equivalent
  product at a lower price to market
• Asymmetry exists when one participant in a market
  has more resources than other participants
• A Perfect Market a market in which there are no
  competitive advantages or asymmetries because all
  firms have equal access to information resources

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Competitive Advantage

• Leveraging is when a firm uses its competitive
  advantages to achieve more advantages in
  surrounding markets
• First Mover Advantage (being the first into the
  market with an innovation and/or product)
• Unfair Competitive Advantage occurs when one firm
  develops an advantage based on an asset that is
  not available to other firms

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? Market Strategy

• A Market Strategy details exactly how a firm
  intends to enter a new market and attract new
  customers

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? Organizational Development

• An Organizational Development Plan describes how
  the company will organize the work that needs to
  be done
• How does the firm intend to organize and execute
  the required procedures

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? Management Team

• The Management Team is responsible for making the
  business model work
• Some suggest that the management team is the
  single most important element of the business
  model

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Categorizing E-Commerce Business Models

• B2C Business Models
• B2B Business Models
• C2C Business Models

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B2C Portal

• A Portal offers users a single stop to utilize
  powerful Web search tools and integrated package
  of content and services (such as email, calendar
• Initially designed as a gateway, now popular
  portals are destinations

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B2C E-Tailer

• An E-Tailer is an on-line retail store
• Virtual merchants
• Online retail store only
• Clicks and Mortar e-tailers
• Online distribution channel for a company that
  also has physical stores
• Catalog merchants
• Online version of direct mail catalog
• Online malls
• Online version of mall
• Manufacturers selling directly over the Web

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B2C Transaction Broker

• A Transaction Broker provides transaction
  services to consumers
• E.g., job placement, travel arrangements, stock
  brokering

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B2C Market Creator

• A Market Creator builds a digital environment
  where buyers sellers can meet, display
  products, and establish prices for products
• Priceline.com, eBay.com

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B2C Content Provider

• A Content Provider distributes information
  content such as news, music, video, photos, and
  artwork over the Web (most content on the Web is
  the Intellectual Property of the provider)
• Intellectual Property refers to all forms of
  human expression that can be put into a tangible
  medium such as text, CDs, or the Web

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B2C Service Provider

• A Service Provider offers services on-line
• Netgrocer.com, xDrive.com

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B2C Community Provider

• A Community Provider provides an on-line
  environment where like-minded people may
  transact, communicate, and receive
  interest-related information
• ParentSoup.com, MotleyFool.com

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B2B Marketplace/Exchange Hub (B2B Hub)

• A B2B Hub is a marketplace where suppliers meet
  and conduct commercial transactions
• Pulls many businesses together

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B2B E-Distributor

• An E-Distributor supplies products/services to
  individual businesses
• Setup by one business to attract many commercial
  customers

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B2B Service Provider

• A B2B Service Provider sells business services to
  commercial customers
• An Application Service Provider (ASP) is a
  company that sells access to Internet-based
  software to other firms

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B2B Matchmaker

• A B2B Matchmaker is a firm that matches
  commercial providers with commercial suppliers

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B2B Infomediary

• An Infomediary collects consumer information and
  sells it to businesses
• An Audience Broker selectively advertises to
  consumers based on collected data
• E.g., Doubleclick.com
• A Lead Generator create customer profiles and
  sells these profiles to direct marketers
• E.g., AutoByTel.com

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How does E-Commerce Impact Business Models

• Consider each of the 7 unique characteristics of
  e-commerce

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Seven Unique Feature of E-Commerce Technology

• Ubiquity
• Alters industry structure by creating new
  marketing channels and expanding size of overall
  market
• Creates new efficiencies in industry operations
  and lowers cost of firms sales operations
• Enables new differentiation strategies

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Seven Unique Features of E-Commerce Technology

• Global Reach
• Lowers cost of industry and firm operations
  through production and sales efficiencies
• Enables competition on global scale

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Seven Unique Features of E-Commerce Technology

• Universal Standards
• Changes industry structure by lowering barriers
  to entry and intensifying competition within an
  industry
• Lowers costs of industry and firm operations by
  lowering computing and communications costs
• Enables broad-scope strategies

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Seven Unique Features of E-Commerce Technology

• Richness
• Alters industry structure by reducing strength of
  powerful distribution channels
• Change industry and firm operations costs by
  lessening reliance on sales force
• Enhances pre post-sale support strategies

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Seven Unique Features of E-Commerce Technology

• Interactivity
• Alters industry structure by reducing threat of
  substitutes through enhanced customization
• Reduces industry and firm costs by lessening
  reliance on sales force
• Enable differentiation strategies

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Seven Unique Features of E-Commerce Technology

• Personalization/Customization
• Alters industry structure by reducing threats of
  substitutes, raising barriers to entry
• Reduces value chain costs in industry and firm by
  lessening reliance on sales forces

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Seven Unique Features of E-Commerce Technology

• Information Density
• Changes industry structure by weakening powerful
  sales channels, shifting bargaining power to
  consumer
• Reduces industry and firm operations costs by
  lowering costs of obtaining, processing, and
  distributing information about suppliers and
  consumers

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E-Commerce and Industry Structure
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How the Internet and the Web Change Business
Basic Business Concepts

• Industry Structure
• the nature of players in an industry and their
  relative bargaining power
• by changing
• the basis of competition among rivals
• the barriers to entry
• the threat of new substitute products
• the strength of suppliers
• the bargaining power of buyers