Change and the Business Model Internet Business Models

1
Change and the Business Model (Internet Business
Models Strategies, Afuah Tucci, McGraw-Hill,
p12)
Business Model Components and linkages
Dynamics
Change Properties Underpinnings
Performance
Environment Competitive Macro
2
The Internet and the Business Model the
Internet as a Change Agent (Internet Business
Models Strategies, Afuah Tucci, McGraw-Hill, )
Internet/e-Business Model Components and
linkages Dynamics
Internet Properties Underpinnings
Performance
Environment Competitive Macro
3
Inter Organisational IT Systems- Role of the
Internet

• Cheap and easy to join
• Requires unsophisticated equipment
• Enables multiplatform communication
• Enables access by unsophisticated IT users
• Broad functionality
• email
• file transfer
• web browsers
• Can be secure
• Internet technology can be used to build Extranets

4
The Internet as a Physical network (Internet
Business Models Strategies, Afuah Tucci,
McGraw-Hill, p12)
Users computer
POP
Enterprise
Homes small organizations
Users computer
Router (digital switch)
Enterprise
backbone
Gateway (LAN server)
Users computer
Enterprise
Users computer
Web server
News Server IRC Server
FTP Server
5
The Internet Value Network the
stakeholders(Internet Business Models
Strategies, Afuah Tucci, McGraw-Hill, p12)
I. Users 1. E-commerce 2. Content aggregators 3.
Market makers 4. Service providers
II. Communications service providers
5. Backbone and infrastructure
6. ISPs/ OSPs
III. Suppliers 8. Content creators 9. SW
suppliers 10. HW suppliers
Homes and organizations
7. Last Mile
6
Properties of the Internet the potential for
creative exploitationAfuah Tucci, Internet
Business Models and Strategies, McGraw-Hil, 2001,
p32)

• Mediating technology
• Universality
• Network externalities
• Distribution channel
• Time moderator
• Information asymmetry shrinker
• Infinite virtual capacity
• Low cost common standard
• Creative destroyer
• Transaction cost reducer

7
The socio-economic qualities of the Internet as a
change agent The manymany communications
channel

• The Internet changes Time
• The Internet changes Space
• The Internet changes Relationships
• Between Buyers and Sellers can mean reduces costs
  also
• The Internet is a Distribution Channel
• For Information/Software Products
  Communications
• Far more than an alternative media a vehicle
  for Creativity

8
Traditional Marketing Communications
(One-to-Many)Hoffman Novak, A new marketing
paradigm for electronic commerce, JMM, Feb 1996
9
Model of Marketing Communications for
Interpersonal and Computer-mediated
communication Hoffman Novak, A new marketing
paradigm for electronic commerce, JMM, Feb 1996
10
A model of marketing communications in a
hypermedia computer-mediated environment the
creation of Community Hoffman Novak, A new
marketing paradigm for electronic commerce, JMM,
Feb 1996
11
The e-Business Model the outcome of creative
exploitation

• Definition the set of Internet and non-Internet
  related activities that enable the organisation
  to generate sufficient money for long term
  sustainability (Afuah Tucci)
• Models possess a mix of properties.
• The mix varies from industry to industry and from
  firm to firm within the same industry.
• Companies must manage ALL elements of the mix

12
The e-Business Model- main categories of
Electronic Business Model

• Business-to-Business (B2B)
• Businesses sell to each other
• Strategic Alliances, Supply Chain Management (eg
  DELL)
• Business-to-Consumer (B2C)
• Businesses sell directly to consumers
• E-Commerce (eg Amazon DELL)
• Consumer-to-Consumer (C2C)
• Info-intermediaries
• Auctions (eg e-Bay), Market makers (eg Schwab)
• Consumer-to-Business (C2B)
• Consumers drive the business
• Reverse Auctions

13
The e-Business Model- main categories of
Electronic Business Model
C2C
C2B
Consumer
Priceline.com
eBay
From
Business
Dell
Amazon.com Dell
B2C
B2B
Business
Consumer
To
The aim of ANY business model is to provide the
best possible customer service at the lowest
possible cost. Collaborative management of the
supply chain may be the best (or only) way of
achieving this.
14
Common elements of an Internet (e-Business)
ModelAfuah Tucci, McGraw-Hill, 2001, p46)

• Customer value
• Scope
• Pricing
• Sources of revenue
• Connected activities
• Capabilities
• Implementation
• Sustainability

15
Customer Value Scope - Proposition or Cluster -
Traditional vs e-Business

• (1) Traditional Create a value proposition
• eg become a Nokia mobile phone dealer)
• Target a market segment
• eg professional people in London
• Create customer benefit (USP)
• eg stock whole range of Nokia products
• Rationale (why us?)
• eg better product knowledge than competitors
• The company controls the whole operation

16
Customer Value Scope - Proposition or Cluster -
Traditional vs e-Business

• (2) e-Business create a value cluster
• eg offer a full range of mobile phone products
• Target market segments
• eg worldwide web users in the UK
• Package customer benefits
• eg low price and fast delivery
• Rationale (why us?)
• one-stop knowledge source and 24hr service
• Partners share the control, risk and rewards
• Customers receive the benefits

17
Common Internet Pricing Models

• Menu (fixed)
• Subscription (pay by use)
• Auction
• Reverse Auction
• Other Revenue Sources include
• Advertising
• Banner
• Contextual
• Syndication
• Referral Links

18
The importance of Market Shareand Market Size to
Revenues Profits(Afuah Tucci, p52)

• For markets with HIGH fixed costs (eg RD) and
  LOW variable costs (eg HiTech products)
• A high market share is necessary to make profits
• The bigger the market size, the bigger the
  percentage of profits captured
• Market SHARE and Market SIZE are critical in
  making revenue mean PROFIT

19
Connected Activities (Logistics and the Value
Chain)(From e-Commerce, Rayport Jaworski,
McGraw-Hill, 2001, ch.3)

• Handling the Order
• the Backend capabilities delivering the
  promise
• integrated internal systems (intranet)
• new internal systems (eg credit control)
• Automating the relationships along the chain
• integrated information systems (extranets)
• Using information to improve performance
• derive meaning from facts (knowledge)
• improve operations through knowledge (eg CRM)
• Information Management is the key to consumer
  satisfaction and long term success

20
Implementation and Change (From e-Commerce,
Rayport Jaworski, McGraw-Hill, 2001, ch.3

• New activities demand new structures
• workgroups and project teams before departments
• processes before functions (BPR)
• Inter-organisational collaborative teams
• matrix management
• Physical and virtual organisations
• Process interface transparency for consumers
• teleworking for staff
• international outsourcing BUT
• geographical transparency for customers
• Appropriate management systems and styles
• enabling not controlling culture
• performance related reward systems
• Significant Change requires Change Management

21
Creating an e-business Model- Capitalising on
Capabilities(From e-Commerce, Rayport
Jaworski, McGraw-Hill, 2001, ch.3)

• Identify new or key capabilities needed
• eg logistics, IT skills/management, credit
  control, OB
• One-off or ongoing?
• Decide the best solution?
• partnering?
• outsourcing?
• in-house staff development?
• Strategic Issues need Top Management Commitment

22
Sustainability(From e-Commerce, Rayport
Jaworski, McGraw-Hill, 2001, ch.3

• Choose a counter retaliation strategy
• build market share (eg Amazon)
• create solid, reliable image (eg e-Bay)
• create strong value chain (eg Dell)
• develop and innovate the value offering (eg
  Yahoo)
• E-business models may be easy to imitate
• Collaboration before competition A culture of
  Sharing Trust