EBUSINESS: Principles and Models

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E-BUSINESS Principles and Models

• Christer Carlsson, Pär Landor and Pirkko Walden
• IAMSR / Åbo Akademi University

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Introduction

• The .com revolution was hype
• There is no new economy
• E-commerce, e-business should be quickly
  forgotten (says the paper products industry)
• Lots of youngsters got rich with other peoples
  money ...

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Furniture.com

• Ekonomiska problem
• Finansieringsproblem
• Leveransproblem
• Förlust 45 miljoner dollar

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Babygear.com

• Finansieringsproblem
• Outvecklad detaljhandel
• Ineffektiv lagerverksamhet

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Boxman.com

• Ekonomiska problem
• Finansiering genom riskkapital upphörde
• Likviditetskris

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Boo.com

• Splittrad verksamhet
• Svag priskonkurrenskraft
• Halvfärdig teknologi
• Förlust 120 miljoner dollar under de första sex
  månaderna

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Introduction cont.

• Is there any substance in e-business?
• Will this really become something to build on?
• Will we see some real business opportunities, or
  will there only be a new wave of hype ?
• E-business is real and it will produce and build
  on superior performance the classical basis for
  strategic advantages

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E-Business
Figure 3. There are huge markets online. No
matter from which point of view you look at it.
European Online Market1 in 2001 To Equal USD
3.23 Billion
 
European Online Market in 2001 (to equal USD 3.23
Billion)

 


1 Keenan Vision. http//www.epaynews.com/statist
ics/purchases.html1



1
Keenan Vision. http//www.epaynews.com/statisti
cs/purchases.html1

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E-Business
Figure 3. There are huge markets online. No
matter from which point of view you look at it.
European Online Market1 in 2001 To Equal USD
3.23 Billion
 
Online Purchase Revenues 1999-2004 (in USD)


 

 





1
Keenan Vision. http//www.epaynews.com/statisti
cs/purchases.html1




1
Forrester Research.
http//www.epaynews.com/statistics/purchases.html
1

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E-Business
Figure 3. There are huge markets online. No
matter from which point of view you look at it.
European Online Market1 in 2001 To Equal USD
3.23 Billion
 
 
Where the eCommerce Dollars Are (2000-2004)


 
 





1
Keenan Vision. http//www.epaynews.com/statisti
cs/purchases.html1




1
IDC.
http//www.epaynews.com/statistics/purchases.html
1

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E-Business

• E-commerce is commerce with an e component. The
  e component includes the Internet, and other IT
  aspects (e.g. telecommunications, PCs,
  mainframes, ERP systems etc.). The c side ?
  commerce ? involves the exchange of value between
  parties enabled via electronic means, though not
  confined to it, as bricks now support clicks and
  vice versa. E-commerce is a good concept for at
  least three reasons.   Keen-McDonald

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E-Business

• It is a reminder of what really matters commerce
  and its correlated commercial relationships.
• E-commerce downplays the notion of this being
  electronic while still keeping the "e" that
  distinguishes it from previous models of
  commerce.
• Finally, e-commerce signals that while the
  Internet is the core enabler of this new era, it
  includes many other information technology
  components such as databases, transaction
  processing software, and others.

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E-Business

• Commerce is the issue. Commerce is conducted
  within a network or relationships governed by
  rules, implemented through interfaces, and
  providing new sourcing options among network
  players. An e-Process view looks at the Web as a
  means to the end creating competitive advantage
  that comes from leveraging the site to support
  its processes and economic fundamentals.  
  Keen-McDonald

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E-Business

• E-commerce connects customers, consumers,
  suppliers, and companies that previously could
  never be so interlinked. Customers, trust, brand
  and fulfilment form the basis for rules in the
  e-commerce world. Customers are the drivers of
  eCommerce success and choice is what makes the
  customer. Keen-McDonald

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E-Business

• Customers are different in the "e" world as they
  have choices, the information to make those
  choices, and the confidence to choose. Customer
  trust is the one force that generates the rules
  in eCommerce. While that may sound trite,
  recognize that customers have to choose to use
  the web for business and trust that their
  commitments will be met, their expectations
  realized governs what you can and cannot do on
  the web. Keen-McDonald

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E-Business

• The trust premium in e-commerce is the
  relationship that provides the vehicle for
  accelerating your e-commerce brand. Remember a
  brand is a promise and keeping the promise builds
  trust that makes fulfilment critical to
  e-commerce success. These dynamics set out the
  imperatives to building customer relationships  
  Keen-McDonald

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E-Business

• Build your company entirely around your customer
  recognize that your processes define the
  dynamics and value potential of the relationship.
  Those processes must be designed from the
  customer in, not the business out.
• Avoid the self-commoditization of your business
  that is an almost inevitable result of pushing
  your products and services online recognize
  that you must compete based on the ability to
  form and deliver relationships that have
  intrinsic value.

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E-Business

• Build value networks that let you focus on your
  relationship strengths companies no longer need
  to own their value chain in order to compete, use
  eProcess sourcing to concentrate your management
  attention and capital where it matters most.

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E-Business Value Networks
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HIERARCHICAL ORGANISATION
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VIRTUAL CORPORATIONS
SUPPLIER
CUSTOMER
VIRTUAL CORPORATION
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OUT-TASKING IN-SOURCING
PARTNER I
PARTNER II
VIRTUAL CORPORATION
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E-Business

• Nobody owns the consumer and nobody ever will.
  Especially the new, empowered, post-Internet
  consumer. The best anyone can hope for is the
  first chance to please the consumer. The first
  shot at delivering relevant, reliable services at
  the right price. The first shot at listening,
  learning and adapting to user needs. The first
  shot at earning trust and, eventually, loyalty.

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E-Business

• E-commerce enables a potential level of
  relationship intensity that can provide for
  massive business expansion, innovation, and
  profitability. Yet, this potential is very hard
  to attain and requires expensive up-front
  investment. The average revenue per employee for
  Internet companies is 65 percent higher than the
  average U.S. business. It is the ability to
  transform your capital and margin structures that
  makes e-commerce an opportunity not to be missed.

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E-Business
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E-Business

• Accenture
• Marketing is key ? as the cost of customer
  acquisition makes marketing critical to business
  success
• Physical operations can matter as much as or more
  than online ones
• Clicks and bricks (online plus offline channels)
  are the new game
• Technology guarantees the integrity of the
  transaction and technical excellence is required

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E-Business

• Accenture (cont.)
• Organizational capabilities and processes must
  change BPR activities
• Breaking down functional stovepipes - processes
  are executed across a virtual value network
  rather than a vertical enterprise
• The customers perspective defines the value of a
  process

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E-Business

• The e-Process company has clearly-defined rules
  with clean process interfaces and a technology
  platform build around application program
  interfaces (APIs). Rules are the initial focus as
  the company looks for the best way to source and
  enforce those rules across the network through
  electronic links to value network players and the
  companys internal capabilities.

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E-Business

• Companies must turn transactions into repeat
  business, build repeat business into sustained
  relationships, and transform the balance sheet
  and operating costs through innovative sourcing.
  That is what generated process wealth.

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E-Business

• Companies must focus on e-Processes and
  relationships instead of traditional industry
  boundaries for products and services.
• Many labels can be applied to Amazon at the same
  time retailer, portal, market maker, and auction
  house.
• Yet, its core eProcess identity is to be the
  owner of a premier set of sustained, retail
  customer relationships

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Business Models

• (according to Timmers 2000)
• Which business models are relevant for the
  Internet?
• What is your business model?(where are you going
  to make money, why are people paying and
  continuing to pay for your service?)
• Barriers to EC the lack of a business model

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What is a business model?

• 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 source of revenue(Paul
  Timmers 2000)

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Why is it not enough?

• A business model in itself does not yet provide
  an understanding of how it will contribute to
  realizing the business mission and objectives of
  any of the companies that are actors within the
  model
• We also need to know about the companies
  marketing strategies in order to assess the
  commercial visibility of the business model
• How is the competitive advantage being built?
• What is the positioning?
• What is the marketing mix?
• Which product-market strategy is being followed?

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Identifying Architectures

• Systematic approach
• Can be based on
• Value chain de-and reconstruction
• Identifying value chain elements and possible
  ways to integrate information along the value
  chain
• Value-chain elements
• Primary elements inbound logistics, operations,
  outbound logistics, marketing and sales, service
• Supporting elements technology development,
  procurement, human resource management and
  corporate infrastructure
• Information patterns one to many, one to one

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Current Business Models

• E-shops
• Web presence, http//bellaboats.fi
• Web marketing
• To promote the company and its goods/services
• Ordering and paying is increasingly added
• Often combined with traditional marketing
  channels
• Benefits sought increased demand, a low-cost
  route to global presence, cost reduction in
  promotion and sales
• Benefits for the customers better prices, wider
  choice, better information and convenience in
  selecting, buying and delivery, 24 hours
  availability
• http//www.fleurop.com/

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Current Business Models

• E-procurement
• Electronic tendering and procurement of
  products/services
• Large companies or public authorities
• Benefits sought wider choice of suppliers,
  leading to lower cost, better quality, improved
  delivery reduced cost of procurement
• For suppliers more tendering opportunities,
  lower cost of submitting a tender, reduction of
  cost

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Current Business Models

• E-malls
• A collection of e-shops, http//www.malls.com
• Enhanced by a common umbrella
• Example Mall Bodensee http//www.emb.ch
• When specializing in a certain market segment,
  more of an industry marketplace
• Example http//www.industry.net
• Benefits for customers easy access to other
  e-shops, ease of use through common user
  interface elements
• Benefits for the e-shops lower costs and
  complexity of being on the web
• Revenues from the membership fees and advertising

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Current Business Models

• E-auctions
• Offer an electronic implementation of bidding
  mechanisms
• Can be accompanied with a multimedia presentation
  of goods
• May offer integration of the bidding process with
  contracting, payments and delivery
• The sources of income for the auction provider
• selling the technology platform.
• transaction fees
• advertising

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Current Business Models

• E-auctions
• Benefits for suppliers and buyers
• Increased efficiency and time savings
• No need for physical transport until the deal has
  been established
• Global sourcing
• Examples http//www.infomar.com
  and http//www.fastparts.com http//www.eBay.com

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Current Business Models

• Virtual communities
• The ultimate value comes from the members who add
  their information on to a basic environment
  provided by company operating the virtual
  community
• Membership fees and advertising generate
  revenues
• Can be an add-on to other marketing operations in
  order to build customer loyalty and receive
  customer feedback
• Example http//www.amazon.co.ukhttp//www.iVilla
  ge.com

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Current Business Models

• Collaboration platforms
• Provide a set of tools and an information
  environment for collaboration between enterprises
• Can focus on specific functions
• Collaborative design and engineering
• Project support to a virtual team
• Business opportunities managing the platform in
  selling the specialist tools

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Current Business Models

• Third-party marketplaces
• Emerging model if companies wish to leave web
  marketing to a third party
• Often additional, online channel to other
  existing channels
• Offer at least a user interface to the suppliers
  product catalogue
• Examples http//www.simnet.orghttp//www.citius.
  be
• Amazon Associates program for online
  bookstores, anyone who wishes to sell books

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Current Business Models

• Value-chain integrators
• Focus on integrating multiple steps of the value
  chain,with potential to exploit the information
  flow between those steps as further added value
• Revenues comes from the consultancy fees or
  possibly transaction fees
• Example http//www.cordis.lu/esprit/home.html

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Current Business Models

• Value-chain service providers
• Specialize in a specific function in the value
  chain, making that into their distinct
  competitive advantage
• Electronic payments
• Logistics
• Examples http//www.fedex.com,
  http//www.ups.com
• Amazon Advantage catalogue service for
  publishers, is absorbed into Amazons catalogue

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Current Business Models

• Information Brokerage, Trust and Other Services
• Add value to the huge amount of data available on
  the open networks or coming from integrated
  business operations, such as information search,
  http//www.yahoo.comcustomer profiling,business
  opportunities brokerage, investment advice etc.
• Business information and consultancy, trusted
  third-party services

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Trends in Internet Business Models
Functional integration
E-auctions
Lower
Higher
Degree of Innovation
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Trends in Internet Business Models