Classification of E-Commerce Firms

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Classification of E-Commerce Firms

• Professor Joshua Livnat, Ph.D., CPA
• 311 Tisch Hall
• New York University
• 40 W. 4th St.
• NY NY 10012
• Tel. [phone] Fax [phone]
• jlivnat_at_stern.nyu.edu
• Web page www.stern.nyu.edu/jlivnat

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Classifications

• Classification by seller/buyer
• Classification by product or activity
• Classification by sources of revenues

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Classification by seller/buyer

• Business to Consumer (B to C)
• Southwest Airlines generates over 15 of its
  revenues from its online site. http//www.southwes
  tairlines.com/
• Business to Business (B to B)
• Automobile manufacturers organizing an exchange
  to buy components from suppliers.
  http//www.generalmotors.com/cgi-bin/pr_display.pl
  ?1202
• Consumers to Consumers (C to C)
• Auctions sites like E-Bay. http//www.ebay.com/
• Consumers to Business (C to B)
• Selling information to businesses like gorefer.
  http//www.gorefer.com/
• http//www.mercata.com/

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Classification by product or activity
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Classification by Revenue Sources

• Revenues from selling products or services
• Traditional sales http//www.amazon.com
• Commissions http//www.priceline.com/
• Per-transaction fees http//www.nytimes.com/
• Advertising revenues - See Appendix A
• Referral fees See Appendix B
• per referral
• fixed amount
• percentage of transaction
• Market creation fees http//www.ebay.com/

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Advantages of Classifications

• Classifications by seller/buyer emphasize the
  markets in which the firm operates.
• Classifications by product/activity emphasize the
  nature of the business.
• Classifications according to revenue sources
  focus on the underlying business model.
• An E-Commerce company is likely to be in more
  than one category.
• The analysis of categories helps in profiling the
  business (segments).

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Warning

• The Following Definitions of Various Business
  Models are not mine.
• They were developed by Professor Michael Rappa
• http//ecommerce.ncsu.edu/business_models.html

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Brokerage

• Bringing buyers and sellers together
• Buy/sell fulfillment
• Online stock trading
• Market exchange
• B2B (metals exchange)
• Virtual mall
• Internet fashion mall
• Auction broker
• E-Bay
• Search agent
• My Simon, Dealtime
• Fee per transaction

9
Advertising

• Free content or services to users. Content
  (service) providers get advertising revenues.
• Model in existence for radio and TV.
• Need very high volume or very specialized
  audience.
• Generalized portals.
• Personalized and specialized portals.
• Attention/incentive marketing.
• Free products or services.
• Bargain discounters.

10
Infomediary

• Collecting and selling data about consumers,
  interests and buying habits.
• Sharing information among consumers
• Book reviews on Amazon
• Registration
• Collecting information on users in exchange for
  access to content (newspapers, free phone
  services).

11
Merchants

• Wholesalers and retailers on the Web.
• Web-based only, with no brick and mortar
  operations.
• Catalog services
• New form of direct mail
• BM on the Web
• Staples
• Digital content
• Music
• Software

12
Manufacturer

• Manufacturer bypasses the wholesaler to reach
  final customer.
• Dell
• Personalization
• Flowerbud
• Faster delivery
• May cause distribution channel conflicts
• Airlines and travel agents

13
Affiliate

• Referring to other sites
• Similar to Yellow Pages or referral fees for
  lawyers.
• Hitting the customer when the purse is open.
• Using information on current purchases to induce
  further purchases of complementary products and
  services.

14
Community

• Creating a community of similar users.
• Soliciting donations from users and foundations
• Creating knowledge networks
• Collection of experts who can respond to
  questions
• Sometimes experts get paid directly per question.

15
Subscription

• Pay for content
• General reluctance to pay for content on the Web.
  
• Exceptions
• Wall Street Journal
• Premium content (detailed stock research reports)
• Archived information

16
Utility

• Pay per use or per time
• Similar to Pay Per View movies
• Renting software and applications
• Payment per data extracted
• Credit reports
• Retrieving old publications

17
Mixture of Business Models

• Most E-Commerce firms have a mixture of business
  models
• Community and advertising
• Merchant and affiliate
• Business models change and continue to evolve
• The environment is very dynamic
• The need to remain flexible

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The Business Model

• Identify the value drivers
• Number of visitors
• Number of members
• Number of transactions
• Assess the required long-term volume to make a
  profit
• Assess the reasonableness of the required volume
  and costs to achieve it.

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Sources of Information

• Forms filed with the SEC (http//www.sec.gov/ )
• Registration statement
• Form 10-K
• Form 10-Q
• Proxy statement
• Special reports
• Companys own Web site http//www.aol.com/
  http//www.corp.aol.com/
• Investment research
• Tracking organizations http//www.mediametrix.com

20
Long-Term Business Models

• Surviving advertising models
• High volume free content services
• The broadcasting model
• Personalized and specialized content services
• Free tourist guides
• Interactive models
• Surviving community models
• Right demographics

21
Long-Term Business Models

• Surviving brokerage models
• Only if BM do not offer their own services
• Merchants
• Only if reduces transaction costs or increases
  the pie
• Affiliates
• Will it be pay per referral? Pay per listing
  (like Yellow Pages)?

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Long-Term Survival

• Depends on the long-term tradeoff between
  revenues and costs.
• Cheap initial financing masks true long-term
  costs.
• The recent decline in prices of Internet stocks
  can force people to think through more carefully
  of the long-term viability of the business model.

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Summary

• Classifications help think about the business
  model.
• Classifications also help in assessing the
  long-term viability of the business.