Business Models Components
Limitation to transactions over the Internet
 
parties distributed in time and space
• 4 types of interconnection:
!niversality anybody anywhere in the world can potentially ma!e his
products a"ailable to anyone else in the world.
"etwor# e$ternalities the more people connected to Internet# the more
"aluable it is.
Distri%ution channel Internet allows to distribute music# news# "ideo#
software# tic!ets# and so on.
&ime moderator Internet ma!es possible to obtain information 4 hours
a day.
information a"ailable to parties.
Infinite virtual capacity using the ad"ances to storage and networ!
technologies# customers feel that Internet has infinite capacity to ser"e
them.
Properties of Internet
Low cost standard e"erybody uses the same protocol. $s there is only
one standard# costs for users are lower.
Creative destroyer the low entry costs# flexibility and unlimited
possibilities allow entrepreneurs to create new businesses.
&ransaction-cost reducer Internet reduces the costs of searching for
sellers and buyers# collecting information on products# negotiating
contracts and transportation.
Impact of the Internet on the 5-Cs
  %roperties of Internet ha"e a huge impact on the & main acti"ities that rest
on information exchange: coordination# community# content
communication and commerce:
Impact on Coordination
Impact on Community
"aluable
 
Impact on Content
Internet to more people
• %eople can exchange electronic messages real-time# to many people and
 with high content
 
Impact on Commerce
• B)B businesses buy and sell goods and ser"ices to and from each other.
- Internet pro"ides access to sellers and buyers from all o"er the world
- Internet can create BB hubs# to pro"ide a central where sellers and buyers
can go to find each other
• B)C businesses sell to consumers.
- $ccess to e-shops 4 hours a day
- $lmost no limit to the number of goods an online retailer can display
- +irms can collect data and offer personalised ser"ice
- ,ome goods can be recei"ed instantaneously
- hen the cost of finding a seller is high# the exchange can in"ol"e an
intermediary e.g. $ma/on.com0
- 1sually# this in"ol"es an intermediary# such as an action house.
• C)B consumers state their price# and firms either ta!e it or lea"e it.
- 1sually# intermediaries play an important role
 
Internet cannot transmit tacit !nowledge that is# !nowledge uncoded and
non"erbalised0.
Indi"iduals and organisations are cogniti"ely limited. ,o# they may not be
able to encode their !nowledge into a form that can be transmitted o"er
the Internet.
 
Definition
  $n Internet %usiness model is a set of Internet and non-Internet-related
acti"ities 2 planned or e"ol"ing 2 that allows a firm to ma!e money using the
Internet and to !eep the money coming. 
$n business model should include answers to a number of 'uestions:
• hat "alue offer to customers3
• hich costumers to pro"ide the "alue to3
• ow to price the "alue3
• ho to charge for it3
• hat strategies to underta!e in pro"iding the "alue3
• ow to pro"ide the "alue3
• ow to sustain any ad"antage from pro"iding the "alue3
 
October 22, 2002 – Brussels
' &a$onomy of Business Models
Bro#erage firms act as mar!et ma!ers who bring buyers and sellers
together and charge a fee for the transaction they enable.
• *xamples: tra"el agents# online bro!erage firms# online auction houses.
'dvertising the owner of a website pro"ides some content and ser"ices
that attract "isitors# and ma!es money by charging ad"ertisers fees.
• *xamples: 5ahoo# $lta"ista.
Infomediary model a firm collects information on consumers and their
buying habits and sells it to firms.
 
Merchant wholesalers and retailers sell goods and ser"ices o"er the
Internet.
Manufacturer manufacturers try to reach end users directly through the
Internet.
'ffiliate a merchant has affiliates whose websites ha"e clic!-through to the
merchant# which pays a fee to the affiliates each time a "isitor to an affiliate6s
 
Community users ha"e in"ested in de"eloping relationships with members
of their community and are li!ely to "isit the website fre'uently.
• *xample: i7illage
(u%scription members pay a subscription price and recei"e high-'uality
content.
 
Customer value
Customers would buy a product from a firm only if the product offers them something competitors6 product do not. 8his something can ta!e the form of differentiated or low cost product.
• Differentiation: a firm can differentiate its products in eight different ways: - %roduct features
- Being the first to introduce it
- *ase of access to the products
- ,er"ice
- Brand-name reputation
 
(cope
,cope deals with:
• Mar!et segments or geographic areas to which the "alue should be offered
• ow many types of products that embody "ersions of this "alue should be sold
+evenue sources
  (etermination of the sources of a firm6s re"enues and profits.
• It allows to ma!e better strategic decisions
 
Price
8o profit from the "alue that firms offer customers# they ha"e to price it
properly
  &ypes of pricing:
•   Menu pricing: sellers sets a price and buyers can ta!e or lea"e it.
•   One-to-one bargaining: seller negotiates with a buyer to determine at what
point the buyer considers the price appropriate for the "alue he is getting.
•   Auction: seller solicits bids from many buyers and sells to the buyer with the
best bid.
•   Reverse auction: sellers decide whether to fulfil the orders of potential buyers.
 
Connected activities
$ firm must perform the acti"ities that underpin the "alue "alue chain0.
• 8he acti"ities should be consistent with the "alue the firm is offering# reinforce
each other# ta!e ad"antage of industry success dri"ers and ma!e the industry
more attracti"e to the firm.
• 8he acti"ities a firm performs are a function of where the technology is in that
industry6s life cycle# the technological e"olution of the customers and what
competitors are doing.
Implementation
8he way of carrying out the decisions depends on se"eral factors:
• ,tructure of a firm.
• ,ystems that allow information flow in the shortest time to the right target for
decision ma!ing.
• Moti"ation of employees# and capability of ma!ing the right decisions with the
a"ailable information.
• rganisational culture.
Capa%ilities
• +irms need resources to perform the acti"ities
• +irms need the capacity to turn the resources into customer "alue and profits:
competence.
• &he competitive advantage  allows the firm to offer its customers better "alue
than competitors.
(ustaina%ility
  8o sustain a competiti"e ad"antage a firm can pursue some subset of three
generic strategies:
• Bloc# strategy: a firm tries to erect barriers around its business model to
pre"ent others from imitating it.
• +un strategy: a firm must !eep inno"ating its business model.
• &eam-up strategy: a firm can pool others6 resources to strengthen its business
model.