Internet Business Models

Hung, Chia-Linag2006, Spring

Objectives

• Internet commerce patterns• Business models

• E-business models • Survival indicators

Internet commerce linkage• B2B

– Business hub (exchange) for equipments, material, operation, maintenance, etc., on the Internet

• B2C– Direct sale to customer over Internet

• C2C– Customer community for information/product exchang

e• C2B

– Actively queried by demanders and response from business suppliers

– Reverse auction, e.g., priceline.com

Classifying B2B e-Hub

MRO HubsAriba, WW Crainger, MRO.comBizBuyer.comSpot

sourcing

Systemati

csourcingH

ow B

usiness B

uy

Operating inputs Manufacturing inputsWhat business buy

Catelog Hubs:Chemdex, SciQuest.comPlasticsNet.com

Yield ManagersEmployeaseAdauction.comCapacityWeb.com

ExchangesE-steel, Altra EnergyPaperExchange.comIMX Exchange

Emergence of aggregator—the forward aggregator

Direction of aggregation

Ingram Micro

BuyersE-hub Distributors Large suppliers

Compaq

IBM

Cisco

Microsoft FulfillmentCall centerFinancingConfigurators

Emergence of aggregator—the reverse aggregator

Direction of aggregation

FOB.com

Small buyers

E-hubDistributors Large suppliers

Dupont

Dow

Ashland

3MFulfillmentInspectionReceivablesFinancing

B2C e-commerce

• Internet direct sale – Migration from physical enterprise to virtual w

eb—Dell– Pure virtual e-commerce—Amazon.com,

• Cooperate with physical retailer

• Internet intermediary– Information aggregator—104.com

C2C e-commerce

• Community– Information portal/exchange centers, pchome.

com, Yahoo! – Interest clubs, iVillage.com, youthwant.com

• Auction – Used product bazaar, eBay.com, uBid.com

• P2P– Napster, Gnutella, etc.

What is the so-called business model?

A business model depicts the A business model depicts the contencontent, structure, and governance of transt, structure, and governance of transactionsactions designed so as to create valu designed so as to create value through the exploitation of businese through the exploitation of busines

s opportunities. s opportunities. Amit & Zott (SMJ, 2001, p.511)Amit & Zott (SMJ, 2001, p.511)

The Content of Business Model

• The good or information that are being exchanged

• The resources and capabilities that are required to enable the exchange

• E.g., transparency of transaction, vertical & horizontal expansion of product/service, the degree of customization, technologies of transaction

The Structure of Business Model

• The parties that participate in the exchange• The ways in which these parties are linked• The order process and the adopted

exchange mechanism• E.g., the providers of complementary

assets, transaction speed, mode, simplicity, safety & reliability, integration of online & offline supply chains

The Governance of Business Model

• The ways in which flows of information, resources, and goods are controlled by the relative parties

• The incentives for the participants in transactions

• E.g.,cooperative and shared incentive among allied partners, commitment and investment of co-specialized assets, loyalty maintenance

E-business Models

A description of roles and relationships A description of roles and relationships among a firm’s consumers, customers, among a firm’s consumers, customers, allies, and suppliers that identifies the allies, and suppliers that identifies the

major flows of product, information, and major flows of product, information, and money, and the major benefits to money, and the major benefits to

participants, almost, participants, almost, over Internetover Internet . . (Weill & Vitale, (Weill & Vitale, Place to SpacePlace to Space, 2001, p.34), 2001, p.34)

Operational Internet business models

• Brokerage model—virtual mall, exchange hub, media packager, smart agent, catalogue

• Advertising model—ads banner on portal, virtual mall• Infomediary model—recommender/registration syste

m• Merchant model—catalogue, virtual retailer• Manufacturing model—online sales by physical vend

ors• Affiliate model—click-through model• Community model—loyalty programs• Subscription model—versioning contents with discri

mination• Utility model—customized add-on functions

Indicators of survival business model

• Customer value—segmentation, value proposition• Scope—core or by-products• Pricing—attractive willingness-to-pay prices• Revenue sources—exploitation & leverage of

complements• Connected activities—the complete value chain• Construction—IT infrastructure, organization, and

key champion • Capability—acquisition of necessary competence• Sustainability—setup firewall to prevent imitation

Customer value

• Differentiation– Functional property, – Time/place convenience, – Completeness of service, – Product proliferation, – Reputation, – Relatedness

• Cost advantage• Niche—distinctiveness

Scope

• The profitable targeting– Geography – Demographics – Product lines– Segments– Diversification – Focus

Pricing

• Calculate the average cost, marginal cost, fixed cost

• Market share vs. profit margin vs. growth rate

• Lock-in effects & switching costs• Menu price, 1-1 bargaining, auction,

reverse auction, barter

Revenue sources

• Analysis of the whole process of service or product usage

• Complements provision for utility enhancement

• Enablers for facilitating transactions• Incentive mechanism for increasing

demander exclusiveness & rivalry• Measurement criteria for profit evaluation

Connected activities

• R&D, product design, manufacturing, testing, marketing, service, etc., that is the value chain

• Coherent objective• Mutual reinforcement• Cost-benefit analysis• Spill-over of core competence• Innovative arrangement for distinctiveness • Coordination of scheduling and deployment• Life cycle management

Construction

• IT infrastructure—Internet & MIS• Functional organization structure—work, ta

sk, job, and project • System—information flow/gatekeeper, deci

sion delegation, incentive/motivation mechanism

• Context & culture—innovation climate, e.g., Sony’s “neyaka”, an optimistic guy with open mind and broad interests, a generalist not a specialist

Capability

• Resources—tangible, intangible, and human assets

• Competencies—monopolistic, scalability• Competitive advantage—irreversibility, the

case of path dependence, the case of specificity

Sustainability

• Block/deterrence strategy– Private/public court protection

• Run strategy– Pioneer, leadership

• Team-up strategy– Embrace and extend– Co-option & co-optition– Leverage between co-specialized assets

Further thinking

• Why does AOL want to merger Time-Warner?

• Why does Amazon install her own warehouse and logistics?

• Why had Yahoo! transform from a search engine into a media portal?

• Why does Disney still survive in the Internet era?

Dis-integration & reconfiguration of electronic channels

• Open Internet platform – Decreasing switching cost – Shifting lock-in value layers– Emerging digital channel—substitution or supplements?

• E-Stamp—online stamp printing from personal printers• Vstore.com—online selling personal preferences as a new busines

s

• Where is the sticky value?– ISPs or ICPs– The sources of appropriability– The valuable content generators

The evolution of Yahoo! Business model

• Searching engine website• Content packager website• Sticky/personal content website• Communication portal website• Commerce portal website• Media convergence website

Clicks & bricks

• Internet extension– Merrill Lynch, Charles Schwab, Toys ‘R’ Us,

Wal-Mart, B&N bookstore, etc.• Amazon + Toys ‘R’ Us—combination into t

he whole product, & complete service• Integration between virtual clicks and supp

orting bricks– Dinners by parcel post?– E.g., Webvan, HomeGrocer

• Survivability? Sustainability?

Digital information products

• The impact of digitalized content delivered through Internet– Bypassing the traditional channels– Versioning the digital products– Bundling & unbundling products– E.g., MP3, MP3.com

• The emerging P2P business model– Direct interaction among customer communiti

es– Napster.com

The emerging services of information flow management

• Akamai—Internet flow management– Optimizing response and continuous accessib

ility– Necessary decentralized proxy servers

• Inktomi—fast cache management– Decreasing redundancy– Increasing response

• Exodus—outsourcing management– Server housing and sharing – Enhancing the web reliability