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Classification of E-Commerce Firms Professor Joshua Livnat, Ph. D. , CPA 311 Tisch Hall Classification of E-Commerce Firms Professor Joshua Livnat, Ph. D. , CPA 311 Tisch Hall New York University 40 W. 4 th St. NY NY 10012 Tel. (212) 998 -0022 Fax (212) 995 -4230 [email protected] nyu. edu Web page: www. stern. nyu. edu/~jlivnat 1

Classifications • Classification by seller/buyer • Classification by product or activity • Classification by Classifications • Classification by seller/buyer • Classification by product or activity • Classification by sources of revenues 2

Classification by seller/buyer • Business to Consumer (B to C) – Southwest Airlines generates Classification by seller/buyer • Business to Consumer (B to C) – Southwest Airlines generates over 15% of its revenues from its online site. http: //www. southwestairlines. 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/ 3

Classification by product or activity 4 Classification by product or activity 4

Classification by Revenue Sources • Revenues from selling products or services – Traditional sales 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/ 5

Advantages of Classifications • Classifications by seller/buyer emphasize the markets in which the firm 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). 6

Warning • The Following Definitions of Various Business Models are not mine. • They 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 7

Brokerage • Bringing buyers and sellers together – Buy/sell fulfillment • Online stock trading Brokerage • Bringing buyers and sellers together – Buy/sell fulfillment • Online stock trading – Market exchange • B 2 B (metals exchange) – Virtual mall • Internet fashion mall – Auction broker • E-Bay – Search agent • My Simon, Dealtime • Fee per transaction 8

Advertising • Free content or services to users. Content (service) providers get advertising revenues. 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. 9

Infomediary • Collecting and selling data about consumers, interests and buying habits. • Sharing 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). 10

Merchants • Wholesalers and retailers on the Web. – Web-based only, with no brick Merchants • Wholesalers and retailers on the Web. – Web-based only, with no brick and mortar operations. – Catalog services • New form of direct mail – B&M on the Web • Staples – Digital content • Music • Software 11

Manufacturer • Manufacturer bypasses the wholesaler to reach final customer. – Dell • Personalization Manufacturer • Manufacturer bypasses the wholesaler to reach final customer. – Dell • Personalization – Flowerbud • Faster delivery • May cause distribution channel conflicts – Airlines and travel agents 12

Affiliate • Referring to other sites • Similar to Yellow Pages or referral fees 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. 13

Community • Creating a community of similar users. – Soliciting donations from users and 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. 14

Subscription • Pay for content • General reluctance to pay for content on the 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 15

Utility • • Pay per use or per time Similar to Pay Per View 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 16

Mixture of Business Models • Most E-Commerce firms have a mixture of business models 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 17

The Business Model • Identify the value drivers: – Number of visitors – Number 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. 18

Sources of Information • Forms filed with the SEC (http: //www. sec. gov : Sources of Information • Forms filed with the SEC (http: //www. sec. gov : /) – Registration statement – Form 10 -K – Form 10 -Q – Proxy statement – Special reports Company’s own Web site http: //www. aol. com/ http: //www. corp. aol. com/ • Investment research • Tracking organizations http: //www. mediametrix. com 19

Long-Term Business Models • Surviving advertising models – High volume free content services • 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 20

Long-Term Business Models • Surviving brokerage models – Only if B&M do not offer Long-Term Business Models • Surviving brokerage models – Only if B&M 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)? 21

Long-Term Survival • Depends on the long-term tradeoff between revenues and costs. • Cheap 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. 22

Summary • Classifications help think about the business model. • Classifications also help in Summary • Classifications help think about the business model. • Classifications also help in assessing the long-term viability of the business. 23