Internet Business Models Hung, Chia-Linag 2006, Spring

Internet Business Models Hung, Chia-Linag 2006, Spring

Objectives • Internet commerce patterns • Business models • E-business models • Survival indicators

Internet commerce linkage • B 2 B – Business hub (exchange) for equipments, material, operation, maintenance, etc. , on the Internet • B 2 C – Direct sale to customer over Internet • C 2 C – Customer community for information/product exchange • C 2 B – Actively queried by demanders and response from business suppliers – Reverse auction, e. g. , priceline. com

Classifying B 2 B e-Hub MRO Hubs Ariba, WW Crainger, MRO. com Biz. Buyer. com. S p o t s o u rc in g S y s te m a tic s o u rc in g H o w B u s in e s s B u y Operating inputs Manufacturing inputs. What business buy Catelog Hubs : Chemdex, Sci. Quest. com Plastics. Net. com Yield Managers Employease Adauction. com Capacity. Web. com Exchanges E-steel, Altra Energy Paper. Exchange. com IMX Exchange

Emergence of aggregator—the forward aggregator Direction of aggregation Ingram Micro Buyers E-hub Distributors Large suppliers Compaq IBM Cisco Microsoft Fulfillment Call center Financing Configurators

Emergence of aggregator—the reverse aggregator Direction of aggregation FOB. com Small buyers. E-hub. Distributors Large suppliers Dupont Dow Ashland 3 M Fulfillment Inspection Receivables Financing

B 2 C e-commerce • Internet direct sale – Migration from physical enterprise to virtual web—Dell – Pure virtual e-commerce—Amazon. com, • Cooperate with physical retailer • Internet intermediary – Information aggregator— 104. com

C 2 C e-commerce • Community – Information portal/exchange centers, pchome. com, Yahoo! – Interest clubs, i. Village. com, youthwant. com • Auction – Used product bazaar, e. Bay. com, u. Bid. com • P 2 P – Napster, Gnutella, etc.

What is the so-called business model? A business model depicts the content, structure, and governance of transactions designed so as to create value through the exploitation of business opportunities. 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 among a firm’s consumers, customers, allies, and suppliers that identifies the major flows of product, information, and money, and the major benefits to participants, almost, over Internet . . (Weill & Vitale, Place to Space , 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 system • Merchant model—catalogue, virtual retailer • Manufacturing model—online sales by physical vendors • Affiliate model—click-through model • Community model—loyalty programs • Subscription model—versioning contents with discrimination • 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, task, job, and project • System—information flow/gatekeeper, decision 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 business • 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 the whole product, & complete service • Integration between virtual clicks and supporting bricks – Dinners by parcel post? – E. g. , Webvan, Home. Grocer • 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. , MP 3. com • The emerging P 2 P business model – Direct interaction among customer communities – Napster. com

The emerging services of information flow management • Akamai—Internet flow management – Optimizing response and continuous accessibility – Necessary decentralized proxy servers • Inktomi—fast cache management – Decreasing redundancy – Increasing response • Exodus—outsourcing management – Server housing and sharing – Enhancing the web reliability