Business Models and e-Commerce

1. Business Models and e-Commerce Jason C.H. Chen Professor, MIS School of Business Gonzaga University Spokane, WA 99258 chen@gonzaga.edu

2. Widespread Use on ... • Button • a 13 century invention, took 400 years • Bicycle • appeared in 1818 and took 50 years to catch on • Telephone • invented in 1876, needed 35 years to find the beginnings of a mass market • Television • took 26 years • PCs • took 16 years

3. Internet Society –Each Media Reach to 50 Million • Radio 38 years, • Television 13 years, • Cable TV 10 years, • Internet users only took • 5 years to reach this goal.

4. Business Model vs. Revenue Model • Business model is the architectural configuration of the components of transactions designed to exploit business opportunities. • Revenue model refers to “the specific ways in which a business model enables revenue generation. N

5. Business vs. Revenue Model Business Model Revenue Model Value creation Value appropriation It can be realized through a combination of - subscription fees, - advertising fees, - transactional income (e.g., fixed transactional fees, referral fees, fixed/variable commissions, etc) It describes the way in which a company enables transactions that create value for all participants, including partners, suppliers and customers.

6. What is Business Modeling? • Business modeling is the activity of representing aspects of or concepts from the business in a diagrammatic notation or simulation, using an abstraction to reveal only the desired elements.

7. Four Key Drivers • 1. Efficiency • 2. Complementarities • 3. Lock-In • 4. Novelty

8. 1. Efficiency • Internet makes it possible to increase efficiency in several ways. • Information asymmetries between buyers and sellers • sellers provide information to buyer via Internet • reverse market (buyers …) A business model can unlock hidden value by enhancing transactional efficiencies by enabling: - reduced search costs, - transaction spped, - reduced distribution costs, - reduced inventory costs, etc.

9. 2. Complementarities • Companies can leverage value creation for their products (and services) from other suppliers • be able to play a vital part in building online virtual communities. • be able to capture the benefits from combining online with offline business

10. 3. Lock-in • The ability to prompt users to engage in repeat transactions • creating switching costs (from loyalty programs) • e.g., Amazon’s “one-click” ordering systems • free e-mail services • providing transaction safety • creating the perception of trust • providing customization and personalization

11. 4. Novelty • Innovation has always involved the introduction of novel products or services or processes. • Internet offers limitless possibilities to innovate in the manner in which transactions are enabled - by introducing • new business and • revenue models

12. Table Internet Revenue Models Table Properties of Digital Information that Influence its Economic Value

13. Conclusion • Companies are rapidly changing and evolving their business models in order to adapt to the rapidly changing market conditions. • Traditional or legacy firms may combine their online operations with existing offline business, are well positioned to • draw liquidity (I.e., transaction volume), and • take advantage of complementarities and • create lock-in N