Understanding Business Models and Revenue Models in E-Commerce
This document explores the evolution and significance of business and revenue models in the digital economy. By analyzing historical examples of technology adoption and media reach, we illustrate how businesses adapt to changing market conditions. Key drivers such as efficiency, complementarities, lock-in, and novelty highlight how companies can create value and generate revenue. The discussion emphasizes the necessity for firms to evolve their models to leverage online opportunities, enhance transactional efficiencies, and foster user engagement, ultimately leading to sustained growth in a competitive landscape.
Understanding Business Models and Revenue Models in E-Commerce
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Presentation Transcript
Business Models and e-Commerce Jason C.H. Chen Professor, MIS School of Business Gonzaga University Spokane, WA 99258 chen@gonzaga.edu
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
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.
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
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.
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.
Four Key Drivers • 1. Efficiency • 2. Complementarities • 3. Lock-In • 4. Novelty
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.
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
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
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
Table Internet Revenue Models Table Properties of Digital Information that Influence its Economic Value
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
