Internet Business Models

1. Internet Business Models Hung, Chia-Linag 2006, Spring

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

3. 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 exchange • C2B • Actively queried by demanders and response from business suppliers • Reverse auction, e.g., priceline.com

4. Classifying B2B e-Hub What business buy Operating inputs Manufacturing inputs Systematic sourcing Catelog Hubs: Chemdex, SciQuest.com PlasticsNet.com MRO Hubs Ariba, WW Crainger, MRO.com BizBuyer.com How Business Buy Spot sourcing Exchanges E-steel, Altra Energy PaperExchange.com IMX Exchange Yield Managers Employease Adauction.com CapacityWeb.com

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

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

7. B2C 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

8. 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.

9. 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)

10. 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

11. 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

12. 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

13. 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)

14. 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

15. 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

16. Customer value • Differentiation • Functional property, • Time/place convenience, • Completeness of service, • Product proliferation, • Reputation, • Relatedness • Cost advantage • Niche—distinctiveness

17. Scope • The profitable targeting • Geography • Demographics • Product lines • Segments • Diversification • Focus

18. 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

19. 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

20. 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

21. 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

22. Capability • Resources—tangible, intangible, and human assets • Competencies—monopolistic, scalability • Competitive advantage—irreversibility, the case of path dependence, the case of specificity

23. 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

24. 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?

25. 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

26. 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

27. 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, HomeGrocer • Survivability? Sustainability?

28. 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 communities • Napster.com

29. 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