E-business models

1. E-business models Making sense of the Internet business landscape

2. Unprohibited want • Massive channel disintermediation? • Delineation between technology producers and technology users? • Conducts of Dot-com • Performance of vogue virtual integrations?

3. The “new” economics of information • Evan & Wurster • Less about any specific new technology than a new behavior for reaching critical mass; • The universal pervasion of open standards; • The precipitate changes of the structure of entire industry and the ways companies compete • M. Porter: • Return to the fundamental principles underlying the novelty of phenomena

4. Operations of new business • Be shaped and reshaped by customers and the business community • Emerging through evolution and adaptation • A flexible Value web (network) dominated a single/dedicated value chain

5. What is a model? • The properties of models • Enable study of the structure of a complex system, relationships among structural elements, assumptions, and a description of the system in action • Can be built before the real system to help predict how the system might respond if we change the structure, structure, relationships, and assumptions • A model in the world of business • A description of a complex business that enables study of its structure, the relationships among structural elements, and how it will respond in the real world

6. 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)

7. 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

8. 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

9. 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

10. 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)

11. E-business models & examples • Distributors models • Focused distributor models • Retailer, marketplace, aggregator/infomediary, exchange, E*trade, Amazon • Portal models • Horizontal, vertical, affinity, AOL, Yahoo!, iVillage • Producer models • Manufacturers, service providers, educators, advisors, information/news service, custom suppliers, Ford, GE, Boeing, Ernst & Yong, WSJ, McGraw-Hill

12. E-business models & examples (cont.) • Infrastructure provider models: to construct business that deliver the technology infrastructure • Focused distributor • Infrastructure retailer/marketplace/exchange, CompUSA, Staples, IngramMicro, Egghead • Portal • Horizontal/vertical infrastructure portals, AOL, AT&T, Oracle • Producer • Equipment/component manufacturers, infrastructure software/services firms, IBM, Dell, Compaq, Oracle, Ariba, MS, Doubleclick • Custom software/hardware suppliers, Dell, Andersen Consulting

13. Does Adam Smith’s law still work? • Three technological prerequisites to facilitate market economy • Excludability • Rivalry • Transparency • Could Internet technologies promote above three properties for the information-based economy? • If not all, some business mechanisms will be needed

14. 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

15. Business models: a matter of perspective • The customer perspective • Efficiency, responsiveness, security • Anything valuable more than social contact & face-to-face interactions? • The business community perspective • Assets investment: current/tangible/intangible assets • Revenue flow: commerce/content/community/ infrastructure revenue sources • Cost allocation: M/I/T categories

16. Crafting an e-business web • Attach to the gateway • Leverage with the complements • Search the common interface • Enhancement on functionality • Expansion of diversity on existing businesses • Extension on new businesses • Exit for far-leap

17. Extended readings • Evans, P. and T. Wurster (1997), “Strategy and the New Economics of Information,”Harvard Business Review, 75(5), Sept.-Oct., pp.70-83. • Porter, M. E. (2001), “Strategy and the Internet,”Harvard Business Review, 79(3), March, pp.62-78.

18. Referred papers • Chatterjee, Debabroto, Rajdeep Grewal and V. Sambamurthy (2002), “Shaping Up for E-commerce: Institutional Enablers of the Organizational Assimilation of Web Technologies,”MIS Quarterly, Volume 26, Number 2, pp.65-89. • Fichman, R. G. and Kemerer C. F. (1999), “The Illusion Diffusion of Innovation: An Examination of Assimilation Gaps,”Information Systems Research, Sept. pp, 255-275. • Kline, R. B. (1998), Principles and Practices of Structural Equation Modeling, The Guilford Press, New Work.

19. Referred papers (cont.) • Grover, Varun, and Pradipkumar Ramanlal (1999), “Six Myths of Information and Markets: Information Technology Network, Electronic Commerce, and the Battle for Consumer Surplus,”MIS Quarterly, Volume 23, Number 4, pp.469-495. • Stigler, George (1961), "The Economics of Information", Journal of Political Economy.

20. Distorted Market Signals • Attracting the base of customers by heavy discounts rather than true costs • Click-through is not the same as cash • Booming by the curiosity rather than utility • Revenue inflow from stocks rather prices • Enjoying subsidized inputs • Masking true costs but transferring them to shareholders • Understatement of the need of capital for asset building

21. The Illusion of Prosperity • Dot-Coms multiplied so rapidly because of • Every low barriers to entry • Raising capital without having to demonstrate performance and viability. • Just going through a period of transition • Return to the fundamentals eventually

22. A Return to Fundamentals • Industry structure • Five/six forces analysis • Competitors/complementarities • Customers • Suppliers • Substitutes • Entrants • Sustainable competitive advantage • Operational effectiveness • Strategic positioning