I211 eCommerce Systems. Business Models. Content & Learning Outcomes. Content Eight key elements of a Business Model Value Proposition Revenue Model Market Opportunity Competitive Environment Competitive Advantage Market Strategy Organisational Development Management Team.
Content & Learning Outcomes Content Eight key elements of a Business Model Value Proposition Revenue Model Market Opportunity Competitive Environment Competitive Advantage Market Strategy Organisational Development Management Team Learning Outcomes Describe the eight key elements of a business model Describe the different types of revenue models Describe the different concepts associated with competitive advantage
eCommerce Business Model Business Model A business model is a set of planned activities designed to result in a profit in a marketplace. eCommerce Business Model A business model that aims to use and leverage the unique qualities of the Internet and World Wide Web
eCommerce Business Model Eight Key Elements of a Business Model
Value Proposition Business Model Concept 1
Value Proposition A value proposition defines how a company’s product or service fulfils the needs of customers Before Amazon.com customers would travel to a bookstore to get a book. If the book wasn’t in stock, customers would have to wait days or even weeks, then return to the store. Amazon.com allows customers to shop for virtually any book from home, 24 hours a day, and know immediately whether it’s in stock and when it will arrive. Amazon’s primary value propositions are unparalleled selection and convenience
Value Proposition In many cases companies develop their value proposition based on current market conditions or trends Starbucks’ founders saw the growing interest in and demand for coffee bars Starbucks watched the market and then developed their value proposition to meet what they perceived to be consumers’ demand for certain products and services
Revenue Model Business Model Concept 2
Revenue Model Revenue Model A company’s revenue model describes how the company will earn revenue, generate profits, and produce superior return on invested capital. Profits alone are not are not sufficient to make a company successful. In order to be considered successful, a company must produce returns greater than alternative investments
Revenue Model Successfulness? 1 year $10,000 Set Up Business $1000 Expenses $1100 Income $100 Profit 5% Interest $500 Profit $10,000 Put in Bank
Revenue Model Advertising Revenue Model A company provides a forum for advertisements and receives fees from advertisers Usually websites that are able to attract the greatest (or specialised) viewership and are able to retain user attention (i.e. keep them coming back, also referred to as stickiness) CNET.com
Revenue Model Subscription Revenue Model A company offers its users content or services and charges a subscription fee for access to some or all of its offerings Users normally don’t want to pay for content, to overcome this the content must be perceived as high value E.g. Xbox Live, WoW, Genealogy.com
Revenue Model Transaction Fee Revenue Model A company receives a fee for enabling or executing a transaction A common example are online auction websites that take a small transaction fee from sellers every time a sale is made E.g. TradeMe, eBay, E*Trade
Revenue Model Sales Revenue Model A company derives revenue by selling goods, information, or services This can be considered the traditional revenue model has been in use before the online business environment (i.e. get money for selling stuff) E.g. Amazon, Dell, HP, Apple iTunes, etc
Revenue Model Affiliate Revenue Model A company steers business to an affiliate and receives a referral fee or percentage of the revenue from any resulting sales Members of the online MyPoints rewards program earn points by shopping at affiliated online businesses Basically like an online version of FlyBuys
Revenue Model Summary of Revenue Models
Market Opportunity Business Model Concept 3
Market Opportunity Market opportunity refers to the company’s intended marketspace and the overall potential financial opportunities available to the company in that marketspace Marketspace The area of actual or potential commercial value in which a company intends to operate This can also be divided into smaller market niches
Market Opportunity The PC marketspace can be divided into smaller niche markets. The question is which area would should we compete in to make the most money?
Competitive Environment Business Model Concept 4
Competitive Environment Competitive environment refers to the other companies operating in the same marketspace selling similar products How many? How big? Who has what market share? Are they profitable? How do they price? Too many competitors may mean the market is saturated and it could be difficult to become profitable A lack of competitors may mean there’s an untapped niche market, or that the markets been tried but has been found unprofitable
Competitive Environment Direct Competitors Direct competitors are companies that sell products and services that are very similar and into the same marketspace. E.g. TradeMe, Ebay.co.nz, Sella.co.nz Indirect Competitors Indirect competitors are companies may be in different industries but compete as their products can be substituted for one another E.g. Air New Zealand, Intercity Buses, Tranzscenic Different industries but offer alternative means of transport to potentially the same customers
Competitive Advantage Business Model Concept 5
Competitive Advantage Competitive Advantage is achieved when companies can produce a superior product and/or bring the products to market at a lower price than most or all of their competitors Asymmetry can help create a competitive advantage This occurs when one particular company has more resources than its competitors E.g. iTunes – Steve Jobs had the Apple brand, the iPodhardware, and a host of labels all committed to iTunes.
Competitive Advantage First Mover Advantage A competitive advantage in a market is often created by the company that was the first into the marketspace with a product or service. If first movers develop a loyal following or a unique interface that is difficult to imitate, they can sustain their first-mover advantage for long periods E.g. TradeMe, Microsoft Windows, iPad
Competitive Advantage Complementary Resources In a company what’s to sustain their first mover advantage they must have good complementary resources Complementary resources are not directly involved in the production of the product but are required for success, such as marketing, management, financial assets, and reputation Many first movers often lack these complementary resources
Competitive Advantage Unfair Competitive Advantage Some competitive advantages are called ‘unfair’. An unfair competitive advantage occurs when one company develops an advantage based on a factor that other firms cannot purchase Unfair does not mean illegal E.g. the Apple, iPod, iTunes set up
Competitive Advantage Perfect Market In a perfect market there are no competitive advantages or asymmetries because all companies have equal access to all the factors of production In reality actual markets are imperfect and asymmetries lead to competitive advantages However, most competitive advantages don’t last long
Market Strategy Business Model Concept 6
Market Strategy Market Strategy A market strategy is the plan you put together that details exactly how you intend to enter a new market and attract new customers Involves all the marketing strategies covered earlier in the semester
Organisational Development Business Model Concept 7
Organisational Development Organisational Development Although many businesses (particularly eCommerce companies) are started by a lone visionary it is rare that a single person is able to grow that business into a multi-million dollar company An organisational development plan describes how the company will organise the work that needs to be accomplished
Organisational Development Organisational Development As the company grows, work will need to be divided (usually) into functional departments, e.g. production, marketing, finance, customer support, etc. E.g. Pierre Omidyar created eBay to help his girlfriend trade PEZ dispensers. After a few months the volume of business grew beyond what he could handle. As a consequence, he began hiring people with more business experience.
Management Team Business Model Concept 8
Management Team Management Team The management team are the employees of the company responsible for making the business model work A strong management team gives a lot of credibility to outside investors, immediate market-specific knowledge, and valuable experience Google CEO Eric Schmidt Previously, Novell CEO, Sun Microsystem CTO (Java), XEROX
Review Can you: Describe the eight key elements of a business model? Describe the different types of revenue models? Describe the different concepts associated with competitive advantage?