E Commerce Business Models and Concepts

1. E Commerce Business Models and Concepts Tweet Tweet!

2. New Trends and Technologies • 2010 – 174 Million people would use search engines to conduct 15-17 billion searches online • 150 million people would watch 30 billion videos online • 104 million people would read blogs • Are we this starved for communication options? • Twitter was the phenomena of the moment in which “tweeple” express themselves in 140 characters or less … “friends’ here are “followers” • Twitter has produced little revenue and zero profits although $160 million has been invested … how can this be exploited for commercial purposes?

3. Twitter • Is the buzz social network that is the web-based version of cell phone based texting • Podcasting company Odeo got the idea in a search to increase revenues and eventually spun it into Twitter.com • The idea of Twitter is to marry the short text message with the Web to create social networks • No fees, no charges or installation – you just tweet a short update on your cell phone and your friends can keep up with your activities, locations, etc. • Over 145 M registered users … great for updates during the World Cup, Iranian /Egyptian rebellions, death of Steve Jobs … 200 M tweets sometimes dispatched almost simultaneously • 80% Tweets generated by 10% users and their churn rate is 60% … 40% users remain a month or more

4. Terms for Determining Business and Commercial uses • Investors include • Amazon founder • Benchmark Capital • Spark Capital • Company Valuation $1B … why?? • Churn rates – high .. People feeling too connected to acquaintances? • Unique users • Number of tweets

5. Company Valuation • Primary Asset – user attention and audience size • 1. “get it now” access • 2. database of information from Tweets! • Additionally … powerful tool for news • Valuation based on the commercial uses just as is Facebook … but what does Twitter produce of commercial value?

6. News Reports Via Twitter The World Reports one individual at a time ….

7. How do I Monetize these Assets? Advertising!! Promotional Tweets – Red Bull and Starbucks

8. Monetization • @early bird accounts • Users follow for special offers … twofers for films, fashion, beauty products • “flash marketing” to influentials • Promotional Trends • what’s hot, what are people talking about? • Twitter promotes this as reflective of what people are tweeting

9. Temporal Real Time Searches • Twitter offers something none of the other sites really can .. Real time information .. Agreements with Google, Yahoo, Microsoft enable them to index tweets and enable Internet searches • Who is this service a benefit to and how does it morph into a commercial use? • Dell has opened an @DellOutlet to sell discontinued models and open box computers

10. E-Commerce Business Models • Set of planned activities (business processes) designed to result in a profit in a marketplace • A business plan is the document that describes the firm’s business model • An E-Commerce Model aims to use and leverage the unique qualities of the Internet and WWW to generate profits • Key Elements of the Business Model • Value Proposition – why should the customer by from you? • Revenue Model – How will you earn money? • Competitive environment – who else occupies your intended marketplace • Market Strategy – How do you plan to promote your products or services to attract your TA • Organizational development – what types of organizational structures within the firm are necessary to carry out the business plan? • Management team – what kinds of experience and background are important for the company’s leaders to have?

11. Value Proposition • How does your product or service fulfill a need for the consumer? • What are your competitive advantages? • Why should the customer patronize your firm versus another? • personalization, customization, reduced information search, facilitation of transactions

12. Revenue Model • Describes how the firm will earn money .. • Generate profits and produce an adequate ROI vs. alternative investments • Advertising Revenue Model – website offers a forum for advertisements and receives fees from advertisers. Site attracts high viewership, retain viewers (stickiness) therefore able to charge higher prices • Transaction Fee Revenue Model – fee for enabling or executing transactions (E*Trade) • Sales Revenue Model – derive revenue by selling goods and information or services to customers. LL Bean, Amazon, Gap.com • Subscription Revenue Model – offers users content or services but charges a subscription fee for access to all or some of the offerings. Requirements to be successful involve offering information with high value added (Match.com, consumerreports.com) • Affiliate Revenue Model – receive a referral fee or % of revenue from business resulting from referral. (MyPoints)

13. Market Opportunity • The company’s intended MARKETSPACE (i.e., an area of actual or potential commercial value). • Market Opportunity is defined as opportunities available to the firm in that market space and is usually divided into smaller market niches. • Realistic market opportunity – revenue potential in each of the market niches where you hope to compete • EX: Your company creates software learning systems for sale over the Internet. • Software Training market is $70B – 2 major segments – Instructor led (70%) and Computer Based (30%). Within this 2 niches – small business and Fortune 500 . • Your company is a startup – can’t compete for Fortune 500 … • Your realistic market opportunity is then $6B (smaller business looking for computer based software training that is cost effective • MarketSpace and Market Opportunity in the Software Training Market

14. Competitive Environment • Composed of • Other companies selling similar products and operating in the same marketspace • Companies offering substitute products and services • New Entrants in the marketplace • Influenced by • # of active competitors • how large competitors operations are • market share of the competition • profitability • pricing strategy • Direct Competitors – similar products in the same market segment (brand competitors) • Indirect Competitors – different industries but still compete because products can substitute for one another

15. Competitive Environment • Direct Competitors – similar products in the same market segment (brand competitors) • ex: Coke vs. Pepsi • Indirect Competitors – different industries but still compete because products can substitute for one another • ex: Coke vs. Red Bull (when benefit sought is an energy or caffeine boost) • ex: Coke vs. Iced Tea (when benefit sought is thirst quenching)

16. Competitive Advantage • Produce a superior product and/or bring the product to the market at a lower price than competitors • Does the firm have access to better production capabilities? • Does the firm have more experienced, knowledgeable and/or loyal employees? • Does the firm have a patent? • Superior shipping, supplier or distribution relationships?

17. Competitive Advantage • First Mover advantage – first entry into the marketplace, can lack complementary resources to maintain advantage (financial assets, marketing, management, reputation) • Unfair competitive advantage – advantage based on something others cannot purchase (i.e., brand name). Brands are built upon trust, loyalty, reliability, and quality. • Followers often reap significant benefits .. Learn from production and manufacturing problems of early entrants and pioneers.

18. Competitive Advantage • Perfect markets have no competitive advantages – Full access to information regarding production, research, etc. • Competitive Advantages hard to sustain – i.e., Coke … now being encroached upon by flavored waters, sports drinks, etc. • Some companies leverage their competitive advantages such Amazon using its data base of customers and e-commerce experience to enter the grocery market.

19. Market Strategy and Organizational Development • Plan that the business puts together that lays out how the company will enter a new market ( new customers) or develop a new product. • Focus on each element of the 4Ps • Organizational Development is the plan that describes how the company will organize the work that needs to be completed • Divide work into functional areas, define jobs within these areas, hire accordingly. In small companies or young firms, generalists are often early hires • Initially the eBay founder, Pierre Omidyar, started an online auction site to help his girlfriend trade Pez dispensers .. Soon growth required hires, then functional departments and large numbers of employees!

20. Management Team • Single most important element of the business model • How many managers do you need? • How does experience balance against education? • How do you identify leaders? • What jobs should be filled first? Marketing, finance, production and operations • young companies may need managers with experience in raising money

21. Bus Model Variations Examples Descriptions Revenue Model B 2 C M O D E L S

22. Business Variations Examples Description RevenueModel Model B 2 C M O D E L S