Lecture 07
Electronic Business (MGT-485)
Recap – Lecture 06
• E-Business Models
– Brokerages
• E-shops
• E-Malls
• E-Auctions
• Trading communities
• Virtual communities
• Buyer aggregators
• Classifieds
– Infomediaries
Today’s Contents
• E-Procurement
• Distribution Model
• Portaling
• Collaboration Platforms
• Third Party Marketplaces
• Value Chain Integrators
• Manufacturer Model
• Affiliate Model
• Subscription Model
• Dynamic Pricing Models
E-Procurement
• The internet provides the mechanism for businesses to
procure the raw materials they need to create outputs and to
help run their businesses efficiently.
• E-procurement is the management of all procurement
activities via electronic means.
• Business models based on e-procurement seek efficiency in
accessing information on suppliers, availability, price, quality
and delivery times as well as cost savings by collaborating with
partners to pool their buying power and secure best value
deals.
• E-procurement infomediaries specialize in providing up-to-
date and real-time information on all aspects of the supply of
materials to businesses.
E-Procurement
• Car manufacturer Ford developed an online B2B exchange
that specialises in e-procurement of supplies for a
consortium of US car manufacturers that includes Ford,
Daimler-Chrysler and GM.
• This e-procurement infomediary, called ‘Covisint’, provides
information on the many thousands of potential suppliers of
component parts for the car industry and uses the huge
purchasing power of the consortium to gain best value deals.
• The supply costs to the members of the consortium are
significantly lower compared to the fragmented and
competitive arrangements that existed under traditional
procurement systems.
Distribution Model
• The distributor model brings together product
manufacturers with high volume (e.g. wholesalers)
and retail buyers.
• Buyers benefit from gaining access to catalogues of
manufactured goods and the broker acts as
intermediary between distributors and their
trading partners.
• The buyer can reduce transaction costs by
comparing prices between distributors and finding
the best deals available.
Distribution Model
• An example of a firm specialising in e-
distribution is wipro.com (www.wipro.com)
• wirpo.com uses the internet to provide fully
integrated e-business-enabled solutions that
help to unify the information flows across all
the major distribution processes including
sales and marketing automation, customer
service, warehouse logistics, purchasing and
inventory management, and finance.
Portaling
• A portal is the internet equivalent of a broadcaster.
• Portals are the channels through which websites
are offered as content.
• The control of content can be a source of revenue
for firms through charging firms for advertising or
charging consumers a subscription for access.
• There are different types of portal models and they
include: general portals, personalized portals and
Vortals.
Portaling
General Portal
• General portals carry high volume traffic with millions of
website visitor hits per month.
• Examples include search engines such as Google and
Lycos or content-driven sites such as AOL.
• The high volume of traffic makes it attractive to
advertisers and generates income streams for the portal
owners.
• There is great competition for website traffic and
consumers are invariably offered a number of incentives
to choose a particular portal and remain with it for
future use.
Portaling
Personalized Portals
• To encourage user loyalty beyond offers of free access to
content or free software, some portal owners develop a
customized interface that allows users to personalize the
website.
• The content and website design is geared towards the
tastes and interests of the users.
• The information derived from users is a source of value
to the portal owner as is the volume of traffic that such
personalized portals can generate.
• Examples of personalized portals include My.Yahoo! And
My.Netscape.
Portaling
Vortals
• A vertical portal, or vortal, is a specialized
portal that is designed to attract a particular
market segment.
• Vortals may be set up to attract traffic from
users with similar interests, experiences or
have similar buying habits.
• Owners of vortals can charge advertisers a
premium for access to a target audience.
Collaboration Platforms
• Collaboration platforms provide the technological tools for
information to pass quickly and efficiently between
organizations.
• These tools can be designed for specific functions such as
sharing customer information for joint marketing
ventures, logistics for the tracking of supplies and
inventory between partners or creating an information
environment for the exchange of ideas among design
consultants.
• Businesses that create collaboration platforms charge
users for access and for the tools they use for
underpinning their relationship with partners.
Collaboration Platforms
• Examples of collaboration platforms include
– Account4.com (www.account4.com) an e-business set up
to help automate the business process of firms in the
professional services and IT sectors.
– MatrixOne (www.matrixone.com) sells software tools
that facilitate the sharing of product ideas and designs
among employees, customers and suppliers for global
businesses.
– CoVia (www.covia.com) offers a collaboration platform
for document management, project planning and
personalised interactions solutions for partners, clients
and colleagues in a range of consultancy businesses.
Third Party Marketplaces
• A third-party marketplace is a channel through which firms
can extend their sales pitch to customers by making available
their product catalogue on the website.
• The entire transaction process can be undertaken through the
third-party marketplace since most include applications for
ordering, distribution and payment.
• Some third-party marketplaces are industry-specific and cater
for the needs of clients involved in specific industry activities
or processes.
• For example, spec2000 (www.spec2000.com) is a third-party
marketplace that facilitates the electronic exchange of
technical and business information related to the purchase
and repair of aircraft.
Value Chain Integrators
• Value chain integrators improve the efficiency and quality
of information flows between the elements that comprise
a value chain.
• Microsoft (www.microsoft.com) is a value chain integrator
through its initiative Microsoft Insurance Value Chain.
• This value chain integrator service is aimed at the
insurance industry and comprises many partners including
hardware firms such as EDS and HP as well as
independent solutions vendors.
• These companies use Microsoft products and services to
develop and deliver integrated solutions for the insurance
industry that can increase efficiency and quality of service.
Manufacturer Model
• The manufacturing model brings about the process of
disintermediation in the supply chain by creating a direct line
of communication between manufacturers and consumers.
• Wholesalers and retailers are eliminated from the distribution
process.
• The resulting savings on transaction costs can then be passed
on to consumers in the form of lower prices.
• The manufacturing model is particularly effective when
dealing with perishable goods that could diminish in quality
and value if transported through the entire supply chain.
• Food items such as fish, fruit and vegetables retain their value
over a short timeframe and, therefore, benefit from
compressing the supply chain to reach the consumer quicker.
Affiliate Model
• The affiliate model offers buying opportunities
for internet users across many different websites.
• The firm organizing the affiliate model offers
financial incentives to affiliate partner sites to
participate in the venture.
• An American website befree.com
(www.befree.com) is an example of a firm
specializing in organizing affiliates.
Affiliate Model
• The affiliates provide the purchase-point click through to the
sellers of products.
• The economic viability of an affiliate model depends on the
level of sales that an affiliate generates.
• The more products sold the greater the returns to all parties
concerned.
• However, if no sales are generated there is no cost to the seller.
• The affiliate gets a small percentage of revenue if customers
who browse the affiliate’s site actually buy something from the
seller.
• In essence, the affiliate model helps many other websites to
share revenue with firms who gain sales as a result of other
website’s traffic.
Subscription Model
• Revenue is generated through subscription to access
particular websites.
• To generate subscriptions firms have to offer high value
content to users.
• The majority of websites do not run on a subscription
basis because of the ubiquity of information available and
the low switching costs for consumers.
• If one firm offered content by subscription only, a rival
firm could easily offer free access to the same information
and operate a different pricing model.
• Subscription sites are used where operators own exclusive
rights to valuable content or where there is added service
Dynamic Pricing Models
• The Web has changed the way products are priced
and purchased
• Comparison pricing model
– Web sites using shopping but technology to find the
lowest price for a given item
• Demand-sensitive pricing model
– Group buying reduces price as volume of sales increase
• Name-your-price model
– Name-your-price for products and services
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Dynamic Pricing Models
• Bartering Model
– Individuals and business trade unneeded items for items
they desire
– Ubarter.com, isolve.com
• Rebate Model
– Sites offer rebates on product at leading online retailers in
return for commission or advertising revenues
– eBates
• Free offering model
– Free products and services generate high traffic
– Freemerchant, Start Sampling, FreeSamples.com
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• E-Procurement
• Distribution Model
• Portaling
– General
– Personalized
– Vortals
Summary
• Collaboration Platforms
• Third Party Marketplaces
• Value Chain Integrators
• Manufacturer Model
• Affiliate Model
• Subscription Model
• Dynamic Pricing Models
– Comparison Pricing Model
– Demand Sensitive Pricing Model
– Name Your Price Model
– Bartering Model
– Rebate Model
– Free Offering Model