E commerce business models and concepts chapter 2

BBA 3331, Introduction to E-commerce 1

Course Learning Outcomes for Unit II Upon completion of this unit, students should be able to:

2. Discuss components of the online business model.

4. Develop strategies for running an e-commerce company.

Reading Assignment Chapter 2: E-commerce Business Models and Concepts

Unit Lesson In Unit II, we examine the concept of using a business model to help define our e-commerce business strategy. The term business model is a “buzz” word that has been around for many years and received more prominence during the dotcom boom in the early 2000s. Simply put, a business model is what you use to describe how the proposed e-commerce site will generate revenue (Ovans, 2015). When building a business plan, we find the model that best represents our business strategy to use in the development of our business plan. Not all e-commerce sites began by using a business model or plan. One of the top ranking social-networking sites, that is now generating revenue, began as something else. According to its creator, Mark Zuckerberg, Facebook began as a college project, and he credits the success of Facebook to a lack of lofty ambitions in the early stages (Taylor, 2012). According to Forbes magazine (2015), in 2015 Zuckerberg was worth $41.2-billion. In 2014, Facebook’s revenue climbed 58% to more than $12 billion (Dolan & Kroll, 2015). It seems fair to say that his college project was a success, which is at least partially due to the business model. We classify Facebook as a business-to-consumer (B2C) community provider. This e-commerce type covers e-commerce sites that generate revenue by combining advertising, subscriptions, sales, transaction fees, and affiliate fees (Griffin, 2014). The B2C community provider is just one type of e-commerce site, and it has become one of the most recognized types of e-commerce businesses. The one thing all successful e-commerce types have in common is that they help to identify the right business model for the business plan. Every idea or concept for an e-commerce business will need to choose the right business model that makes the best use of the Internet, the Web, and mobile technologies. Another type of e-commerce business model is an e-tailer. E-tailers are electronic retailers—they offer goods and services to customers. E-tailers are the most common of e-commerce models while also representing the majority of e-commerce on the Internet. Since e-tailers makeup the majority of e-commerce, the market is very, very competitive. You can visualize how the business model for each type, although similar, is different in how each type will generate a sustainable revenue stream. The business model must provide a clear rationale on how the business will seize, generate, and deliver value. When an organization selects a business model, that model often sets the stage for how the business will seamlessly operate and function daily (Ranjan, 2013). A business plan needs a solid foundation, and a business model provides the foundation used to build, present, and “sell” the business plan. In other words, the business model and the business plan should intuitively support each other. The reason so many e-commerce sites fail is due to either choosing the wrong business model or choosing no business model at all.

UNIT II STUDY GUIDE

The Online Business Model

BBA 3331, Introduction to E-commerce 2

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Choosing a business model is one of the most important decisions that an e-commerce entrepreneur can make. Every business model consists of the same eight components, and one strategy to approach such an important decision is to integrate the eight components into your decision-making process (Ranjan, 2013). The following list contains a brief description for each of the eight components.

 Value proposition: This is the promise by the business that a value will be delivered and a belief by the customer that a value will be experienced. This is the main reason a customer agrees to do business with the organization. The product or service appeals to the client’s highest decision making process.

 Revenue model: This is the framework for how the organization will generate revenue. A target source is identified, a value is created for a product or service, and the selling price is determined.

 Market opportunity: This includes any need, want, or product demand not being realized by any competitor. It is the result of a favorable trend suddenly appearing while bringing preparedness and opportunity together.

 Competitive environment: This is the external system in which the organization has to compete. It includes the conditions resulting from the number of competitors selling similar products or services. The more competitors, the stronger the competition.

 Competitive advantage: What allows one competitor to outperform another? Ease of access to resources, cheaper production cost, and new technology are examples of how a competitive advantage can be identified.

 Market strategy: This includes the short-term and long-term goals that define how the organization will create a sustainable competitive advantage and how the organization plans on increasing sales, thereby increasing revenue.

 Organizational development: This is the effective development of an efficient organization structure that can change to become more successful at improving performance.

 Management team: This is the top-level individuals that will run the day-to-day operations of the organization.

Conclusion As with any area of the economy that generates a high level of growth, e-commerce sites have attracted plenty of e-commerce consultants that have a product to sell with the promise of value. Sound familiar? Searching the Internet for information about business models turns up hundreds, if not thousands, of results for e-commerce sites that can provide the expertise, the templates, and the services to start your very own e-commerce site. The claims, the examples, and the scenarios are plentiful and impressive. This is an example of a very competitive e-commerce market. There is no get-rich formula, but these sites prey on the hopes and greed of those out to make a quick profit while working from home only a few hours each week. The only ones making a profit are those selling the dream. Although many of the sites do offer helpful tips, with the right research and the right business model, a person can build his or her very own business plan and discover the thrill and tribulations of being an online entrepreneur. Anyone with the right idea and vision can become an e-commerce success. Identify your value, choose the right model, and build your business plan. Remember, a good business plan helps to identify both the strengths and the weaknesses of your business strategy, and it all begins with choosing the right business model.

BBA 3331, Introduction to E-commerce 3

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References Dolan, K. A., & Kroll, L. (Eds.). (2015, August). The richest people in tech. Forbes. Retrieved from

http://www.forbes.com/profile/mark-zuckerberg/ Griffin, D. (2014). Explain the business to consumer model. Retrieved from

http://smallbusiness.chron.com/explain-business-consumer-model-2258.html Ovans, A. (2015, January 23). What is a business model? Retrieved from https://hbr.org/2015/01/what-is-a-

business-model Ranjan, R. (2013, October). 8 key elements of a business model [Web log post]. Retrieved from

http://imtebiz2013.blogspot.com/2013/10/8-key-elements-of-business-model.html Taylor, C. (2012, October). Zuckerberg: Facebook started out as a ‘hobby’ and a ‘project,’ not a company.

Retrieved from http://techcrunch.com/2012/10/20/zuckerberg-facebook-started-out-as-a-hobby-and-a- project-not-a-company/

Learning Activities (Non-Graded) Watch the following YouTube video, which provides some valuable insight into an e-commerce business plan: Oneplanner’s channel. (2011, March 29). Ecommerce business plan [Video file]. Retrieved from

https://youtu.be/twOcKrSQ6Ek The type of e-commerce plays a major role in the consideration of a business model. The following video briefly describes the major types of e-commerce: Hasan, M. (2013, November 12). Major types of e commerce [Video file]. Retrieved from

https://youtu.be/FAyit_s9eY0 Non-graded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information.