Business Model - Elements and Types

Business model:
Elements and types
What is a business model?

Set of planned activities designed to result in a profit in a
marketplace/marketspace
Not always same as the business strategy
EC business model
Aims to use and leverage the unique qualities of the Internet, the
Web and the mobile platform
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Dr. Satish Krishnan, IIM Kozhikode
Then, what is a business plan?

Describes a firm's business model
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Business model elements
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Element #1: Value proposition

Why should the customer buy from you?
Successful EC value propositions?
Personalization/customization
Reduction of product search, price discovery costs
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Element #2: Revenue model

How will you earn money?
Major types of revenue models?
Advertising
Subscription
Transaction fee
Sales revenue
Affiliate
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Advertising revenue model

A company provides a forum for advertisements and receives fees
from advertisers
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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
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Transaction fees revenue model

A company receives a fee for enabling or executing a transaction
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Sales revenue model

A company derives revenue by selling goods, information, or services
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Affiliate revenue model

A company steers business to an affiliate and receives a referral fee or
percentage of the revenue from any resulting sales
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What is your view?

Which revenue model is more appropriate for
Newly started digital firm?
Digital firm that is being successful for 5 years?
Firms like Google?
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Element #3: Market opportunity

What marketspace do you intend to serve and what is its size?
Marketspace
Area of actual or potential commercial value in which company
intends to operate
Market opportunity typically is divided into smaller niches
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Element #4: Competitive environment

Who else occupies your intended marketspace?
Other companies selling similar products in the same marketspace
Includes both direct and indirect competitors
Some factors influencing competitive environment of a firm?
Number and size of active competitors
Each competitors market share
Competitors profitability
Competitors pricing
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Element #5: Competitive advantage

What special advantages does your firm bring to the marketspace?
Is your product superior to or cheaper to produce than your
competitors?
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Element #6: Market strategy

How do you plan to promote your products or services to attract
your target audience?
Details how a company intends to enter market and attract
customers
Best business concepts will fail if not properly marketed to
potential customers
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Element #7: Organizational development

What types of organizational structures within the firm are
necessary to carry out the business plan?
Describes how firm will organize work
Typically, divided into functional departments
As company grows, hiring moves from generalists to specialists
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Element #8: Management team

What kind of backgrounds should the companys leaders have?
Capabilities of a strong management team?
Can make the business model work
Can give credibility to outside investors
Has market-specific knowledge
Has experience in implementing business plans
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Video case: Deals galore at Groupon

Source: https://www.youtube.com/watch?v=6TpGn47rqBU
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Questions
What features of contemporary e-commerce does Groupon Now!
utilize?
What value does this service provide subscribing merchants? What
value does it provide customers?
What kinds of businesses are most likely to benefit from using
Groupon?
Are there any disadvantages to both customers and merchants in
using Groupon Now?
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B2C
business
models
Before we move on
There will be overlaps between business models
Similar business models appear in more than one sector
Some companies use multiple business models/hybrid model
(e.g., e-bay)
But one model is often dominant
Business models change over time
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Major business models in B2C arena

E-tailer
Community provider (social network)
Content provider
Portal
Transaction broker
Market creator
Service provider
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B2C model 1: E-tailer

Online version of traditional retailer
Revenue model
Sales of goods
Variations
Virtual merchant
Bricks-and-clicks
Catalog merchant
Manufacturer-direct
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Virtual merchant
Online version of retail store, where customers can shop at any hour
of the day or night without leaving their home or office
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Bricks-and-clicks
Online distribution channel for a company that also has physical
stores
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Catalog merchant
Online version of direct mail catalog
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Manufacturer-Direct
Manufacturer uses online channel to sell direct to customer
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B2C model 2: Community provider

Provide online environment (social network) where people with
similar interests can transact, share content, and communicate
Revenue models
Typically hybrid, combining advertising, subscriptions, sales,
transaction fees, and so on
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B2C model 3: Content provider

Distributes information content, such as digital news, music, photos,
video, and artwork
Revenue models
Subscription, pay per download, advertising, affiliate referral
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B2C model 4: Portal

Search plus an integrated package of content and services
Revenue models
Advertising, referral fees, transaction fees, subscriptions
Variations
Horizontal/general
Vertical/specialized (vortal)
Search
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Horizontal/general
Offers an integrated package of content, content-search, and social
network services
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Vertical/Specialized (Vortal)
Offers services and products to specialized marketplace
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Search
Focuses primarily on offering search services
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B2C model 5: Transaction broker

Process online transactions for consumers
Revenue model
Transaction fees
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B2C model 6: Market creator

Create digital environment where buyers and sellers can meet and
transact
Revenue model
Transaction fees
Fees to merchants for access
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B2C model 7: Service provider

Companies that make money by selling users a service, rather than a
product
Revenue models
Sales of services, subscription fees, advertising, sales of marketing
data
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What is your view?

You are the principal of a newly started B2C firm selling apparels for
jumbos (like your instructor! :D). Which business model(s) would you
choose? Why?
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B2B
business
models
Major business models in B2B arena

Net marketplaces
E-distributor
E-procurement
Exchange
Industry consortium
Private industrial network
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B2B model 1: E-distributor

A company that supplies products and services directly to individual
businesses
Owned by one company seeking to serve many customers
Revenue model
Sales of goods
Example: Grainger, the largest distributor of MRO supplies
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B2B model 2: E-procurement

A company that create and sell access to digital electronic markets
Offer purchasing firms a sophisticated set of sourcing and supply
chain management tools
To reduce supply chain costs
Called by different names
B2B service providers
Application service providers
Revenue model
Fees for market-making services, supply-chain management,
fulfillment services
Example: Ariba, a software and IT services company
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B2B model 3: Exchange

An independent digital electronic marketplace where suppliers and
commercial purchasers can conduct transactions
Owned by independent, usually entrepreneurial start-up firms
Revenue model
Fees and commissions on transactions
Example: OceanConnect, provides customized global risk
management services
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B2B model 4: Industry consortia

Industry-owned vertical marketplaces that serve specific industries,
such as the automobile, aerospace, chemical, etc.
Revenue model
Fees and commissions on transactions
Example: Exostar, an online trading exchange for the aerospace and
defense industry
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B2B model 5: Private industrial network

Digital network designed to coordinate the flow of communications
among firms engaged in business together
Typically evolve out of companys internal enterprise system
Revenue model
Cost absorbed by network owner and recovered through
production and distribution efficiencies
Example: Walmarts network for suppliers
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Video case: Ford AutoXchange B2B Marketplace

Source: https://www.youtube.com/watch?v=qyO9QSo0FjU
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Questions
Who do you think would pay the cost for suppliers to put their parts
catalogs onto these marketplaces like AutoXchange? Who should
have paid costs?
What were the benefits of these systems and who would reap them?
What role do you think the technology played in the demise of these
systems?
Why would more closed private market places be attractive to both
the industry giants who buy the parts, and the suppliers?
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Readings
Chapter 2 (Laudon)
Rappa, M. (2010). Business models on the Web, Accessed from
http://digitalenterprise.org/models/models.html
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Business model:

Elements and types

What is a business model?

Dr. Satish Krishnan, IIM Kozhikode

Then, what is a business plan?

Dr. Satish Krishnan, IIM Kozhikode