Business models in e-commerce
A consideration of the different business modelsmade available through e-commerce is
of particular importance to both existing and start-up companies. Venkatraman (2000)
points out that existing businesses need to use the Internet to build on current business
models while at the same time experimenting with new business models. New business
models may be important to gain a competitive advantage over existing competitors and
at the same time head off similar business models created by new entrants. For start-ups
or dot-coms the viability of a business model will be crucial to funding from venture
capitalists. But what is a business model? Timmers (1999) defines a ‘business model’ as:An architecture for product, service and information flows, including a description of the
various business actors and their roles; and a description of the potential benefits for the
various business actors; and a description of the sources of revenue.
It can be suggested that a business model for e-commerce requires consideration of
the marketplace from several different perspectives:
Does the company operate in the B2B or B2C arena, or a combination?
How is the company positioned in the value chain between customers and suppliers?
What is its value proposition and for which target customers?
What are the specific revenue models that will generate different income streams?
What is its representation in the physical and virtual world, i.e. high-street presence,
online only, intermediary, mixture?Timmers (1999) identifies no less than eleven different types of business model that
can be facilitated by the web as follows:1 e-shop– marketing of a company or shop via the web;
2 e-procurement– electronic tendering and procurement of goods and services;
3 e-mall– a collection of e-shops such as BarclaySquare (www.barclays-square.com);
4 e-auctions– these can be for B2C, e.g. eBay (www.ebay.com), or B2B, e.g. QXL
(www.qxl.com);
5 virtual communities– these can be B2C communities such as Habbo Hotel for
teenagers (www.habbo.com) or B2B communities such as Clearlybusiness
(www.clearlybusiness.com/community) which are both important for their potential
in e-marketing and are described in the virtual communities section in Chapter 6;
6 collaboration platforms– these enable collaboration between businesses or individuals,
e.g. E-groups (www.egroups.com), now part of Yahoo! (www.yahoo.com) services;
7 third-party marketplaces– marketplaces are intermediaries that facilitate online trad-
ing by putting buyers and sellers in contact. They are sometimes also referred to as
‘exchanges’ or ‘hubs’;
8 value-chain integrators– offer a range of services across the value chain;
9 value-chain service providers– specialise in providing functions for a specific part of
the value chain such as the logistics company UPS (www.ups.com);
10 information brokerage– providing information for consumers and businesses, often to
assist in making the buying decision or for business operations or leisure;
11 trust and other services– examples of trust services include Internet Shopping is Safe
(ISIS) (www.imrg.org/isis) or TRUSTe (www.truste.org) which authenticate the qual-
ity of service and privacy protection provided by companies trading on the web.
Figure 2.12 suggests a different perspective for reviewing alternative business models.
There are three different perspectives from which a business model can be viewed. Any
individual organisation can operate in different categories, as the examples below show,MARKETPLACEBusiness model
A summary of how a
company will generate
revenue, identifying its
product offering, value-
added services,
revenue sources and
target customers.