1 module 4 : crafting business models matakuliah: j0422 / manajemen e-corporation tahun: 2005 versi:...

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MODULE 4 :Crafting Business Models

Matakuliah : J0422 / Manajemen E-Corporation

Tahun : 2005

Versi : 1 / 2

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Learning Outcomes

In this chapter, we will study:

Difference between Old Economy and New Network Economy.

What is including in business models?

What is different between five type of focused distributors business model.

How Portal works?

We will learn about six categories of producers business model

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Outline Topic

Business Models : Something Old and Something New

Classifying Business Models.

Businesses Built on a Network Infrastructure.

Businesses that provide Networked Infrastructure.

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Content

Crafting the Network Economy Business Model. Some of the best innovations involve a paradigm shift, a real

mental change of assumptions and certainties. In fact, the process of innovating and entrepreneuring is much less about invention or new ideas. It’s much more about rethinking and questioning the assumptions people already make… The ability to rethink fundamental assumptions and take what people accept as certain and question it [is the central] talent of being an entrepreneur.

– Scott Cook, Founder of Intuit Inc.

If there is one lesson we can learn from continuing evolution of work and competition in the new economy, it’s this … Change the question and you change the game…

– Slywotsky and Morrison, Profit patterns (NY Times Business, 1999)

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Business Models: Something Old and Something New

Old economy question What business am I in?

New network economy question What is my business model?

Emerging networked technology enable us to create new business model and redefine existing ones. IT can provide flexible channel for procuring and

distributing products and services As well as the tools to create and package content in all its

many forms– Data, voice, video

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Producers Design and build products and services that customer or

market needs• May sell, service, and support the product

Distributors Enable buyers and sellers to connect, communicate, and

transact business.• May assume control of inventory and resell a product,

solution or service (retailers, wholesalers).• May simply act as agents, connecting buyers and suppliers

but no assuming control of inventory (aggregators, marketplaces, and exchanges).

Classifying the Business Models

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Business Built on a Networked Infrastructure

Focus DistributorProvide products and services related to a specific

industry or market niche• E.g. InsWeb and E-Loan as focused distributors

offering products and services within the financial services industry.

• Staples.com was a focused distributor for office products and suppliers.

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Five type of focused distributors business model

Retailer Marketplace Aggregator Exchange Infomediaries

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These five types can differentiated by asking the following questions Does the business assume control of inventory?

Does the business sell online?

Is the price set outside the market, or is online price negotiation and bidding permitted?

Is there a physical product or service that must be distributed?


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Focus Distributors: Retailers

E.g. ToysRus and Staples.com• Assume control of inventory, set a nonnegotiable price to

the consumer, and sell physical products online.

• The primary revenue model is based on product/service sales,

• The cost model includes procurement, inventory management, order fulfillment, and customer service.

http://www.toysrus.com/

http://www.toysrus.com/

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Focus Distributors: Marketplaces

E.g. E-Loan and InsWeb• Sell products and services but do not take control of the physical

inventory.

• Sell products with a nonnegotiable price and complete sales online.

• The revenue model is based on a commission or transaction fee for sale.

• Usually e-link to supplier databases and transaction systems to ensure that transactions can be completed and revenue can be recognized.

http://insweb.com/

http://insweb.com/

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Focus Distributors: Aggregators E.g. Autoweb

• Provide information on products or services for sale by others in the channel.

• Allow a comparison of features and pricing but do not enable buyers and sellers to complete the final transaction

• The revenue model is based on referral fees and advertising

http://autoweb.com/

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Focus Distributors: Infomediaries Internet Securities

• Special type of aggregators that unites sellers and buyers of information-based products, such as news, weather, sports, and financial information.

• Transaction can be completed online because no physical product is involved

• Revenue model include subscription fee, advertising


http://www.securities.com/

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Focus Distributors: Exchanges eBay and FreeMarket

• May or may not take control of inventory• May not complete the final sales transaction online• The key differentiating feature of this model is that the price

is not set; it is negotiated by the buyer and the seller at the time of the sale.

• The revenue, cost, and asset models vary depending on weather the online exchange assumes control of inventory and completes the transaction.

• B2B auction exchanges such as FreeMarket charge transaction fees and supplement revenues with fees for consulting services.

• B2C and C2C exchanges often supplement transactions revenues with advertising revenues

http://www.ebay.com/

http://freemarket.com/

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Advertising and marketing; staff support for auctions (especially B2B)R&D; IT infrastructure; inventory control; R&D; technical infrastructure.

Depends on model

PossiblyYesPossiblyPossiblyExchange ebay.com freemarket.com

Advertising and marketing; R&D; IT infrastructure

Referral fees; advertising and marketing fees

PossiblyNoNoNoAggregator Internet Securities

Advertising and marketing; R&D; IT infrastructure

Transaction fees; service fees; commissions

NoNoYesPossibleMarketplace Eloan.com nsweb.com

Advertising and marketing; physical facilities; inventory and customer services; R&D; IT infrastructure

Product/service sales

YesNoYesYesRetailer ToysRus.com Staples.com

Likely costsLikely RevenuesPhysical product or service

Price set Online

Sell Online

Own Inventory

Models and Examples

Focused Distributor Business Models

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Focused Distributor Business Models Trends

Focused distributors that do not allow customers and business community to transact business online are losing power

Aggregators are evolving into marketplaces and/or vertical portals

Multiple business models are required to ensure flexible and sustainability

Focused distributors are aligning closely with vertical and horizontal portals or are evolving their model to become vertical portals

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Portals “Door way” Early Pre-Internet Portals

– American Hospital Supply’s ASAP– AA Sabre

• Online consumer portals– America Online– CompuServe

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Portals

Types of Portals Horizontal

Vertical

Affinity

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Portals

Horizontal Portals Aol.com , Yahoo and Quicken.com

• Provide gateway access to the Internet’s vast store of content and services.

• Provide a broad range of tools for locating information and websites, communicating with others, and developing online communities of interest.

• Revenue models– Advertising

– Transaction fee from multiple vertical solutions channels.

– Strategic alliances with dial-up and broadband Internet service providers (ISP)

• Cost includes development, maintenance, and operation of infrastructure and content

http://www.aol.com/

http://www.yahoo.com/

http://www.quicken.com/

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Portals

Vertical Portals E.g. Covisint and WebMD

• Provide deep content: a place to conduct business, learn, and shop; communicates and community-building tools

• Often composed of a variety of business models, all of which

generate separate revenue streams.– Advertising and referral fees if transactions are not completed

online

– Service fees and transaction fees may be generated if transactions are completed online

– Subscription fees may also be generated for unique content

http://covisint.com/

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Portals

Affinity Portals iVillage.com and Realtor.com

• Provide deep content, commerce, and community features such as those found in vertical portal but these offerings are targeted toward a specific market segment.

• Some towards a specific gender• The revenue model is similar to vertical portals, cost, and

asset models are based on business model adopted by the portal

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Portals

Advertising, marketing and sales; content/information asset management; R&D; IT infrastructure

Referral fees; advertising and slotting fees

YesFocused on affinity group

PossiblyAffinity Portals Realtor.com iVillage.com

Advertising, marketing and sales; content/information asset management; R&D; IT infrastructure; legacy system integration to support transactions

Transaction fees; commissions; advertising, affiliation and slotting fees

NoYesLimitedVertical Portal WebMD.comCovisint.com


Advertising, affiliations and slotting fees; possibly subscription or access fees

Possibly; often partnerships

Possibly; often through partnership with vertical and affinity portals

YesHorizontal Portal AOL.comYahoo.comQuicken.comSmall business

Likely costsLikely Revenues

Affinity Group Focus

Deep Content

and Solutions

Gateway Access

Models and Examples

Portal Business Models

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Portal Business Model Trends

Horizontal and vertical portals are emerging as dominant sources of power within consumer and business markets

Horizontal portals are joining forces with horizontal infrastructure portals to provide not just access to content and services but also access to network and hosting services

Large media and entertainment portals that represent the convergence of data, telephone, television, and radio networks are emerging in the consumer space.These portals unite content development, packaging,

and distribution components of the value chain

B2B portals provide both horizontal access to business networks and vertical industry-wide solutions

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Producers Producers design and make also may directly market, sell,

and distribute products, services, and solutions.

Producers held the position of power in the traditional business market

In contrast, the Internet and associated networked technologies of the Network Economy create wealth by connecting buyers and suppliers.

Many believed that distributors would become the dominant players in the Network Economy.

• Gaining control of the distribution channel is a key success factor in the today

• Producers are also thinking of taking steps to recapture the position of power by forming coalitions with distributors

– Covisint in the automobile industry and Global Healthcare Exchange in the health-care industry.

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Six categories of producers business model Manufacturer Service provider Educator Adviser Information and new service Producer portal

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Differentiating between producers Does the business sell physical products and/or provide

face-to-face services

Does the business sell information-based products and/or services

Does the business provide customized products and/or services

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Producer Business Model

Manufacturer

Ford Motor Company and Procter & Gamble • Design, produce and distribute physical products,

components and parts

• The Internet and associated networked technologies has been used to streamline, integrate, coordinate, and control physical channels of production and distribution.

• Often these IT-enabled process redesign efforts often begin inside the organization and extend to connect customers, suppliers, and partners.

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Service Providers American Express and Singapore Airlines

• Offer a wide range of services offerings that may be delivered through multiple channels.

• Like manufactures of physical producer, service providers that offers physical services (e.g. car rental agencies, restaurants, etc.) often use it to streamline, integrate, coordinate, and control service delivery and to connect and share information with customers, suppliers, and partners.

• Service providers that offers primarily information-based services (e.g. financial services) can use IT to digitize service delivery.

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Educator DePaul, Harvard, and Virtual Universities

• Create and deliver online educational programs, products, and services.

• The ability to use the Internet and associate technologies to define new multimedia educational offerings and to customize those offerings to meet of individual and businesses is revolutionizing education.

• Distance will never replace face-to-face class room education offerings.

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Advisers McKinsey and Accenture

• Consulting and coaching services to business and individuals.

• Use online to extend the nature of the relationship with customers from a one-time consulting project to an ongoing education and advisory service.

• Online channels can used to disseminate knowledge, connect consultants with their clients, and create communities of interest.

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Information and News Services Dow Jones and Euromoney

• Create packages and deliver information through both online and offline channels and across multiple media formats

• Because information in all its many forms can be digitized, stored, and delivered to meet personalized needs, we convergence among polishing, television, radio, and information industries.

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Producer Portal

Covisint and Global Healthcare Exchange

• Use the Internet and associated technologies to support all aspects of the production and distribution process

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Content/information asset management; R&D; IT infrastructure

Registration or event fee; subscription fee; hosting fee

Moderate to high

PossiblyPossiblyEducator DePaul.eduHarvard.edu


Commissions, service, or transaction fees

Moderate to high

PossiblyYesService ProvidersAmerican Express Singapore Airlines


Product sales; services

Low to moderate

PossiblyYesManufacturers Ford Motor Company Procter & Gamble


Level of customization

Sale Information-based Product/ Services

Sale Physical Product/ Services

Models and Examples


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Content/information asset management; R&D; IT infrastructure; software development logistics

Service or transaction fee; membership fee; Consulting and integration fee; hosting fee

HighYesPossiblyProducer Portal Covisint Global Healthcare Exchange


Subscription fee; transaction fee; or service fee

Moderate to high

YesYesInformation and news Services Dow JonesEuromoney


Level of customization

Sale Information

-based Product/ Services

Sale Physical Product/ Services

Models and Examples

Model differentiators


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Producer Business Model Trends

Producers must be best in class – the number one or two brand – to survive

Some large full-service producers, such as American Express and Citigroup in the financial services industry and AOL Time Warner in the entertainment and media industry, are acquiring a full range of products and services and then integrating them to provide vertical solutions required by customers. This solutions are offered through company-owned portals and

also through a wide variety of distribution agreements.

Industry supplier coalitions are forming to enable virtually integrated B2B commerce within and across industry groups

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Businesses that Provide Networked Infrastructure

Until recently, there was a distinct separation between businesses that were built using IT and those developing and selling IT.

“Charles Schwab is a technology company that just happens to be in the brokerage business. Everything we think about as we run our business has technology in the center of it with the goal of engineering cost down and service up…”

David Pottruck co-CEO of Charles Schwab

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Businesses that Provide Networked Infrastructure

Infrastructure Distributors Infrastructure Portals Infrastructure Producers Infrastructure Service Providers

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Chapter Summary

Emerging networked technology enable us to create new business model and redefine existing ones.

Classifying business models in many categories. Business built on a Networked Infrastructure depends on

distributors, producers, portals. There was a distinct separation between businesses that

were built using IT and those developing and selling IT. Business Built on Networked Infrastructure consist of

Focused distributors, Portals, and Producers. Business that provide networked infrastructure consist of

Infrastructure distributor, portals, and producers.

1 module 4 : crafting business models matakuliah: j0422 / manajemen e-corporation tahun: 2005 versi:...

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