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Classification of E-CommerceFirms

Professor Joshua Livnat, Ph.D., CPA

311 Tisch HallNew York University

40 W. 4th St.

NY NY 10012Tel. (212) 998-0022 Fax (212) 995-4230

jlivnat@stern.nyu.edu

Web page: www.stern.nyu.edu/~jlivnat

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Classifications

Classification by seller/buyer

Classification by product or activity

Classification by sources of revenues

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Classification by seller/buyer Business to Consumer (B to C)

Southwest Airlines generates over 15% of itsrevenues from its online site.http://www.southwestairlines.com/

Business to Business (B to B)

Automobile manufacturers organizing anexchange to buy components from suppliers.http://www.generalmotors.com/cgi-bin/pr_display.pl?1202

Consumers to Consumers (C to C)

Auctions sites like E-Bay. http://www.ebay.com/

Consumers to Business (C to B)

Selling information to businesses like gorefer.http://www.gorefer.com/

http://www.mercata.com/

http://www.southwestairlines.com/http://www.generalmotors.com/cgi-bin/pr_display.pl?1202http://www.ebay.com/http://www.gorefer.com/http://www.gorefer.com/http://www.gorefer.com/http://www.mercata.com/http://www.mercata.com/http://www.gorefer.com/http://www.gorefer.com/http://www.gorefer.com/http://www.gorefer.com/http://www.ebay.com/http://www.generalmotors.com/cgi-bin/pr_display.pl?1202http://www.generalmotors.com/cgi-bin/pr_display.pl?1202http://www.generalmotors.com/cgi-bin/pr_display.pl?1202http://www.southwestairlines.com/

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Classification by product or activity

Media Metrix Report - Dec 1999Category Domain Digital Media Reach %

SEARCH ENGINE YAHOO.COM 52.6

COMMERCIAL ONLINE MSN.COM 47.3

MARKETING/CORPORATE MICROSOFT.COM 36.8

WEB SERVICES GEOCITIES.COM 31.1

SHOPPING BLUEMOUNTAINARTS.COM 26.1

NEWS INFO/ENTERTAINMENT ABOUT.COM 15

DIRECTORIES INFOSPACE.COM 10

INTERNET SERVICE PROVIDER EARTHLINK.NET 6.7

ADULT CONTENT PORNCITY.NET 5.1

TRAVEL/TOURISM MAPQUEST.COM 5

GOVERNMENT NASA.GOV 3.3EDUCATION BERKELEY.EDU 2.4

All Other DASH.COM 2

AIRLINE SITES AA.COM 1.7

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Classification by Revenue Sources

Revenues from selling products or services

Traditional sales http://www.amazon.com

Commissions http://www.priceline.com/

Per-transaction fees http://www.nytimes.com/

Advertising revenues - See Appendix A

Referral fees: See Appendix B

per referral

fixed amount

percentage of transaction

Market creation fees http://www.ebay.com/

http://www.amazon.com/http://www.priceline.com/http://www.nytimes.com/http://www.ebay.com/http://www.ebay.com/http://www.nytimes.com/http://www.priceline.com/http://www.amazon.com/

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Advantages of Classifications

Classifications by seller/buyer emphasize

the markets in which the firm operates.

Classifications by product/activity

emphasize the nature of the business.

Classifications according to revenue sources

focus on the underlying business model.

An E-Commerce company is likely to be in

more than one category.

The analysis of categories helps in profiling

the business (segments).

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Warning

The Following Definitions of Various

Business Models are not mine.

They were developed by Professor Michael

Rappa:

http://ecommerce.ncsu.edu/business_models.html

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Brokerage Bringing buyers and sellers together

Buy/sell fulfillment

Online stock trading

Market exchange

B2B (metals exchange)

Virtual mall Internet fashion mall

Auction broker

E-BaySearch agent

My Simon, Dealtime

Fee per transaction

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Advertising

Free content or services to users. Content

(service) providers get advertising revenues. Model in existence for radio and TV.

Need very high volume or very specialized

audience.Generalized portals.

Personalized and specialized portals.

Attention/incentive marketing.Free products or services.

Bargain discounters.

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Infomediary

Collecting and selling data about

consumers, interests and buying habits.

Sharing information among consumers

Book reviews on Amazon

Registration

Collecting information on users in exchange for

access to content (newspapers, free phone

services).

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Merchants

Wholesalers and retailers on the Web.Web-based only, with no brick and mortar

operations.

Catalog services

New form of direct mail

B&M on the Web

Staples

Digital content Music

Software

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Manufacturer

Manufacturer bypasses the wholesaler to

reach final customer.

Dell

Personalization

Flowerbud

Faster delivery

May cause distribution channel conflicts

Airlines and travel agents

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Affiliate

Referring to other sites

Similar to Yellow Pages or referral fees for

lawyers. Hitting the customer when the purse is

open.

Using information on current purchases toinduce further purchases of complementaryproducts and services.

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Community

Creating a community of similar users.

Soliciting donations from users and foundations

Creating knowledge networks

Collection of experts who can respond to

questions

Sometimes experts get paid directly perquestion.

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Subscription

Pay for content

General reluctance to pay for content on the

Web. Exceptions:

Wall Street Journal

Premium content (detailed stock researchreports)

Archived information

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Utility

Pay per use or per time

Similar to Pay Per View movies

Renting software and applications

Payment per data extracted

Credit reports

Retrieving old publications

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Mixture of Business Models

Most E-Commerce firms have a mixture ofbusiness models

Community and advertisingMerchant and affiliate

Business models change and continue toevolve

The environment is very dynamic

The need to remain flexible

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The Business Model

Identify the value drivers:

Number ofvisitors

Number ofmembersNumber oftransactions

Assess the required long-term volume tomake a profit

Assess the reasonableness of the requiredvolume and costs to achieve it.

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Sources of Information

Forms filed with the SEC (http://www.sec.gov/)

:Registration statement

Form 10-K

Form 10-Q

Proxy statement

Special reports

Companys own Web site http://www.aol.com/http://www.corp.aol.com/

Investment research

Tracking organizationshttp://www.mediametrix.com

http://www.sec.gov/http://www.sec.gov/http://www.aol.com/http://www.corp.aol.com/http://www.mediametrix.com/http://www.mediametrix.com/http://www.corp.aol.com/http://www.aol.com/http://www.sec.gov/http://www.sec.gov/

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Long-Term Business Models

Surviving advertising models

High volume free content services

The broadcasting model

Personalized and specialized content services

Free tourist guides

Interactive models Surviving community models

Right demographics

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Long-Term Business Models

Surviving brokerage models

Only if B&M do not offer their own services

MerchantsOnly if reduces transaction costs or increases

the pie

AffiliatesWill it be pay per referral? Pay per listing (likeYellow Pages)?

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Long-Term Survival

Depends on the long-term tradeoff betweenrevenues and costs.

Cheap initial financing masks true long-term costs.

The recent decline in prices of Internetstocks can force people to think throughmore carefully of the long-term viability ofthe business model.

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Summary

Classifications help think about the business

model.

Classifications also help in assessing thelong-term viability of the business.