Mumbai University > Information Technology > Sem 7 > E–Commerce and E-Business

Marks: 10 M

E- business structure:

• The e-Business model, like any business model, describes how a company functions; how it provides a product or service, how it generates revenue, and how it will create and adapt to new markets and technologies.

• It has four traditional components as shown in the figure, The e-Business Model. These are the e-business concept, value proposition, sources of revenue, and the required activities, resources, and capabilities. In a successful business, all of its business model components work together in a cooperative and supportive fashion.

1. E-Business Concept:

The e-business concept describes the rationale of the business, its goals and vision, and products or offerings from which it will earn revenue. A successful concept is based on a market analysis that identifies customers likely to purchase the product and how much they are willing to pay for it.

Goals And Objectives

The e-Business concept should be based, in part, on goals such as "become a major car seller, bank, or other commercial enterprise", and "to become a competitor to some of the well-known firms in each of these industries."

Objectives are more specific and measurable, such as "capture 10% of the market", or "have $100 million in revenues in five years." Whether these goals and objectives are realistic or not, and whether the company is prepared to achieve these goals is addressed in the business plan process for startup firms and in the implementation plan for an existing firm.

Corporate Strategies

Embedded in the e-Business concept are strategies that describe how the business concept will be implemented. These are known as corporate strategies because they establish how the business is intended to function. These strategies can be modified to improve the performance of the business. Environmental strategies, discussed in a following section, describe how the company will address external environmental factors, over which it has no control.

The E-Business Concept And Market Research

The selection and refinement of the business concept should be integrally tied into knowledge of the market it serves. In performing market research care must be taken to account for the global reach of the Internet for both customers and competitors. It is also important to remember that markets shift, and can shift rapidly under certain conditions. But most important is to truly understand what the market is, who comprises it, and what do they want.

Price

Pricing is an important part of the e-business concept and should be established on the basis of market research. Price is often set with an eye on the competition and can have a direct effect on market share. In traditional commerce in the U.S., the seller sets the price. Online pricing, on the other hand, may include negotiation or auction pricing, where the interaction of sellers and buyers can effect the price. Knowledge of competing prices is also readily available online, and will keep downward pressure on prices.

2. Value Proposition:

The value proposition describes the value that the company will provide to its customers and, sometimes, to others as well. With a value proposition the company attempts to offer better value than competitors so that the buyer will benefit most with this product.

A value proposition may include one or more of the following points:

• Reduced price

• Improved service or convenience such as the "1 click" checkout

• Speed of delivery and assistance

• Products that lead to increased efficiency and productivity

• Access to a large and available inventory that presents options for the buyer

Providing value in an e-business uses the same approach as providing value in any business, although it may require different capabilities. But common to both are the customers who seek out value in a business transaction. The value proposition helps focus the business on the well-being of the customer, where it remains in successful companies.

3. Sources Of Revenue:

Depending on the business model, several revenue sources may be available to an e-business. Many online businesses will have a three or four of these sources. A mix of revenue sources is often referred to as a revenue model but may be mistakenly called a business model. Some of these sources of revenue are:

• Advertising

• Affiliation

• Agent commissions

• Licensing

• Sales commissions

• Sales profits

• Sponsorship

• Subscription

• Syndication

• Use Fees

For large public-private or government projects revenue sources might also include:

• Bonds, usually for large capital expenditures

• Taxes, primarily income, property and sales taxes

• Use fees and tolls

With small fast-growing companies such as e-Business startups, investors often track expected revenues and revenue growth and may make changes to increase revenue. However, after the Dot-Com boom ended, more traditional measures such as cash flow and earnings have came back into favor as means of evaluation.

4. Activities, Resources And Capabilities:

The activities, resources and capabilities of a business are sometimes known as its requirements. In order to perform the activities required to carry out the mission of the business, certain resources are needed;.

Activities

Activities are specific business processes or groups of processes such as design, production and sales that implement the business concept. The operational business model identifies the costs and outputs of each activity.

Also, proposed activities should be carefully reviewed before a commitment is made to develop them. Not only should they be aligned with the goals of the organization and contribute to offerings in demand in the market, but the required resources and capabilities should be considered. The implementation of some activities, such as production or manufacturing, have high costs that must be incurred before a product can be sold and revenues begin to flow.

Resources

In order to perform activities an organization requires human, tangible, intangible and supporting resources. Human resources, in particular the skills and knowledge of employees are important, as are the programs (e.g. incentives, training) and institutions that support them. Of related importance is the "corporate culture" that shapes how employees work together and which may also be instrumental in determining how a company works with its partners, or whether a merger between two companies can be successful.

Tangible, or physical and financial, resources include facilities, equipment, and cash reserves. Intangible resources include intellectual property, business processes that can be patented, brands, customer profiles and personalization data in databases, and customized software. Supporting systems include organizational structure, information systems or communications processes that may have little value as stand-alone resources.

Capacity

The total resources of the organization represent its capacity. When resources are underutilized, the company has resources that aren't used, or idle capacity. Idle capacity in manufacturing tends to be measured in terms of additional output that could be produced. In service organizations the measure for idle capacity is usually a number of employees.

Resource capacity can also be measured in job-hours, machine-hours, sales per employee, or square feet. Often these are compared with industry standards to assess the efficiency of the organization

Resources may also misallocated. Processes may be successively introduced over time that result in an overall inefficiency. This may be a significant potential problem in e-Business since activities are accumulated based on market demand and there are few if any other companies available for a comparison.