E-business models. Encyclopedia Britannica 1768 – first encyclopedia in the English-speaking world...
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Transcript of E-business models. Encyclopedia Britannica 1768 – first encyclopedia in the English-speaking world...
e-business models
Encyclopedia Britannica
1768 – first encyclopedia in the English-speaking world
World’s most comprehensive and authoritative encyclopedia
Aggressive sales and marketing Target middle-income families and their aspirations for their
children 1990 sales of $650 million
Dominant market share, steady growth + generous margins Since 1990, sales have collapsed by over 80%
What happened?
Britannica viewed the CD-ROM as a toy Microsoft licensed content from Funk & Wagnalls
Third-rate content, poor quality sound and images Not serious competition (?)
Britannica’s Response
Britannica considered marketing the product on CD-ROM Britannica was too large to fit on a CD-ROM Britannica marketed text-only CD-ROM Sales force revolted because of losses in commission Bundled CD-ROM free with encyclopedia to avoid channel
conflict CD-ROM alone sold for $1,000
May 1995 – Britannica sold for half it’s book value
Britannica
Market research showed that the typical encyclopedia is opened once a year
Sales force played on parent’s anxieties about their children’s education Now a PC is the most common way of easing parental guilt
Incumbents are saddled with legacy assets Sales and distribution systems, brands, core competencies
Competing in the digital economy may mean cannibalising these assets or destroying them
Moral New Economics of Information
Evolving technological capabilities for sharing and using information can transform business definitions, industry definitions and competitive advantage e.g. Napster
IT can destroy brands and businesses Britannica’s vulnerability was due to its dependence
on the economics of intense personal selling (sales force) Implications for real estate, insurance, cars, travel
Evans and Wurster (1997) “Strategy and the New Economics of Information”, Harvard Business Review, Sept-Oct
e-Business Model Research Context MSc Research began October 2000 Dot.com “implosion” circa Spring 2000
(Howcroft, 2001) Pure-play dot.coms e.g. Boo, eToys Clicks and Mortar e.g. WorldOfFruit.com
Initially the research focused on surveying the landscape – an empirical analysis, contrast to the mainly qualitative research available at the time
Electronic Business Today
“e-commerce is no longer an alternative, but an imperative”
Landscape “confusing” for new entrants B2B segment is considerably larger [4-13 times the
size of B2C] B2B sector was expected to be worth $1.3 trillion in
2003 Coltman (2001) “hype” pre-dot.com collapse, but
new era of pessimism is an overreaction
e-Business Model “an architecture for product, service and
information flows” (Timmers, 1999) “…most discussed and least understood part of
the web” (Rappa, 2000) Ticoll et al (1998): 4 models Kaplan and Sawhney (2000): 4 models Timmers: 11 models Rappa: 30 + Osterwalder (2002) – misuse of term led to loss
of credibility of the concept
Why are e-business models important? Internet alters industry structures
Channel cannibalisation Myths that “old rules about business are obsolete”
are widespread Led to bad decisions
Move from competitive advantage based on quality, service + features to competition based only on price (Porter, 2001)
Need for appropriate e-business model so a firm can identify “where it is positioned in the value chain” (Rappa, 2003)
Boo.com: Fashion e-tailer
Strong focus on brands, not a discount seller First-mover advantage
Allowed company to raise substantial investment capital
Porter (2001) argues that this is a “myth” Launched simultaneously in a number of
territories Multiple currencies Multiple languages Varying tax-laws
Boo.com
At peak in 1999, company valued at $450m Burned $200m in 18 months
major investors were JP Morgan, Goldman Sachs, and the Benetton Family
Technology Problems required Flash plug-in, did not support Macintosh
users, required fast connection systems integration problems with logistic
partners (UPS and Deutsche Post)
Osterwalder (2002)
Linder (2001) – existing frameworks insufficient to describe array of business model choices
Osterwalder and Pigneur (2002) – e-business model ontology (formal specification of how to represent the objects, concepts and other entities that are assumed to exist and the relationships that hold among them)
What is a Business Model? (Osterwalder, 2002)
It’s the business logic of how a company makes money in a
sustainable way
HOW?
•Capabilities•Value Configuration•Partnerships
WHAT?
•Value Proposition
WHO?
•Target Customers•Channels•Customer Relationship
HOW MUCH?
•Cost Model•Revenue Model
Business Models – The Missing Link (Osterwalder, 2002)
GOALS
SYSTEMS
CEO
marketing operations finance
STRUCTURE
STRATEGYSTRATEGY
BUSINESS/ORG.BUSINESS/ORG. TECHNOLOGYTECHNOLOGY
Businessmodel
Planning Level
Architectural Level
Implementation Level
Strategy
Business Model
Business Processes
ICT Pressure
e-Business opportunities & change
e-Business process and adaptation
Business Logic Triangle (Osterwalder et al, 2002)
E-BUSINESSMODEL
1.Products and Services
2.Infrastructure and theNetwork of Partners
3.Relationship Capital
4.Financial Aspects
Value Proposition
Target Customer
Capabilities
Resources and Assets
Activity and Process Config
Partner Network
Information
Feel and Serve
Trust and Loyalty
Revenue Structure
Cost Structure
Profit Structure
PILLARS ELEMENTS
E-business model ontology (Osterwalder et al, 2002)
Business Model Decision Dynamic Environment (Mintzberg, 1979)
Uncertain Supply Chain Rapidly Changing Technology Repeated Product Evolution
Thus, organisation is unable to predict future conditions e.g. e-business model decision
“wrong choices could have dire consequences…but need to act soon or risk being left behind” (Wise and Morrison, 2000)
Simon’s (1960) 4 Phases of Decision-Making Intelligence, Design, Choice, Review
An examination of the milieu for situations in which a decision is required
…[this] phase is crucial, as alternatives not considered at this stage are very unlikely to be involved in the decision scenario at a later stage…(Pomerol, 1994)
Malone et al. (1987) argue that the ability of Information Technology to provide cheap connectivity, will result in a lowering of coordination costs, and therefore will result in a shift from hierarchies to markets
Organisational Form
Production Costs Co-ordination Costs
Markets Low High
Hierarchies High Low
Markets and Hierarchies
Models - Timmers
Models – Kaplan and Sawhney
What Businesses Buy
How Businesses Buy Operating Inputs Manufacturing Inputs
Systematic Sourcing
MRO Hubs Catalog Hubs
Spot Sourcing Yield Managers Exchanges
Open Market Alliance
Aggregation Value Chain
Low High Value Integration
Self-Organising
Hierarchical
C
ontr
ol
Models –Ticoll et al.Open Source
Supermarket Car manufacturer
High Customer Value
Complementary Scope
Control over Pricing
Defensible Sources of Revenue
Consistent Connected Activities
Unique, Inimitable Capabilities
Excellent Implementation
Sustainability for the Future
Low cost
Correct profit site
Capabilities
ScopePricing
Implementation
Activities
Revenue sources
Sustainability
Customer value
Cost
Profit site
Successful Business Model (Afuah and Tucci)
Five Forces Model (Porter, 1980)
Customer Value
Differentiation Product features, timing, location, service, product
mix, linkage between functions, linkage with other firms, reputation
Low Cost Reduction in information asymmetry Reduced transaction costs Distribution channel
Scope
Market Segments/Geographic Areas Business Market
Industry, Firm Size e.g. SME’s Households
Demographics e.g iVillage Universality property of internet facilitates expansion Firm must decide how much of the needs of the
segment it can serve
Price
Pricing strategy is crucial Knowledge-based products Market share and Margin
Giving away a product and charging fpr later versions
Giving away Product X and charging for related Product Y e.g. Adobe Acrobat
Pricing low to penetrate the market
Price
Lock-In e.g. Microsoft Windows
Switching costs Network Externalities
The more users that own them, the more valuable they are to users
Common Internet Pricing ModelsMenu (fixed) One-to-One BargainingSubscription (pay by use)AuctionReverse Auction
Other Revenue Sources include AdvertisingReferral Links
The importance of Market Share(Afuah & Tucci, p58)
The importance of Market Size(Afuah & Tucci, p59)
Revenue Sources
Selling Products Selling Product and Service Connected Activities
R&D, Marketing and Sales Value Chain (value is added to materials or
knowledge as it moves up the chain)
Synthesis of Business models
e-Business Model Characteristics
Economic Control
Items derived from Porter’s Five Forces model
5-point Likert Items (Strongly Agree….Strongly Disagree)
Manufacturing outputs in our organisation are low in asset specificity Switching costs for our customers are low
Functional Integration
Scale developed by adapting lists of functions from the modules of a leading ERP system
“Please indicate the extent to which the following are integrated with other processes and functions in the organization.”
Can “opt out” of responding to a particular item if business process/function is not relevant.
Functional Integration
5-point Likert items (Not at all Integrated, Partially Integrated, Average Integration, Highly Integrated, Completely Integrated)
Purchase Order Processing with servicing, distribution, manufacturing, planning, and financial functions. Transportation Management with servicing, manufacturing, planning, and financial functions. Material Requirements Planning with servicing, distribution, manufacturing, and financial functions.
Supply/Value Chain Integration Uses same list of functions as “Functional
Integration” construct “Please indicate the extent to which the
following are integrated with processes and functions in other firms in the supply chain (i.e. customers and suppliers).”
Capacity Requirements Planning Inventory Control Purchasing
Learning to operate different IT applications is easy for me I would have no difficulty telling others about the results of using IT
Internal Technical Innovation 25 Likert scale items (strongly disagree…strongly agree)
Constructs: relative advantage, complexity, compatability, ease of use, image, result demonstrability, visibility, trialability
External Technical Innovation Ability of the organisation to assimilate/adopt innovations
Factors: Competitive Price Intensity, Industry Concentration, Organisational structure (degree of centralisation)
5-point Likert scale (never…frequently)
How frequently does price-cutting take place in your industry In your organisation, detailed written job descriptions for employees are used
Sourcing
Identify degree of Spot and Systematic sourcing of both direct and indirect materials
Operationalising the framework
Scores from Likert items are used to give overall scores for each of the 5 organisational characteristics.
These can then be compared with the score assigned to each business model.
Methodology
Field Study 5 manufacturing companies Semi-structured interviews + administration
of scales
Case: PackCo
Economic Control
Supply Chain
Integration
Functional Integration
Internal Innovation
External Innovation
Sourcing
Score 80/150 82/144 85/156 85/125 20/34 -
Rating Medium Medium Medium Medium-High Medium Systematic
e-Business Model Characteristics
PackCo Findings
Business Model Potential for the organisation Findings from Measurement instrument
e-shop None
All Suitable
e-mall None
e-procurement Some
e-auction Some
Information Brokerage HighTrust Services SomeThird Party Marketplace High Unsuitable (Low F + SC Integration + Innovation)
e-hubs Some Unsuitable (F + SC Integration + Innovation)
Virtual Communities Some Unsuitable (F +SC Integration + Innovation)
VC Integrators Some Unsuitable (SC Integration + Innovation)
VC Service Providers Some Unsuitable (Innovation)
Collaboration Platforms None Unsuitable (F +SC Integration + Innovation)
Conclusions
Need for validation of scales through field study research in a larger number of organisations
Need for alteration of some existing scales e.g. Supply chain integration, Internal and External Innovation
Upstream and downstream issues e.g. Economic Control