Lesson 2 Lesson 2: Information Systems Applications for Novel • This lesson will expose you to the

Business models importance of having a credible

business model to succeed and
Topic 1 - Business Model components:
sustain a business venture. Next,
• Customer Value Proposition
• Revenue Model you will also learn about the
• Market Opportunities various types and categories of
• Competitive environment e-commerce companies that
• Competitive advantage are operating in the market.
• Market strategy
• Organisational development
• Management team
Topic 2 – Types and categories of e-commerce
companies
• B2B and B2C
• Strategies in Pure-Play and Mortar
companies
• Payment methods in B2B and B2C
• Forward and Reverse auctions
• Aggregate Purchases vs Spot Purchases vs
Strategic Purchases
• Internet business models

Why This Lesson

The success of many business firms depends on the business model they follow. A business model describes a set of planned
activities designed to result in a profit in a marketplace. It covers the essential parts of what a business wants to do from the
value it gives to customers, the ways to generate revenue, the target market, the competitors, the strategies to thrive in the
market, as well as the team that will steer the activities forward within a system that supports its implementation. However, it
is not all about the business plan alone that determines whether a business firm rises or falls, as there are also many other
contributing factors out there.

Business Model vs Business Plan

People did not really talk about business models prior to the new millennium. In fact, for a long time, there has always been
an obsession with business plans instead. Beginning in the early 2000s, however, management gurus began writing about the
idea of business models, although not entirely as a clear departure as to how it differs from business plans. In contrast, business
models have always been seen as a set of planned activities that are conceptualised by the business owner/founder and
designed specifically to result in a profit in a marketplace. Its intangible nature (being something conceptual or inside the
mind of somebody) creates a façade of flexibility that is preferred by many entrepreneurs who have to deal with a lot of
uncertainties and challenges in their pursuit of business glory.
A business plan, however, is the tangible form of a firm’s business model. It normally comes in a documented form, ready to
be communicated to and shared with important stakeholders in the business environment. Many times, entrepreneurs will find
that they need to submit their business plans to potential investors or banks when they want to raise funds for their businesses.
How do companies typically raise money?
o Seed capital
o Elevator pitch
o Traditional sources:
➢ Incubators, angel investors
➢ Commercial banks, venture capital firms
➢ Strategic partners
o Crowdfunding -JOBS Act

In case you still do not see the similarity or difference between the two, let’s just say that the document one calls a business
plan contains all the essential business model elements that one will describe to others about his or her business.

© UNITAR International University 1 Prepared by: Misyer bin Mohamed Tajudin

For the sake of clarity, amid the different forms of businesses that exist today, let’s agree that any e-commerce business model
would differ from a typical traditional business model in the sense that it uses/leverages unique qualities of the Internet and
Web in its disposition.

Business Model Components

There are eight (8) components to a business model. Each of them is essential to ensure the business is on track to meet its
objectives and succeed in the market.

• Customer Value Proposition: This tries to answer the critical question of “why should the customer buy from you?”.
Today’s world of commoditisation of products and services creates abundant choices in the market for customers to
choose from, many of which are differentiated only by the value they try to fulfil. Successful e-commerce value
propositions include:
o Personalization/customisation
o Reduction of product search, price discovery costs
o Facilitation of transactions by managing product delivery
For example, Grab e-hailing service is not only providing transportation to people who require them but also the
convenience of booking a ride from the mobile app, with the certainty of arrival time for pick-up and the estimated
time to reach the destination, as well as the fare to be paid and the ease of payment, followed by the safety elements
that come with the ability to choose who drives you depending on the place to go to and the time you are going
there.

• Revenue Model: The ever-important question every business must answer is “how will you earn money?”. This often
forces business owners to figure out very early on about the critical details that can ensure the business can remain
sustainable in the longer term. Remember how Amazon began and how they were close to not making it due to their
less-than-promising revenue model? Let’s revisit how Jeff Bezos, Amazon’s founder and CEO, started the company
during the dot-com bubble leading to the new millennium. The company prided itself as an online bookseller that
changed people’s perception from being sceptical about the security of purchasing online by selling them at a very
cheap price. While this definitely diverted people from buying books from bookstores, forever affecting sales at
physical bookstores all over the world, it did not work so well for Amazon’s bottomline. The small margin they got from
each sale took them close to 10 years to break even, considering the retained investments they needed to make to
continually improve on their technology. A lot of investors were losing their patience and demanded their money
back. Of course, the rest is history, and those investors who were patient enough eventually were repaid with billion-
dollar returns as Amazon has gone on to become the e-commerce behemoth it is today.

Back then, Amazon was running a revenue model that was based on sales. They bought directly from book publishers
at the most minimal prices and resold them to customers online with a meagre margin of profit. Today, however,
Amazon’s diverse businesses may run a different revenue model altogether. As can be seen in a variety of businesses,
a few major types of revenue models that include advertising revenue model, subscription revenue model, freemium
strategy, transaction fee revenue model, and affiliate revenue model can also be applied.

• Market Opportunities: After businesses become certain about the product/service that they want to sell, they must
also identify the target market. Hence, they ask “What marketspace do you intend to serve and what is its size?”. The
marketspace covers the area of actual or potential commercial value in which the company intends to operate,
while its size determines whether the business can be sustainable in the long run.

Let’s take a quick look at how this translates into today’s business. If a business wants to sell a type of shampoo that
caters to Muslim women who cover their heads/hair in Malaysia, they should play around with the numbers. There
are about 34 million people in Malaysia, 50% of which are Muslims and half of which may be women, roughly 8.5
million of them. Of these few million, not all cover their head and only a small percentage of them would probably
be of the age that has disposable income to purchase the shampoo. So, maybe the business will only end up with a
small fraction of the country’s population after all. This can be unsustainable for its business, especially considering

© UNITAR International University 2 Prepared by: Misyer bin Mohamed Tajudin

 the fact that people don’t buy shampoos every day. This would probably be different if you are dealing with a country
with a bigger population.

Based on this understanding, businesses must figure out a realistic market opportunity, that is defined by revenue
potential in each market in which they hope to compete. While market opportunities that are typically divided into
smaller niches, like in the example above, may not appear sustainable in the long run as compared to a more generic
product or service that can appeal to the masses, some niche markets can turn out to be highly sustainable,
especially in the luxury market.

• Competitive environment: Once we have identified the product/service to sell, and who to sell to, we must also be
ready to face competition from others who may be selling something similar to the same market. You need to ask,
“who else occupies your intended marketspace?”, and begin to explore both direct and indirect competitors.

Direct competitors to Maybank housing loans, for example, might be other commercial banks that offer similar loans
like Public Bank, AmBank, Hong Leong Bank, and the likes. On the other hand, Maybank’s indirect competitors might
include the loansharks, the crowdfunding companies, or even every other high net worth individual who can lend
money to their children at their request without any promise of payback.

Companies are typically influenced by:

o Number and size of active competitors
o Each competitor’s market share
o Competitors’ profitability
o Competitors’ pricing

• Competitive advantage: This has become a staple emphasis in most strategy books due to its definitive nature,
especially in answering the question “what special advantages does your firm bring to the marketspace?”. In other
words, companies would be hard-pressed to come up with something that their competitors do not have, or cannot
do, with the aim of trying to win the hearts of customers in the market.

While most companies will simply try to develop a product that is deemed as superior to or cheaper to produce than
their competitors’, competitive advantage can also be honed through:
o Creating asymmetries in the market
o First-mover advantage via complementary resources
o Unfair competitive advantage
o Leveraging others’ capabilities via collaboration
o Understanding of perfect markets

• Market strategy: “How do you plan to promote your products or services to attract your target audience?”. This
question forces companies to detail how they intend to enter the market and attract customers. Even the best
business concepts will fail if not properly marketed to potential customers. For instance, businesses must be familiar
with the stages involved throughout the customer buying process in order to project the right messages using the
right devices to the right customers. A typical customer who is searching for information about the product he/she is
interested in might depend a lot more on his/her mobile device as compared to during the purchasing process itself,
which is done a lot more on desktop computers or laptops. In case a company wants to engage in continuous
communication with its customers, then the best medium shall be social media.

• Organisational development: Companies need to ask, “what types of organisational structures within the firm are
necessary to carry out the business plan?”. This is important because it describes how the firm will organize work.
Typically, organisations are divided into functional departments, but as a company grows, hiring moves from
generalists to specialists, and the way things were done when they were smaller will have to change. Organisations
must align their structure, culture, strategies, and other internal systems with the entire business model components to
ensure adequate support is given. For example, McDonald’s began adapting the self-service ordering kiosks in 2020,
as labour costs continue to rise (amid the introduction of minimum wage laws in many countries throughout the

© UNITAR International University 3 Prepared by: Misyer bin Mohamed Tajudin

 world). But it was also a move that coincided pretty conveniently with the pandemic years and proved to be a
significant contributor to more efficient work processes that can enhance customer service.

• Management team: Every company founder and manager should be concerned about people’s perception of
his/her company. This brings forward the question of “What kind of backgrounds should the company’s leaders
have?”. A strong management team:
o Can make the business model work
o Can give credibility to outside investors
o Has market-specific knowledge
o Has experience in implementing business plans

Many do not know that Jack Ma, the co-founder of Alibaba was an English teacher who felt embarrassed every time
he came across Chinese websites trying to translate Chinese phrases into English, most of which turned out wrongly
(and on several occasions even turned out to be vulgar). His initial move was to create a website that uses correct
English, but that alone did not lead to his success – it came from the noble intentions of trying to champion small
businesses, in the belief that the Internet would level the playing field by enabling small enterprises to leverage
innovation and technology to grow and compete more effectively in domestic and global economies. This led
Alibaba to help rural farmers market their raw produce a lot better by trying to connect them directly to retailers in
the urban markets via its website, However, Alibaba’s journey into becoming the e-commerce darling it is today
would not have been possible without the knowledge and skills of the other 17 co-founding members of its
partnership, and the presence of senior management team to foresee its global expansion.

Types of E-Commerce Companies based on Level of Digitalness

E-commerce companies can be classified in many ways. One common way to do that is by looking into the three (3) aspects
of digitalness that they fulfil. These three include:
• Product: a digital product is intangible in nature, in contrast to physical goods that are tangible; while people may
use the term digital camera, digital watch, or digital photo frame as if they were digital products, they are physical
in nature
• Process: when a product is ordered online (through an online catalog found on a website), and payment is made
online too, then it fulfils the criteria of a digital process; opinions may differ among scholars in relation to this, but a
fully digital process must necessarily be conducted to qualify as having a digital process
• Delivery: Digital delivery deals with the ease of downloading the digital product onto one’s device to allow for
immediate consumption, whereas physical delivery takes time for physical transportation to be arranged, hence
involving delayed gratification of the product by its buyer.

When a company fulfils all three aspects of digitalness, it is known as a pure e-commerce company. A few good examples
include Netflix, iTunes, and Spotify.

When one or two aspects are not fulfilled, then it becomes a pure-play company. Shopee and Lazada are both online
shopping companies that only exist on the web (the entire commercial process between them and their customers are done
online), yet because they sell products that are mostly physical in nature, they also have to deal with physical delivery. They
are examples of pure-play companies.

In contrast, some companies maintain both, online and offline, business operations. A restaurant that relies on dine-in
customers would be called a brick-and-mortar company falls under the most traditionally offline businesses, but the moment
they open themselves to online ordering by way of partnering with delivery companies like FoodPanda or Grabfood, they
become a click-and-mortar company. Most of these kinds of e-commerce companies will originally begin with a physical
presence (having a shop that customers can go to), but there are a few exceptions. Amazon, for instance, has for a long
time been known as a pure-play company until it opened AmazonGo stores in 2018 to supplement its existing dominance in
the retail market. By doing that, Amazon is now known as a click-and-mortar company.

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 Categories of E-Commerce Companies based on Customer Interactions

We can also differentiate e-commerce companies based on the customers they interact with. For instance, there are
companies that sell to retail buyers, which involve individual customers who are buying one or very few units for their personal
consumption. This represents $18.5 trillion of the U.S. economy, where personal consumption of goods and services accounts
for $12.7 trillion (about 69%) of total gross domestic product (GDP) in the U.S. retail market. The companies that serve this
market fall under B2C (Business-to-Customer) and many of us will be familiar with them, especially since we have conducted
commercial transactions with them in the past. Examples of B2C companies include Shopee, Lazada, Grab, FoodPanda,
Netflix, Spotify, and McDonald’s. They typically cover a diverse range of retail businesses such as the ones shown below (from
the more dominant consumer durables to the least popular MOTO or mail-order-telephone-order):

Over the years, we have seen these trends in B2C e-commerce:

• Retail mobile e-commerce is exploding
• Social networks experiment with social e-commerce
• Local e-commerce skyrockets to over $40 billion
• Online retail is still the fastest-growing retail channel
• Selection of goods increases, that includes luxury goods
• Specialty retail sites show rapid growth
• New subscription-based model for online retailing is taking root
• Big data is used for predictive marketing

In B2C e-commerce or online retailing, the most important theme is the effort to integrate online and offline operations. We
have witnessed more significant omnichannel integration between web operations and physical store operations, in which
these types of integration include online orders, in-store pickup, and the likes. This trend appeared to magnify during the
pandemic when most non-essential service stores that were not allowed to open for walk-in customers eventually turned to
accept online orders and hired delivery services to send goods purchased to customers’ homes. However, Amazon had
already begun their experiment on some elements of physical retail business operations as early as 2018 when they
established the first AmazonGo store in Seattle, Washington. The store, which operates with very few staff but is equipped with
state-of-the-art sensors and AI/machine learning technologies, allows walk-in customers to pick up any item they want to take
home but every purchase is recorded and paid for using the AmazonGo app.

The vision of most B2C companies include:

• Reduced search and transaction costs; to enable customers to find the lowest prices

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 • Lowered market entry costs, lower operating costs, higher efficiency
• Traditional physical store merchants forced out of business
• Some industries would be disintermediated
• Few of these assumptions were correct - the structure of the retail marketplace has not been revolutionised
• Internet has created new venues for omnichannel firms and supported a few pure-play merchants

Nevertheless, currently B2C is still the smallest segment of the retail industry (8%). Although it is growing at a faster rate than
offline segments, with revenues having resumed growth, and a steady increase of Internet users who bought online over the
years, the primary beneficiaries have been the more established offline retailers with an online presence (e.g., Staples) and
pure-play online retailers (e.g., Amazon).

We are also seeing:

• Social e-commerce growth
• Location-based marketing of local goods and services
• Rapidly growing mobile platform

Virtual merchants account for over 40% of online retail sales, although this percentage is heavily skewed by the dominance
of Amazon, which by itself accounts for almost 25%. However, the percentage accounted for by omnichannel merchants
has been steadily increasing over the last few years.

Other common themes in B2C include:

• Online retail is the fastest-growing channel in retail commerce, nevertheless, profits for startup ventures have been
difficult to achieve
• Disintermediation has not occurred (the idea that e-commerce should be the cheaper alternative to physical
shopping was made possible by Amazon’s promise to sell books cheaper than bookstores as it successfully sourced
book supplies from publishers, but selling other commodities have proven difficult to follow such business model due
to supply chain complexities)
• Established merchants need to create integrated shopping experiences to succeed online
• Growth of online specialty merchants (e.g., Blue Nile)
• Extraordinary growth of social, local, and mobile e-commerce
• Increasing use of big data analytics by retailers

The B2C market concentrates a lot on the service sector, which represents the largest and most rapidly expanding part of the
economies of advanced industrial nations. This sector is concerned with performing tasks in and around households, business
firms, and institutions. Besides the people who handle every day on-demand services such as e-hailing, goods, food, or

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document delivery, the service sector also includes educators, doctors, lawyers, accountants, business consultants, and so
on. It employs 4 out of 5 U.S. workers, representing 80% of the U.S. GDP and is expected to grow further.

These are major services that have technologically evolved in their respective industry groups:

a) Finance:
• E-commerce has transformed banking and financial services
• Major institutions deploy online services, especially to monitor financial consumer behaviour
• Most online consumers use financial services sites to check balances and pay bills
• Experienced users move on to more complex financial services such as wealth advisory
• Established brand-name national banks have taken a substantial lead in market share
• Over half of U.S. adults use online banking, which provides significant savings for the bank
• Early innovators in online brokerage (E*Trade) have been displaced by established brokerages (Fidelity, Schwab that act
as online financial advisors)
• Online consumers prefer multi-channel firms with a physical presence
• Multi-channel firms are growing faster than pure online firms
• Lower online customer acquisition costs are registered amongst pure online firms as they cannot provide all services that
require face-to-face interaction
• Financial technology companies or fintech are also introducing online/mobile portals that allow for comparison of
shopping services, independent financial advice, and financial planning; many of these new services are attaining
revenues from advertising, referrals, subscriptions (examples in Malaysia include CapBay, Billplz, Ethis, GoBear, etc)
• Online financial services are also capable of account aggregation, which pulls together all of a customer’s financial
data at a personalised website. While convenient, it poses privacy concerns: control of personal data, security, and so
on
• Three kinds of online mortgage vendors today that have not transformed the process of obtaining a mortgage:
Established online banks (some of which originate from traditional mortgage vendors and pure online mortgage firms),
brokerages, and lending organisations
• Innovative mortgage service providers are introducing terms such as rocket mortgage that allow mortgages to be
approved quickly

b) Insurance:
• Online term life insurance is one of few online insurances with lowered search costs, increased price comparison, lower
prices
• Most insurances are not purchased online, as the online industry is geared more toward product information, search,
price discovery, online quotes

c) Real estate:
• Early vision: Disintermediation of a complex industry
• However, the major impact is the influence of purchases offline
• Impossible to complete property transactions online
• Main services are online property listings, loan calculators, research and reference material, with mobile apps increasing
• Despite the evolution in available information, there has not been a revolution in the industry value chain

d) Travel:
• One of the most successful B2C e-commerce segments as more travel is booked online than offline
• Online travel services revenues in 2015 is almost $170 billion
• For consumers: More convenient than traditional travel agents
• For suppliers: A singular, focused customer pool that can be efficiently reached through onsite advertising
• Travel is an ideal service/product for the Internet because:
• It is an information-intensive product
• Electronic product—travel arrangements can be accomplished for the most part online
• Does not require inventory
• Does not require physical offices with multiple employees
• Suppliers are always looking for customers to fill excess capacity

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 • Does not require an expensive multi-channel presence
• Four major sectors:
• Airline tickets (Greatest source of revenue)
• Hotel reservations
• Car rentals
• Travel packages
• Intense competition among online providers since price competition is difficult, but it forces industry consolidation as the
industry is impacted by meta-search engines that commoditise online travel
• Mobile applications are also transforming the industry, especially with social media content, and reviews that have an
increasing influence on travel purchases

e) Professional services— HR/Recruitment:

• Two main players in the US market include CareerBuilder and Monster. But others are also flexing their capabilities to
capture a sizable chunk of the market share: Glassdoor, SimplyHired, LinkedIn (Malaysia has Jobstreet)
• Five traditional recruitment tools: Classified and print ads, career expos, on-campus recruitment, staffing firms, internal
referral programs
• Online recruiting that is more efficient, and cost-effective, reduces total time-to-hire; enables job hunters to more easily
distribute resumes while conducting job searches
• Ideally suited for Web due to information-intense nature of recruitment process
• Initial match-up does not require much personalisation
• Saves time and money for both job hunters and employers
• One of the most important functions is the ability to establish market prices and terms
• Social recruiting is getting popular: 87% of recruiters use social recruiting, LinkedIn
• Millennials and Gen X use primarily mobile devices for recruitment services
• Online recruitment services use job search engines/aggregators, data analytics, and algorithms when sifting online
applications for keywords

f) On-demand business services – delivery, equipment leasing, consulting, advertising, marketing, and so on
• Platforms for users to share/lease assets, resources and professional expertise
• Covers commodities such as bikes, cars, homes, rooms with beds, etc.
• Also covers services such as delivery or transportation of people, goods, food, or documents, besides other professional
services
• Fees for service providers are typically collected from sellers and buyers
• Use of online reputation systems and peer review affect the reward/incentive given to the service provider
• Successful firms are disrupters such as Uber and Airbnb are lowering the cost of services

g) Health services
• Platforms for service providers to offer professional services such as online medical consultations, sourcing of nurses to
attend to in-home patients, as well as purchasing pharmaceutical products

h) Educational services
• Platforms for users/service providers to share/lease their knowledge/skill assets and resources
• While most traditional educational institutions have already blended physical classes with online ones using online
meeting apps and utilising learning management systems to accommodate the entire process, a few unconventional
startups have been established to present education differently, such as MasterClass and Domestika.org

However, there are also companies that do not deal with retail buyers, but instead only maintain business dealings with
institutional buyers. Institutional buyers represent business companies that deal with other businesses in their business
operations, namely, to buy raw materials, intermediate goods, machinery, and equipment, or even finished goods for reselling
purposes. For instance, our national car manufacturer Proton buys a lot of parts it needs from suppliers and vendors to make
cars. They perform these B2B (business-to-business) transactions online using Proton’s virtual private network (VPN). Private
industrial networks, like this one, are the biggest form of B2B e-commerce, which includes EDI, B2B Net marketplaces, and
private industrial markets.

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Overall, we are seeing these trends in B2B E-Commerce:
• Flexibility: growing emphasis on rapid response and optimal supply chains
• Resurgence in Net marketplaces bringing together hundreds of suppliers and thousands of buying firms
• Supply chain visibility—real-time
• Social/mobile commerce and customer intimacy
• Cloud computing
• Big data and growing use of business analytics
• Internet of Things
• Accountable and sustainable supply chains

B2B e-commerce has gone through many stages of development since the 1970s. Each stage reflects a major change in
technology platforms from mainframes to private dedicated networks, and finally to the Internet, mobile apps, and social
networks. The B2B e-commerce will have grown to 51% of total U.S. inter-firm trade by 2020, in which private industrial networks
are expected to continue to play a dominant role in B2B. However, the non-EDI B2B e-commerce is the most rapidly growing
type of e-commerce although EDI continues as the workhorse of many B2B commerce.

It is worth noting that not all industries are similarly affected by B2B e-commerce, and not all industries would also benefit
equally from it. Nevertheless, factors influencing the move to e-commerce include:
• Significant utilisation of EDI
• Large investments in IT and Internet infrastructure
• Market concentrated on purchasing or selling

Benefits and challenges in B2B E-Commerce include:

• Lower administrative costs
• Lower search costs for buyers
• Reduced inventory costs
• Lower transaction costs
• Increased production flexibility by ensuring just-in-time parts delivery
• Improved quality of products by increasing cooperation among buyers and sellers
• Decreased product cycle time
• Increased opportunities for collaboration
• Greater price transparency
• Increased visibility, real-time information sharing
• However, some risk is posed by increased globalisation and consolidation

The other category of e-commerce is C2C (customer-to-customer), in which individual sellers (not a business entity) sell off
goods that belong to them to other individuals (also not a business entity). This normally happens through a bidding process,
when possible, buyers come in with price offers until the seller decides to whom he/she will sell it to. On the e-Bay website, for
example, an individual who wants to sell his old road bike to raise cash in buying a new one can list his old bike and start with
a minimum bidding price. The bidding process depends on the perceived value of the items on sale, some fetching incredibly
high prices while some do not. In cases where the item for bidding is a collector’s item or a rare vintage piece, buyers may
offer a good price and the seller will receive a good deal. C2C players like e-Bay will normally charge a listing fee, and also
get a cut out of the final purchase price.

Managing different types of E-Commerce Companies

What sells well on the Internet? Surprisingly, the answer to this question would depend on the time period we are referring to.
Today’s e-commerce landscape is far different compared to how it was when it started during the start of the millennium,
hence while almost everything can be successfully sold online today, only a few product categories would have been suitably
sold online when it all started.

Let’s see how it all began. During the earlier years of e-commerce, when people rarely engage in e-commerce due to
skepticism associated with it, the following factors would influence successful e-retailing businesses:
– Selling products of high brand recognition (like Sony, Nike)

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 – Building consumer trust (guarantee, partnerships, proven product quality)
– Selling digitised products
– Selling relatively inexpensive items (customers willingness to buy because it involves small amounts of money)
– Selling frequently purchased items (like groceries, chocolate, clothes)
– Selling commodities with standard specifications (like books, DVDs, airline tickets)
– Selling well-known packaged items that cannot be opened even in a traditional store (foods, chocolates)

Today, everything has changed. For instance, even non-branded items are marketable if they can attract viewers through
social media platforms like TikTok or Instagram, or if they are backed by social influencers who can enhance their credibility
and trust. Expensive items or luxury goods are equally popular online, with the rising number of high-net-worth individuals in
emerging markets and advancements in online payment methods that allow bigger amounts to be processed than before.
The BNPL (buy now, pay later) revolution is also giving access to people who would not have been able to purchase certain
big-ticket items to do it by paying in installments instead. And while people were skeptical about buying clothes or furniture
items online before (due to the inability to try them out before purchase), the power of branding has overcome this skepticism
today. We do not see any problem for fashionwear brands like H&M, Zara, Uniqlo, or even more designer labels like Gucci,
Armani, or Ralph Lauren to sell very well online, while Ikea is also doing well with its online app to help purchasers choose and
buy remotely.

Although recent developments have shown that anyone can sell anything online today, managing the different categories
of e-commerce companies still requires different strategies. This is especially true due to the relative characteristics of pure-
play, pure e-commerce, and click-and-mortar companies,

For example, click-and-mortar companies that have the best of both worlds (combined physical and web presence) need
to:
– Leverage the multichannels
– Speak with one voice
– Empower the customers

On the other hand, strategies for pure-play and pure e-commerce companies tend to be more specific in emphasising the
effectiveness of website design and functionalities.

Managing different categories of E-Commerce Companies

Most B2C companies are public e-marketplaces, which involve third-party exchanges that are open to all interested parties
(sellers and buyers). Very few of them operate on private e-marketplaces, in which the individual sell-side or buy-side
company has complete control over participation in the selling or buying transaction. Often, private e-marketplaces will
restrict their access to selected customers or those with authentic memberships.

In contrast, most B2B e-commerce companies operate via private e-marketplaces because they only buy from a list of
suppliers. Although some of their transactions involve spot buying, in which a company purchases goods and services as they
are needed, usually at prevailing market prices, most of the time they involve strategic (systematic) sourcing. In strategic
sourcing, business companies enter into long-term contracts that usually are based on private negotiations between them
and their suppliers. The quality, quantity, price, delivery, and services associated with the items ordered are finalised in an
agreement between the parties involved, which will normally be executed via virtual private networks.

Types of materials traded within the B2B market include:

 Direct materials: Materials used in the production of a product (e.g., steel in a car or paper in a book)
 Indirect materials: Materials used to support production (e.g., office supplies or light bulbs)
 MRO (maintenance, repair, and operation): Indirect materials used in activities that support production

When dealing with direct materials, which are sourced in huge quantities over a steady period of time, most B2B companies
will use the Request-for-Quotation or RFQ approach to solicit bids from potential suppliers. This tender process will follow a
reverse auction process as the lowest bidder (who offers the lowest price) will normally be awarded the contract to supply.

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This form of auction is the opposite of the forward action that is normally conducted in C2C, where sellers will only sell to the
buyer who offers the highest price.

The direction of trade in B2B markets involve:

 Vertical marketplaces: Markets that deal with one industry or industry segment (e.g., steel, chemicals)
 Horizontal marketplaces: Markets that concentrate on service, materials, or a product that is used in all types of
industries (e.g., office supplies, PCs)

In the B2B market:

• Digital networks are used to coordinate among firms engaged in business together
• Typically evolve out of a large company’s internal enterprise system
– Key, trusted, long-term suppliers, are invited to network
• Example: Walmart’s network for suppliers

Industry value chains are introduced:

• Set of activities performed by suppliers, manufacturers, transporters, distributors, and retailers that transform raw inputs
into final products and services
• Internet reduces the cost of information and other transactional costs
• Leads to greater operational efficiencies, lowering cost, and prices, adding value for customers

Firm value chains:

• Activities that a firm engages in to create final products from raw inputs
• Each step adds value
• Effect of the Internet:
• Increases operational efficiency
• Enables product differentiation
• Enables precise coordination of steps in a chain

Firm value webs:

• Networked business ecosystem
• Uses Internet technology to coordinate the value chains of business partners
• Coordinates a firm’s suppliers with its own production needs using an Internet-based supply chain management
system

Internet Business Model

There is no one correct way to categorise the Internet business model. However, according to our text, it can categorised
based on the e-commerce sector (e.g., B2B) or e-commerce technology (e.g., m-commerce). Similar models may appear in
different sectors, while companies may also use multiple business models (e.g., eBay) depending on the situation. More often
than not, companies will treat these business models as e-commerce enablers for them to operate in today’s business
landscape. The following are common B2C and B2B business models:

B2C Business Model: E-tailer

• Online version of traditional retailer
• Revenue model: Sales
• Variations:
– Virtual merchant
• Amazon, Newegg, Overstock, Wayfair, Blue Nile
– Omni-channel merchants (bricks-and-clicks)
• Walmart, Macy’s, JCPenney, Staples, Target
– Catalog merchant
• Lands’ End, L.L. Bean, CDW Corp, Cabela’s
– Manufacturer-direct
• Apple, Dell, Sony

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 – Channel conflict
• Move from the supply-push model to demand-pull

B2C Business Model: Community Provider

• Provide an online environment (social network) where people with similar interests can transact, share content, and
communicate
– Examples: Facebook, LinkedIn, Twitter, Pinterest
• Revenue models:
– Typically, hybrid, combining advertising, subscriptions, sales, transaction fees, and so on

B2C Business Model: Content Provider

• Digital content on the Web:
– News, music, video, text, artwork
• Revenue models:
– Use a variety of models, including advertising, subscription, sales of digital goods
– Key to success is typically owning the content
• Variations:
– Syndication
– Aggregators

B2C Business Model: Portal

• Search plus an integrated package of content and services
• Revenue models:
– Advertising, referral fees, transaction fees, subscriptions for premium services
• Variations:
– Horizontal/general
– Vertical/specialised (vortal)
– Search

B2C Business Model: Transaction Broker

• Process online transactions for consumers
– Primary value proposition—saving time and money
• Revenue model:
– Transaction fees
• Industries using this model:
– Financial services
– Travel services
– Job placement services

B2C Business Model: Market Creator

• Create a digital environment where buyers and sellers can meet and transact
– Examples: Priceline, eBay
– Revenue model: Transaction fees, fees to merchants for access
• On-demand service companies (sharing economy): platforms that allow people to sell services
– Examples: Uber, Airbnb

B2C Business Model: Service Provider

• Online services
– Example: Google—Google Maps, Gmail, and so on
• Value proposition
– Valuable, convenient, timesaving, low-cost alternatives to traditional service providers
• Revenue models:
– Sales of services, subscription fees, advertising, sales of marketing data

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B2B Business Model: E-Distributor
• Version of retail and wholesale store, MRO goods, and indirect goods
• Owned by one company seeking to serve many customers: E-distributors are firms that bring the products of
thousands of suppliers into a single online catalog for sale to thousands of buyer firms. E-distributors are sometimes
referred to as one-to-many markets, one seller serving many firms.
• Revenue model: Sales of goods
• Most common type of Net marketplace
• Electronic catalogs representing products of thousands of direct manufacturers
• Typically, independently owned intermediaries
• Offer industrial customers a single source to purchase indirect goods (MRO) on a spot basis
• Typically, horizontal
• Usually, fixed-price discounts for large customers
• Example: W.W. Grainger, Amazon Business

B2B Business Model: E-Procurement

• E-procurement Net marketplaces aggregate hundreds of catalogs in a single marketplace and make them available
to firms, often on a custom basis that reflects only the suppliers desired by the participating firms.
• Creates digital markets where participants transact for indirect goods
– B2B service providers, SaaS and PaaS providers
– Scale economies
• Revenue model:
– Service fees, supply-chain management, fulfillment services
• Independently owned intermediaries
• Connect hundreds of suppliers of indirect goods
• Firms pay fees to join the market
• Long-term contractual purchasing of indirect goods
• Revenues from transaction fees, licensing consultation services and software, network fees
• Offer value chain management (VCM) services
• Many-to-many market
• Example: Ariba

B2B Business Model: Exchanges

• Independent exchanges bring potentially thousands of suppliers to a vertical (industry-specific) marketplace to sell
their goods to potentially thousands of buyer firms. Exchanges are sometimes referred to as many-to-many markets
because they have many suppliers serving many buyer firms.
• Independently owned vertical digital marketplace for direct inputs
• Revenue model: Transaction, commission fees
• Create powerful competition between suppliers
• Tend to force suppliers into powerful price competition; number of exchanges has dropped dramatically
• Independently owned online marketplaces
• Connect hundreds to thousands of suppliers and buyers in a dynamic, real-time environment
• Vertical markets, spot purchasing in a single industry
• Charge commission fees on a transaction
• Variety of pricing models
• Tend to be buyer-biased
• Suppliers disadvantaged by competition
• Many have failed due to low liquidity

B2B Business Model: Industry Consortia

• Industry consortia bring thousands of suppliers into direct contact with a smaller number of very large buyers. The
market makers provide value-added software services for procurement, transaction management, shipping, and
payment for both buyers and suppliers. Industry consortia are sometimes referred to as many-to-few markets, where
many suppliers (albeit selected by the buyers) serve a few very large buyers, mediated by a variety of value-added
services.

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 • Industry-owned vertical digital marketplace open to select suppliers
• More successful than exchanges
– Sponsored by powerful industry players
– Strengthen traditional purchasing behavior
• Revenue model: Transaction, commission fees
• Industry-owned vertical markets
• Purchase of direct inputs from a set of invited participants
• Emphasise long-term contractual purchasing, stable relationships, creation of data standards
• Ultimate objective:
– Unification of supply chains within entire industries through common network and computing platform
• Revenue from transaction and subscription fees
– Many different pricing mechanisms
• Can force suppliers to use consortia’s networks

Business Model Disruption

Disruptive technologies, such as the Internet, have allowed businesses to develop new products and services that change
the way things work. These digital disruptions are powered by disruptive technologies that function in complete opposite to
sustaining technologies. While sustaining technologies will have an incremental impact on the way certain work processes
are done, disruptive technologies have the capability to completely alter the entire process. As an example, Internet access
through increasingly available smartphones has enabled the introduction of on-demand services like e-hailing and food
delivery.

If one were to scrutinise the stages that a company like Grab has to go through before it becomes a sustainable tech
company today, the idea of disruption will be easier understood:
• Disruptors introduce new products of lower quality (Grab originally began by introducing a mobile app called MyTeksi
for taxi drivers to connect to the customer base, but it was not an instant hit in the market at the time when
smartphones were still too expensive and Internet connectivity was not widely available for the masses)
• Disruptors improve products (Grab eventually transitioned into the Uber-like service, albeit minus the exclusivity
associated with it but emphasizing the convenience and security elements instead; by then the market was ready
for it since Internet connectivity has improved and more people were able to own the increasingly affordable
smartphones)
• New products become superior to existing products (this new app became a hit not only among customers but also
attracted partners in the form of drivers and riders, as well as restaurants; even managed to dominate the market by
negotiating a win-win strategy that involved the exit of Uber from Southeast Asia)
• Incumbent companies lose market share (the traditional taxi services have long been beaten by this new on-demand
service as people saw the benefits and privileges associated with it)

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