Central to any market transaction, whether in a geographical or virtual location, is the exchange of information. In a market economy, prices signal information about transactions between consumers and producers and between producers themselves. The equivalent in e-Commerce is Business-to-Consumers (B2C) and Business-to-Business (B2B). The advantage of e-Commerce to consumers is greater access to fuller information on prices of goods and services. The advantage to producers is they can directly access a greater market potential for their goods and services.
Examples of B2C include Amazon.com, the online retailer of books, music and games. Amazon started achieving profitability ($5 million) only in the last quarter of 2001 after having invested $3 billion in its short life, much of which has been spent establishing itself as an online brand and creating a fulfillment system (Economist, 1999). The disadvantage for many B2C companies dealing in tangible goods is the lack of a distribution system that is reliable and economically efficient. These firms to date have difficulty obtaining the economies of scale and scope derived by large retail outlets in conventional shopping malls.
Enterprise portals are the business-to-business (B2B) equivalent of the consumer-oriented portals after which they are modeled. But rather than offering access to consumer goods, services, and information, enterprise portals are designed to give each individual using them, executives, employees, suppliers, customers, third-party service providers, unique view of the company providing the portal. An individual’s home page in the portal is an analog to the workplace for the artisan of old, hence our use of the term workplace to describe the most sophisticated enterprise portals. Within this virtual workplace individuals can find all of the business information, applications, and services needed to perform their jobs:
Information consists of consolidated data from inside the company’s internal systems, as well as information from outside sources such as industry associations, the trade press, and information-focused marketplaces.
Applications consist of job-specific software tools.
Services consist of job-related assistance provided from inside or outside the company.
Unlike B2B companies, B2C businesses, either start-up dotcoms or retailers trying to transform themselves into etailers, must spend millions of marketing dollars to get consumers to change their buying habits and buy over the Web (Parker, 2000). In the next few years, they may convince 20 or 30% of their customers to use this new channel. A manufacturer, however, can easily make it very attractive for its suppliers, logistics providers, and distributors to engage in transactions over the Web by establishing e-marketplaces that lower cost, streamline processes, and reduce cycle time. Because of the obvious and immediate advantages, buyers’ and/or suppliers’ acceptance of the Web as a business medium will be far more rapid than that of retail consumers. E-business is forcing corporate executives to operate outside of their comfort zone. A company engaging in e-business is no longer defined solely by its product, history, industry, and relationship to its suppliers, competitors, and customers, who could be local, national, or global. Rather, it is defined by a new set of rules dictated by the evolving e-business environment.
As business processes and applications converge, competition increasingly comes from outside traditional industries or industry segments. For example, in some countries, energy is being deregulated and electric power companies are becoming both producers and transmitters of electricity. In addition, in this new business model, some transmission companies are redefining themselves as specialists in billing and customer relationship management for other companies. Some are supplying other sources of power such as oil and natural gas, and still others are supplying home appliances such as stoves and air conditioning units. A generation or two ago, industry leaders could not even have imagined such transformations. Nor could they have envisioned the way products and services are presently being packaged and offered. Today’s savvy corporate leaders, however, are embracing this vision to move their companies to the next level. They understand that those who do not continuously reinvent themselves are doomed to selling commodity products and services in a world increasingly dominated by ever-more finely tuned customer value propositions.
The Web does offer a new medium by which vendors can bring their goods and services to the market. Though there are many accounts that describe the business models evident on the Web, there are no definitive and wholly consistent frameworks. Some base their definitions on revenue streams, a sub-set that includes advertising, subscription, pay-per-view and transaction (and combinations thereof). Amazon, for example, sells books on which it makes revenue per book sold, and also carries advertising, generally for complementary products and services. Thus if you were to buy a travel book, for example, you might also be linked to holiday companies that offer trips to the book’s destination.
Others define models by function. One comprehensive taxonomy is provided by Paul Timmers, who, whilst focusing on B2B e-Commerce, cites eleven different business models. These are not mutually exclusive, and through them, he argues, a further set of marketing models can be pursued. The majority of these models, he asserts, are not inherent innovations but merely manifestations of business models existing in the ‘off-line’ world. Thus an ‘e-shop’ is merely a shop that uses electronic means of marketing. However, by contrasting degree of innovation with level of functional integration Timmers highlights models that would be unfeasible without the level of electronic mediation offered by the Internet and World Wide Web. These include ‘Value-chain integrators’, which are ‘critically dependent on information technology for letting information flow across networks and creating added value from integrating these information flows’ (Timmers 2000:41-2) and other models such as ‘third-party market places’, ‘collaboration platforms’ and ‘virtual business communities’.
The promise of a new business model, held out by B2C, has not lived up to expectations. Expectations of the much larger B2B sector as a set of new and large profitable opportunities remain unfulfilled. Many standardized financial products were traded profitably in real time by electronic media before Internet access. In developing new business models based upon Internet access, recognition has to be made of where and how appropriate is the medium for transactions in certain goods and services. For computer manufacturers like Dell, the Internet provides a very good global marketing application. Similarly, for businesses like low-cost airlines, the transaction costs advantages of Internet transactions are imperative. There are now greater possibilities for e-Learning as a new business model, as universities and other education providers around the world develop strategic alliances with international publishing companies and telcos. It opens up the prospect of their buildings and facilities becoming twenty-four-hour assets. However, strategic alliances are notoriously unstable and believing that technology of itself will transform the education world and the learning environment is raven with the same dangers experienced by the disciples of the dotcom hype. It is management and product innovation, and the delivering technology, that will be the basis of new business models in e-Commerce and not the technology itself.
The business environment for e-Commerce may look less promising in the global recessionary environment as the new century moves into the middle of its first decade. However, if the lessons of the failure of the new economy to mature, the dotcom to dot-bomb implosion and the stock madness are learned, then the Internet and associated media may be part of new business models. This will depend on getting the direction of causality. Three and a half centuries after the claim that supply creates its own demand was first falsely mooted, technology does not create its own business model. This is the fundamental lesson to be derived from the business environment for e-Commerce.
Economist (1999) ‘You’ll never walk alone’, Survey Business and the Internet, 26 June.
Parker, R. (2000) Relationship Marketing on the Internet, Holbrook: Adams Media.
Timmers, P. (2000) Electronic Commerce: Strategies and Models for Business-to-business Trading, New York: Wiley.
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