Business Models and
e-Commerce
Jason C.H. Chen
Professor, MIS
School of Business
Gonzaga University
Spokane, WA 99258
[email protected]
Widespread Use on ...
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Button
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Bicycle
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invented in 1876, needed 35 years to find the beginnings of a
mass market
Television
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appeared in 1818 and took 50 years to catch on
Telephone
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a 13 century invention, took 400 years
took 26 years
PCs
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took 16 years
Business Models and e-Commerce; Dr. Chen
TM -2
Internet Society –
Each Media Reach to 50 Million
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Radio 38 years,
Television 13 years,
Cable TV 10 years,
Internet users only took
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5 years to reach this goal.
Business Models and e-Commerce; Dr. Chen
TM -3
Business Model vs. Revenue
Model
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Business model is the architectural
configuration of the components of
transactions designed to exploit
business opportunities.
Revenue model refers to “the specific
ways in which a business model enables
revenue generation.
N
Business Models and e-Commerce; Dr. Chen
TM -4
Business vs. Revenue Model
Business Model
Revenue Model
Value creation
Value appropriation
It describes the way in which
a company enables
transactions that create value
for all participants, including
partners, suppliers and
customers.
Business Models and e-Commerce; Dr. Chen
It can be realized through a
combination of
- subscription fees,
- advertising fees,
- transactional income (e.g., fixed
transactional fees, referral fees,
fixed/variable commissions, etc)
TM -5
What is Business Modeling?

Business modeling is the activity of
representing aspects of or concepts
from the business in a diagrammatic
notation or simulation, using an
abstraction to reveal only the desired
elements.
Business Models and e-Commerce; Dr. Chen
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Four Key Drivers
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1.
2.
3.
4.
Efficiency
Complementarities
Lock-In
Novelty
Business Models and e-Commerce; Dr. Chen
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1. Efficiency

Internet makes it possible to increase
efficiency in several ways.
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Information asymmetries between buyers
and sellers
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sellers provide information to buyer via Internet
reverse market (buyers …)
A business model can unlock hidden value by enhancing
transactional efficiencies by enabling:
- reduced search costs,
- transaction spped,
- reduced distribution costs,
- reduced inventory costs, etc.
Business Models and e-Commerce; Dr. Chen
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2. Complementarities
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Companies can leverage value creation
for their products (and services) from
other suppliers
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be able to play a vital part in building
online virtual communities.
be able to capture the benefits from
combining online with offline business
Business Models and e-Commerce; Dr. Chen
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3. Lock-in
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The ability to prompt users to engage in
repeat transactions
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creating switching costs (from loyalty
programs)
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e.g., Amazon’s “one-click” ordering systems
free e-mail services
providing transaction safety
creating the perception of trust
providing customization and personalization
Business Models and e-Commerce; Dr. Chen
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4. Novelty
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Innovation has always involved the
introduction of novel products or
services or processes.
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Internet offers limitless possibilities to
innovate in the manner in which
transactions are enabled - by introducing
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new business and
revenue models
Business Models and e-Commerce; Dr. Chen
TM -11
Table Internet Revenue Models
Revenue Type
Description
Product sales
Sell or license physical or information-based product
Advertising
Market other companies’ products or promotions
Subscription fee
Charge for regular receipt or product or information
Membership fee
Charge to belong to a private group or services
Commission or transaction
fee
Agent, broker, or intermediary charges for service provided
Service/consulting fee
Charge for services provided
Table Properties of Digital Information that Influence its Economic Value
Reusable
Can be sold without transferring ownership
Can be consumed without being depleted
Customizable
Can be presented in different forms (e.g., video, audio, text)
Can be broken up and reconfigured
Time-valued
The inherent time value of information can be exploited
Value can be degrade (or increase) over time
Productized
Can be used to create new products and services or enhance the
value of existing ones.
Conclusion
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Companies are rapidly changing and
evolving their business models in order
to adapt to the rapidly changing market
conditions.
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Traditional or legacy firms may combine
their online operations with existing offline
business, are well positioned to
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draw liquidity (I.e., transaction volume), and
take advantage of complementarities and
create lock-in
Business Models and e-Commerce; Dr. Chen
N
TM -13