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Lesson 4 E-Commerce business model basics
Objective Define B2B, B2C, and e-marketplaces.

E-Commerce Business Model Basics

With a basic understanding of the influence of e-commerce on business models, let us delve a little deeper into the basic e-commerce business models themselves.

B2B and B2C

The generally accepted terms for the two basic classes of e-commerce sites are "B2C," which stands for "business-to-consumer," and "B2B," which stands for "business-to-business."
Essentially, B2C e-commerce sites market, sell, service, and fulfill products and services to consumers, while B2B sites offer products and services to businesses. The basic characteristics of B2B and B2C sites are discussed later in the lesson.

The hybrid e-marketplace

Over the past few years, however, a third type of e-commerce site has emerged, known as an e-marketplace. In earlier days of the Web, private, shared B2B sites were developed, and often referred to as "extranets." An extranet, however, that can dynamically expand to new buyers and suppliers, is an eMarketplace, and in many cases the term "eMarketplace" has replaced or become interchangeable with extranet. An e-marketplace acts as a virtual bazaar, where suppliers with a wide range of products and services can put their goods up for sale, and buyers can peruse the marketplace for goods/services they might be interested in purchasing. In many cases, the prices are negotiable. Though many of the early e-marketplaces (which are also known as auction sites) appealed to consumers, like a virtual flea market, many industries and B2B buyers invested in e-marketplace development and usage over the past 18 months.

Setting up an e-commerce Web site

The basic building blocks for setting up an e-commerce Web site, whether B2C or B2B, can be observed in the variables that drive a business-to-consumer e-commerce model. Businesses typically create some version of the Web storefront as an interface with their customers. Let us start by reviewing the B2C model in more detail.

The B2C model

In the business-to-consumer e-commerce model, commerce is conducted between a consumer, such as a home user on a PC, and a business. For example, to buy books or CDs on the Internet, the consumer accesses the business' Internet site and makes purchases.

Characteristics of the B2C model

Purchases: The business-to-consumer e-commerce model is characterized by high volume and low prices (for example, one consumer buying a CD or book costing more than $20), and is driven by few variables. In most cases, the buyer already has a sense of what they want; price and availability (plus brand trust where applicable) drive the decision.
Process: Issues such as inventory, shipping, and suppliers all vary depending on the type of product or service supplied. Still, this model is often less complex than its business-to-business counterpart. Since most B2C purchases are discretionary, even a simple lack of fulfillment or a late fulfillment is an annoyance. In B2B, lack of fulfillment can break a business.
Buying incentives: The consumer may be motivated to purchase for reasons other than price and efficiency, such as compelling information or compelling site design. Consequently, the business-to-consumer Web site must be attractive and usable in addition to offering a product or service desired by the consumer.

The B2B model

In the business-to-business e-commerce model, businesses offer their goods for sale to other businesses, either on a Web site, or through an intermediary marketplace. In addition, buyers have recently been empowered to search out suppliers through the use of e-procurement Web solutions.
B2B typically involves purchases that (a) carry much higher price tags than B2C, and (b) represent the critical exchange of raw materials, parts, services, and commercial finished goods that enable the receiver to then do business. B2B e-commerce sites, therefore, usually carry far more stringent requirements for security and reliability than B2C sites.

Characteristics of the B2B model

Provide a visual catalog: B2B sites still need to offer a storefront of some kind, though often B2B sites offer products and services through a visual catalog, which may go into extensive detail about the product.
Since business goods buyers tend to be sensitive to availability and delivery schedules and costs, B2B sites often display inventory information and offer a variety freight options.
B2B e-commerce also needs to support the negotiation of contracts, or at least the display of pre-existing contracts, and the ability to negotiate price in real time to obtain real-time confirmation and the tracking of orders/fulfillment.
In addition, B2B often can involve third parties, such as warehouses, financial institutions (for letters of credit, for example), and other servicing intermediaries. These partners have links from a B2B site, or may actually provide their services directly on the B2B site of a supplier or buyer.

B2B and B2C security

Finally, most B2B sites and e-marketplaces run in a fully secure mode.
Many B2C e-commerce sites let any Web surfer onto the site, who then can peruse the virtual store; B2C users usually only enter in "secure" mode when they are actually making the payment for their purchases.
Since B2B often involves sensitive timing and information, as well as complex, high-value payments, security is of utmost importance. In fact, many B2B sites require some kind of preauthorization based on proof of legitimacy (such as a pre-existing contract, or credit line) in order to gain access.

Factor B2C B2B
Purchases High volume and low prices Fewer actual purchases, but each purchase tends to cost significantly more
Buying incentives Price, fulfillment efficiency, site usability, and attractiveness Trust, brand, price, availability, information, customer service, and fulfillment remediation.
Goods and services Consumer services and commercial finished goods Business services, raw materials, parts, and commercial finished goods
Process Varying management of process: Inventory, shipping, and suppliers vary widely Adhere to more specific process management, and generally offer the following:
Display of products and services information, inventory information, and shipping options, support for real-time transactions, and involvement of suppliers and third parties
Security and reliability requirements Low security; less emphasis on reliability (though still very important) Stringent requirements for security and reliability - almost no allowable room for error

Business Model Basics - Exercise

Click the Exercise link below to complete an exercise on locating typical B2B and B2C websites.
Business Model Basics - Exercise
In the next lesson you will learn more basic technologies associated with e-commerce.