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E-commerce Fundamentals  «Prev  Next»

Business model changes associated with the Web

  1. Sales: Web prospects and customers can configure their own pricing, choose their own shipping, make the payments, and track the fulfillment - all without the aid of an actual salesperson.
  2. Service: Access to customer support specialists through email or chat not only keep Web-centric customers happy, but can reduce the overall operational costs of customer service.
  3. Competition: The cost of using the Web as a retail outlet typically is far less than the costs of a physical store, and a rash of new competitors should be expected.
  4. Marketing: A buyer can compare the websites, and thus the products, prices, and associated services of competitors. This can translate into changes in product mix, pricing, branding, and campaigns.

Web business models have once again taken center stage. However, many of the predictions concerning the impact of the newer models will require several more years of maturation before they will influence most organizations.

What is a business model?

In the most basic sense, a business model is the method of doing business by which a company can sustain itself, by generating revenue. The business model spells-out how a company makes money by specifying where it is positioned in the value chain. A company produces a good or service and sells it to customers. If everything goes well, the revenues from sales exceed the cost of operation and the company realizes a profit.
Profit = Sales - (Cost of Operation)

Other models can be more intricately woven and broadcasting is a good example. Radio and television programs have been broadcasted over the airwaves free to anyone with a receiver for much of the past century. The broadcaster is part of a complex network of
  1. distributors,
  2. content creators,
  3. advertisers , and
  4. listeners or viewers.
Who makes money and how much is not always clear at the outset. The bottom line depends on many competing factors.
Internet commerce will give rise to new kinds of business models. In addition, the web is also likely to reinvent tried-and-true models and auctions are a perfect example. One of the oldest forms of brokering, auctions have been widely used throughout the world to set prices for such items as
  1. agricultural commodities,
  2. financial instruments, and
  3. unique items like fine art.
The Web has popularized the auction model and broadened its applicability to a wide array of goods and services.
Business models have been defined and categorized in many different ways. This is one attempt to present a comprehensive taxonomy of business models observable on the web. The proposed taxonomy is not meant to be exhaustive or definitive and internet business models continue to evolve.