Tuesday, February 13, 2007

e-Business Models Theoretical Review

Amit and Zott (Amit 2001) argue that each mentioned theoretical framework makes valuable suggestions about possible sources of value creation. Many of the insights gained from cumulative research in entrepreneurship and strategic management are applicable to e-business. However, the multitude of value drivers suggested in the literature raises the question of precisely which sources of value are particular importance in e-business, and whether unique value drivers can be identified in context of e-business (Amit 2001). Amit and Zott (Amit 2001) introduce a model that suggests that the value creation potential of e-businesses hinges on four interdependent dimensions, namely: efficiency, complementarities, lock-in, and novelty. To enable an integration of the mentioned theoretical perspectives on value creation, they offer the business model construct as a unit of analysis for future research on value creation in e-business. While the term ‘business model’ is often used these days, it is seldom defined explicitly. The rise of e-commerce, with its myriad new firms eschewing conventional ways of doing business, has thrown, a spotlight on the topic, which is widely discussed by practioners and investors, but is not yet prominent in academic discourse (Chesborough and Rosenbloom 2002). Chesborough and Rosenbloom (2002) offer a more detailed and technology operational definition with six functions of a business model: value proposition, markets segment, value chain, profit potential, value network, and competitive strategy. [add figure p 536](Chesborough and Rosenbloom 2002)

Several attempts have been made thus far to define models, specifically e-business models. Timmers (1998) presents a widely cited definition of an architecture for the product, service and information flows, including a description of the various business actors and their roles; and a description of the potential benefits for the various business actors; and the description of sources of revenues (Timmers 1998). The definition of Timmers (1998) is like Hawkins (2001) definition more concrete: a description of the commercial relationship between a business enterprise and the products and/or services it provides in the market. More specifically, it is a way of structuring various cost and revenue streams such that a business becomes viable, usually in the sense of being able to sustain itself on the basis of the income it generates (Hawkins 2001).
These definitions share that a business model seems to influence the potential revenues and the future success of the e-Business initiative (Alt and Zimmermann 2001). According to Owens (Owens 2006) successful e-business depends on a level of trust between parties to a transaction that is not normally evident in traditional business dealings. Trust means that parties to a transaction will not attempt to exploit the weakness(es) of each other. According to Weill and Vitale (2001) an e-business model is a description of the roles and relationships a firm’s consumers, customers, allies and suppliers that identifies the major flows of product, information, money and the major benefits to the participant. They define eight infinitesimal e-business models and consider six areas: strategy, organisational structures, business processes, value chain, revenue stream, and core competences. These aspects are strongly related to the six aspects mentioned by Chesborough and Rosenbloom (2002). Another view of web-based business models provides the list of nine generic e-business models of Rappa (Rappa 2000).

The central core of e-business is the customer: customer service, transaction data and customer relationship management. Three important questions to answer are (Weill 2001): Who owns the customer relationship, customer data, and customer transaction? This view can also be seen in Amit and Zott’s article (Amit 2001): They argue that a business depicts the content, structure, and governance of transactions designed so as to create value through the exploitation of business opportunities.

Developing e-business models for conducting e-business is not simply about the adoption of new technologies. It also concerns changes in work practices, in customer/supplier relationships, in the way products are delivered to consumers, in marketing practices and changes in staff skills needed to support e-business. Accordingly, e-business models signify new opportunities for re-organizing the way businesses are currently practiced (Vassilopoulou 2001).

At the beginning of the Internet there was a marvellous model for making money in the online environment: it was called the content business. The economic basis for it: connect-time revenue splits. It is the time-honored mode that made often small or unknown content providers on e.g. America Online (AOL) rich and famous. The business model was simple: people who supplied content to online services got credit for helping keep users online. Since users paid by minute or hour, this generated connect-time revenues that were allocated according to a negotiated split between content providers and online services. Internet Service Providers shifted to a flat-rate monthly pricing and so along came the second major commercial model in the online world: the advertiser-driving business model: selling ‘eyeballs’ too advertisers. Only a few could play profitably (e.g. Yahoo) but for most companies, advertising just was not a business. The third economic model, e-commerce, entered. E-Commerce refers to the practice of selling real products for real money through online channels. The argument was that a lower-cost channel structure resulting form the “disintermediation” of middleman could reward new intermediaries, such as Web-based retailers, with fatter margins (e.g. Amazon.com).
Because of competition companies adopted the fourth model: monetizing concept. E-commerce companies in which strategy revolves around the idea of never making a profit selling real products for real money (e.g. Buy.com). The model argues that online businesses must first capture large audiences of users or shoppers, and then later monetize those audiences through subscription fees, advertising and –ecommerce through a variety of cross-selling, up-selling and service-based approaches sometime in the future. The idea is to encourage investors to supply what was know in the 1980’s as “patient capital”, by suggesting that we are in a long-term investment phase in Web businesses. The investment in customer relationships, and harvest time is yet to come. This model deals with long-term relationship with customer and brand (Rayport 1999).

Alt, R. and H. Zimmermann (2001). "Business Models." Journal on Electronic Markets 11(1).

Amit, R. a. Z., C. (2001). "Value Creation in E-Business." Strategic Management Journal 22: 493-520.

Chesborough, H. and R. Rosenbloom. (2002). "The role of the business model in capturing value from innovation: evidence from Xerox Corporation's technology spin-off." Industrial and Corporate Change Retrieved 3, 14.

Hawkins, R. (2001). The "Business Model" as a Research Problem in Electronic Commerce. N4. I. Report.

Owens, J. (2006). "Electronic Business: A business model can make the difference." Management Services.

Rappa, M. (2000). Business Models on the web.

Rayport, J. (1999). The truth about Internet Business Models. Strategy & Business: 4.

Timmers, P. (1998). "Business Models for Electronic Markets." Journal of Electronic Markets 8(2): 3-8.

Vassilopoulou, K., et al. (2001). E-Business Models: A Proposed Framework.

Weill, P. a. V., M.R. (2001). Place to Space: Migrating to eBusiness Models. Boston, Harvard Business School Press.

1 comment:

Gijsbert van der Sleen said...

Hi Vincent, aardige achtergronden. Beetje veel tekst voor een blog (en weinig links).

Op mijn blog ga ik meer in op e-business organisatie modellen maar raak ook aan business modellen, drivers en inhibitors.

In ieder geval succes, en keep me posted!