e-Business Models

e-Business Models
Prof. Dr. Nabil ElArabi

It is safe to assume that in the future, every firm in every industry

will use the Internet in one way or another. The organizational
structure of businesses will be built on intranets, while all their
products will be advertised, sold and distributed via the Internet. If
physical shipment is required, it can be ordered and monitored via
the Internet. 1

Introduction
e-business refers to doing business activities online. e-business model has key elements.

We need to understand different aspects of the design and implementation of ecommerce.

We would also study what are the various possibilities of generating revenue by these

online shopping stores. All subsequent models (design models, implementation models and

revenue models) are important constituents of the bigger concept of defining the business

model of e-commerce.

Definition of business model

A business model is a framework used to design and depicts how a business might create

and capture value. It a high-level plan for profitably operating a business in a specific

marketplace. Successful businesses have business models that allow them to fulfill client

needs at a competitive price and a sustainable cost.

An e-business model includes detailed answers for the following questions:

1. Core business focus (why are we doing the business, who are our target

customers/ beneficiaries)

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2. Design priorities (why are we going online? to improve our brand positioning,

to promote the business across various geographies, to eliminate intermediaries

or all of them)

3. Implementation strategies (how would this business go online, directly or

through existing online aggregators etc.)

4. Revenue mechanisms driving that business (how the money flows – directly

through sales or advertisements etc.).

Main components of a business model

To ensure that all these basic questions are adequately addressed, following are

some simple steps to create a strong business model.

1. Identify your specific audience: Targeting a wide audience won’t allow a

business to identify the right customers, who truly need and want the product

or service. Instead, when creating a business model, narrow down the

audience (expected buyers) number and do detailed study of the buyer

personas. Outline each persona’s demographics, common challenges and

the solutions of the company that it will offer.

2. Establish business processes: Before the business can go live, make a clear

understanding of the activities required to make the business model work. It

is important to determine the key business activities to establish a proper

business process. It is important to identify the core aspects of the business’s

offering.

3. Record key business resources: What does a company need to carry out

during daily processes, find new customers and reach business goals?

Document essential business resources to ensure the business model is

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adequately prepared to sustain the needs of the business. Common example

that a business may need includes a website, capital for the business to start

running, warehouses, and the customer lists.

4. Determine key business partners: No business can function properly (let

alone reach established goals) without key partners that support the

business’s ability to serve customers. While building a business model it is

significant to choose the key partners like for example suppliers, strategic

alliances, or marketing partners.

5. Develop a strong, preferably a unique value proposition: For standing

among other competitors a company needs to provide some additional value

proposition to the customers in the form of an innovative service, or a

revolutionary product. Value proposition is about giving the value to the

business and how it stands out from other businesses in the market. Once

the business has got a few value propositions, then it is important to link

each of them to a service or product delivery system to determine how the

business would remain valuable to the customers over time.

Keeping these five elements in mind, will lead to the creation of a solid business

model capable of fueling the success of a new business entity.

Once we are clear about what a business model is and how it is created, we shall

move on to apply this basic knowledge in understanding this from the perspective of an e-

commerce business.

Typically for an e-commerce business, a clearly defined business plan usually must

include the following four subtypes of related models:

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a. Customer Based Business Model - Model that would help decide who is the

ultimate target beneficiary of the proposed e-commerce initiative.

b. Design Model –Model that would help to decide the priority for designing

the proposed e-commerce website.

c. Implementation Model–Model that would decide how we implement the

proposed e-commerce initiative including how we reach our customers, how

we sale them, how we transact a sale, how we deliver the products/ services.

d. Revenue Model–Model that would help us to generate revenue for the

ecommerce initiative.

Customer-Based Business Model

Choosing and applying the right e-commerce business model is complicated- especially if

it is a new product / service not been launched by anybody else. These models vary

depending on the target customer (or ‘buyer’), available resources, and capabilities of both

the seller and the customer.

For an easy revision, the general e-commerce business models, based on the category of

the customers are summarized herewith.

1. Business-to-Business (B2B): Business-to-business (B2B) e-commerce portal is the

one where the business is conducted between two business entities using this portal, such

as between a manufacturer and a wholesaler or between a wholesaler and a retailer.

As is evident, B2B transactions happen, where one business entity, say an automobile

company purchases its varied accessories from various suppliers using a dedicated web

portal/website/app. For example, Toyota motors have their own B2B web portal to connect

to all its business partners which is not accessible to the individual buyers.

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Drop Box is a B2B e-commerce model. It provides cloud-based file management services,

where all the team members have access to the work account created in Drop Box to store,

share, and collaborate on files.

2. Business - to - Consumer (B2C): this model of e-commerce is primarily for those

business entities (retailers, whole sellers and manufacturers) who want to sell their

products(or services) directly to their consumers using online stores.

3. Consumer - to –Consumer(C2C) :When individuals want to sell their own services

, or a product ( usually the used / second hand/ pre-owned products) using Internet then

they use C2C e-commerce web sites/ portals such as OLX, eBay, Craigslist and so on.

These C2C online stores often use classified advertisements or may use online bidding /

auction systems to attract customers.

4. Consumer- to - Business (C2B): In the C2B model, individuals (customers) sell

their products or services to a business. Using this model, a business entity can typically

extract values from the customers by taking their business suggestions or by getting their

feedback or reviews on the existing products.

Furthermore, there are dedicated freelancer C2B platforms like ‘Up work online transaction

platform’ and ‘Fiverr’ who ‘crowd source’ freelancing services from individuals and pass

it on to the businesses who need it, obviously on contract and short-term basis.

Also, C2B concept is also used to monetize the ‘influencing’ quotient of a popular

individual to ‘sell’ or ‘brand’ a business. Influencers with high social media following,

encourages their fans and followers to buy a particular product/service or to take an action.

With present social media hype, influencer-matching marketplaces like ‘Ifluenz’ are on the

rise as new, innovative forms of C2B.

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Once the customer has been identified and a suitable model picked up, we move on to

define the design and implementation models of e-commerce.

Design Models
The four models that are associated with the informational/communicational design are:

Brand awareness and image building model , Promotion model , Infomediary model,

Customization model

a. Brand awareness and image building model: Web sites that are using this model

provide detailed and rational information about the firm and its offerings. The model

reaches motivated and desperate customers with an information/image-rich

communications message. In this type of model, the entry barriers are low, so, smaller firms

can set up this kind of site as well. The website of Ford (www.ford.com) and Reebok

(www.reebok.com) are examples of brand awareness and image-building models. As the

website of ‘Ford’, not only lists all the models of its seven famous automotive brands, but

also posts about its environmental policy, cleaner manufacturing, and community

involvement.

Similarly, the website of Reebok lets its visitors read about sports and fitness, hear from

Reebok-sponsored athletes, and learn more about Reebok’s human-rights activities, among

other things.

b. Promotion model: This website model is based on lucrative ‘advertisements’, which

are attracting a potential customer to a site. Sometimes, this model tries to provide free

digital gifts such as discount coupons, cash backs, gift cards, etc. The website of ‘Kodak’

(www.kodak.com) is an example of the promotion model because it provides technical help

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and tutorials for its digital cameras and offers a library of colorful, high-quality digital

images that are made downloadable.

c. Infomediary model: The term ‘Infomediary’ is a composite of two terms –

‘information’ and ‘intermediary’. This website model aggregates information from

multiple electronic commerce retailers (intermediaries) and provides services of searching

and comparison for Internet customers. This model sometimes offers free Internet access

or free software in exchange for detailed information about customer’s surfing and

purchase habits. The collected customer data is valuable and is used for designing

customized products and for target marketing campaigns. Some firms even work as

infomediaries by collecting and selling information to other businesses.

This model also provides consumers with useful information about the Web sites in the

market segment, e.g. yellowpages.com.eg

d. Customization model: This model provides customers with content that is

customized to meet their preferences by employing AI/ML algorithms. By completely

customizing information needs, an e-commerce website built on this model becomes highly

attractive to its visitors.

Implementation Models
Once the customer of e-commerce has been identified, the next important thing is to

understand how e-commerce models are implemented. These ecommerce implementation

strategies constitute a part of the business model and they are necessary to know how

activities like inventory management and sourcing of products are undertaken at the back-

end of an e-commerce implementation.

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There are many possibilities to this too, such as manufacturing and storing products by the

same business entity or may be finding another business partner to do the manufacturing,

stocking and so on. Based on such possibilities, there are several-commerce

implementation strategies such as Retail Model, Brokerage Model, Mall Model, Drop

Shipping Model, Warehousing and Whole selling Model, Private Labelling, and White

Labelling Models and so on.

1. Retail Model: When retailers directly sell products/services via the Internet, it is

also called ‘e-tailing’ (electronic retailing) and such a retailer is also called an ‘e-tailer’. e-

Tailing stores could either be a complete substitute for brick-and-mortar (the physical)

retail stores. However, some companies choose to maintain both- the physical (brick and

mortar) stores as well as its online marketplace too.

2. Brokerage model: Brokers are mediators; they bring buyers and sellers together and

facilitate transactions between them in different markets. A broker makes his money by

charging a fee for each transaction he enables.

3. Mall model: An e-mall hosts many on-line merchants. The mall typically charges

setup, monthly listing, and/or per-transaction fees.

4. Manufacturer model: This model is based on the power of the Web to allow

manufacturers to reach buyers/customers directly with no intermediaries.

5. Drop Shipping Model: Drop shipping is probably the most popular form of e-

commerce implementation strategy. It is an exciting business model, with very few startup

costs.

A website owner has a list of suppliers to provide products for his website to market

and sell. However, instead of the business owner holding the inventory, a third party

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handles all of the shipping and logistics for him. This third party is typically a wholesaler,

who “dropships” the product directly to the customer.

Every time someone buys a product, the wholesaler — who typically manufactures

the product — ships that product, and the website owner gets a portion of that sale for

marketing the product.

While most people will probably not get to Amazon’s level, it’s an important

example of what is possible. Amazon is a hybrid. It manages dropshipping transactions,

but it also warehouses and ships its own product line. If you ever buy anything off Amazon,

and get the message that they are using a third party vendor, Amazon is dropshipping.

This e-commerce model is best suited for those suppliers, retailers and

manufacturers who have perfect products or services, but do not have sufficient resources

to create a separate e-commerce portal. Similarly, it is good for those business entities who

have vision, digital know-how and resources to create an online store but no inclination to

manufacture their own products, or maintain their own warehouses.

6. Wholesaling And Warehousing Models: is one such model, where a variety of

products (and services) are available on the online store. Obviously, to maintain these huge

volumes, investment in massive physical warehouse spaces is required but the principle of

‘economy of scales’ assures profits, especially since both retailers and consumers could

approach such an online store. Keeping track of orders received and logistics could be tough

in this model, unless well supported by the related software.

It is relevant to point out that these are just some of the popular implementation strategies

of e-commerce and that in wake of emerging technology trends and also because of

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excessive digitalization popularized during COVID times, several variations to these basic

implementation strategies have been adopted by the e-commerce business entities.

Revenue Models
E-commerce not only involves doing business over the internet, it is also about

designing new profitable business models. After we have understood some of the important

implementation strategies for e-commerce businesses, we would move on to understand

possible modes of income generation in ecommerce implementation.

A revenue model is a part of the business model that essentially explains different

mechanisms of income generation and its sources.

1. Advertising Revenue Model: Revenue in e-commerce businesses could be

primarily generated by hosting advertisements of other products/ services on online stores;

this is the most basic model of revenue generation referred as Advertising Revenue Model.

This model provides content and services like email, chat, etc mixed with advertising

messages in the form of banner ads. The advertising model only works when the volume

of viewer traffic is large or high. The banner ads may be the major or sole source of revenue

for the broadcaster.

There could be several variations of this revenue model such as search engine marketing

(also called ‘cost per click’ or CPC model), e-mail marketing and social-media-marketing.

Google and Facebook primarily operate using this revenue model.

2. Affiliate Revenue Model: It is a very popular variation to the advertising revenue

model that is based on pay-for-performance concept. In this concept the sellers put

advertisement of their products as ‘links’ on websites of their partners, also called affiliates.

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Payments are made to the sellers when the links are clicked, and orders are placed and in

return the partners/ affiliates get some part of the revenue.

3. Subscription Revenue Model: Another very popular concept of generating revenue

is to offer some basic free services but store has a subscription amount, payable either

monthly, or quarterly or annually.

That means that premium services of the e-commerce portal are available only to the

subscribers (also called members) . Users pay for access to the site. High value-added

content is essential. E.g. Over-The-Top (OTT) video streaming platforms like Netflix

operate using subscription revenue model.

4. Transaction Fee Revenue Model: There are certain e-commerce sites, such as OLX,

e-bay who charge a transaction fee from its users. This fee could be either fixed or could

be in terms of percentages of the volume of transactions undertaken.

5. Sales Revenue Model: Sale of products/ services itself generates revenues for the

sellers (who could be a retailer or wholesaler) who sell their products online.

There could be several more variations of the mentioned revenue models by

combining and improving these basic models. Since the ecommerce world is evolving very

rapidly, newer variations of revenue models are expected to evolve.

Impact Of Covid on E-Business

The corona virus pandemic has considerably changed the shopping behavior of

consumers for two valid reasons- firstly the shopping sprees got reduced due to lockdowns

and secondly online stores became more popular. Even those who had not gone online to

shop now realized that they could buy essential commodities from the safe confines of their

homes.

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These FTUs (First Time Users) on e-commerce sites suddenly became aware of

massive discounts/ bargain deals available online, which probably would have never come

their notice earlier. As a result, quite a lot of consumers have switched from shops,

supermarkets, and shopping malls to online portals for the purchase of products, ranging

from basic commodities to branded goods, even when the covid-imposed lockdowns have

been lifted.

However, this is just the tip of the ice-berg- COVID and Digitalization have more

to unfold in e-commerce sector than what we can see now. Only future would tell insha-

Allah.

Prof. Dr. Nabil ElArabi

8 November 2021

1 Lee W. McKnight. "It's a Jungle Out There: The Internet and 21st Century Business Practice." info 3, no. 1 (2001): 017-
033 p 19.

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