Structure - What is the Basic Model for E-business?

The e-Business model, like any business model, describes how a company functions; how it provides a product or service, how it generates revenue, and how it will create and adapt to new markets and technologies. It has four traditional components as shown in the figure, The e-Business Model. These are the e-business concept, value proposition, sources of revenue, and the required activities, resources, and capabilities. In a successful business, all of its business model components work together in a cooperative and supportive fashion.

The selection and refinement of the business concept should be integrally tied into knowledge of the market it serves. In performing market research care must be taken to account for the global reach of the Internet for both customers and competitors. It is also important to remember that markets shift, and can shift rapidly under certain conditions. But most important is to truly understand what the market is, who comprises it, and what do they want.

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Integration Of Organization Or Enterprise Operations

The integration of systems inside and outside the organization can provide value for both customers and the organization. One of the requirements for e-business is to link front-end with back-end systems in order automate the online operations of the organization.

Front-end activities deal directly with the customer while back-end systems include all of the internal support activities that do not deal directly with the customer. Some enterprises have different geographic locations for front-end and back-end office activities and rely on the integration of the associated computer and network systems for successful corporate operations.

Examples of activities that require integrated systems are:

• Order placement through point-of-sales systems

• Customization of products based on user requirements

• Production tracking

• Customer order fulfillment

Supply Chain Integration

Sources Of Revenue

Depending on the business model, several revenue sources may be available to an e-business. Many online businesses will have a three or four of these sources. A mix of revenue sources is often referred to as a revenue model but may be mistakenly called a business model. Some of these sources of revenue are:

• Advertising

• Affiliation

• Agent commissions

• Licensing

• Sales commissions

• Sales profits

• Sponsorship

• Subscription

• Syndication

• Use Fees

For large public-private or government projects revenue sources might also include:

• Bonds, usually for large capital expenditures

• Taxes, primarily income, property and sales taxes

• Use fees and tolls

With small fast-growing companies such as e-Business startups, investors often track expected revenues and revenue growth and may make changes to increase revenue. However, after theDot-Com boom ended, more traditional measures such as cash flow and earnings have came back into favor as means of evaluation.

Beware: Some fundamental e-business activities may infringe on patents. Business processes, or the "method of doing business" may be patented, so that a business model may unwittingly include the development or use of intellectual property owned by another party. Patents have been freely awarded for even the most straight forward business processes.3

• Some examples are:

• Amazon.com has a patent for "one click" purchasing technology and its "Affiliates" program.

• CyberGold has a patent for pay-per-view ads where the customer enjoys an incentive for clicking on them

• Netincentives has a patent for online incentives programs, possibly in conflict with CyberGold's

• Netword LLC has a patent for a Web navigation based on keywords rather than URLs

• Open Market has a patent on electronic shopping carts, on paying with credit cards using the secure socket layer encryption and on secure credit card transactions. However, there are now several types of shopping carts.

• Priceline.com was issued a patent for its reverse auction method, that is, "name your price" auction.

• Sightsound.com has a patent for selling digital content (e.g. downloading films) on the Web.

• CI Software has a patent for EDI on the Internet

One of the most widely renowned patent infringement cases was Amazon.com's patent for "one click" technology for purchasing items, which was at the center of its dispute with Barnes and Noble. One-click shopping allows the prospective buyer to bypass the use of a "shopping cart", which is cumbersome for many users.

Amazon.com also has a patent for its "Affiliates" program, which allows the company to market the products of other companies in return for a commission. This business process has been used freely by traditional businesses since the beginning of recorded history and the fact that this process has been patented is very controversial. Also controversial is Priceline.com's patent for a reverse auction method, which it uses to sell airline tickets.

In effect, a few companies have patented Internet business models, which are being used by many other companies. If these patents can be easily licensed at reasonable rates then there won't be a problem in the future development of e-business. But if not, the resulting chaos will inhibit the growth of the online business world.

E-Business Environment And Strategies

The rate of change in e-business presents an enormous challenge to managers. Business on the Internet is just beginning, and is evolving through a process of trial and error. Management flexibility is a key for survival and success in e-business.

The environment of any organization consists of all of the factors that are beyond its control, but influence it in one way or another. Examples of these factors are shown in the figure, E-Business Environment and Strategies. To counter the potential adverse affects of these factors, the e-business can respond with strategies. An external strategy is an approach to deal with factors in the external business environment such as competitors, markets, and technological developments, that are beyond the company's direct control. This is different from a corporate strategy, which addresses factors under the company's control such as the approach to marketing, sales, and pricing. Other components of the business model such as the value proposition and sources of revenue may also include strategies.

Figure: The E-Business Environment And Strategies

External strategies may be driven by components of the business model, such as finding workers with certain capabilities to staff activities. If the required work force is not available locally, the business concept may have to change, and workers brought in, or the work outsourced. Even though strategies may be implicit in the business model, such as hire workers at the industry wage, it is important to recognize them explicitly because they may have to change as the business environment changes.

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