E-Business Model – Meaning, Elements and Types

In this Globalization era the developed, undeveloped and developing countries are preparing their societies and communities for globalization. The globalization is possible only because of revolution in communication technology. The concept of global economy is emerging which is making e-business, an indivisible component of business strategy planning. Banking, tourism, shopping, hotel booking, airlines booking, auctioning and the list is non-ending. Millions of internet users just rely for their financial as well as other services on their online transactions. As more and more people have started using internet, more specifically e-business, for their day to day working, e-business has become more and more popular. The excitement of using e-services has grown and the potential for success of businesses increased.

As more and more companies have started using internet for their business growth, some problems have to be understood properly and the solutions to them have to be thought carefully. At one stage, all companies were rushing to build their e-commerce website, just to beat the competition. But these websites were just consumer sites which were only to help consumer to see the list of products and their pricings etc. Thus, if the company gets an order on internet, they have to manually prepare the order (on paper) and send the same to manufacturer. The manufacturers too had their own websites, but those were not connected to the supplier site. As these websites were not connected, customer could never be able to understand what’s their current order status is, the companies were duplicating lots of work which led to no complete utilization of power of internet.

But now a day, having an e-commerce website is not sufficient. It doesn’t differentiate you from all your competitors. Consumers expect a lot more than just a website and e-catalogue. They expect a lot from e-business more than just shopping, such as order tracking, various services (hardware or software), auctioning etc. from e-business. E.g. if an e-business website of some xyz organization gives better offer in terms of prices of the products, but doesn’t support any other e-business advantages such as order tracking, online payments etc. and other company website may charge higher prices, but supports all these e-business advantages; consumers may prefer the other website. Even though the prices of the products are towards higher side, they may feel it more convenient as well as reliable as they can track their order (and so the money..) at any time and may prefer to invest for the sake of comfort.

Thus, the emerging new e-businesses are not constrained to size, type, technology, assets or infrastructure. The competitors for the companies enter into e-business markets with very low constraints. Customers’ and suppliers’ expectations are also rising. This makes finally the organizations to start thinking about integrating business partners and processes for real time transaction processing. Organizations that could understand the power of e-business and started addressing the complete ‘business cycle‘ integration have actually understood the e-business importance and are working towards utilizing the power of internet technologies. Organizations thus need to architect a complete planning framework, which is nothing but an actual e-business model which enables the organization to implement the whole business cycle on internet. E-business is an ensemble of electronic technologies which integrate and empower the business entities and processes to deliver higher value to customers and other stakeholders.

E-business is thus the integration of e-commerce and other value chain processes over the internet. Value chain processes in e-business, extends the traditional concept of supply chain processes in e-commerce. In addition to supply chain, it also provides the functionalities such as planning, purchase management, Customer Relationship Management etc. online. To make an e-business successful, all of these processes have to be tightly integrated on the internet which gives the ability to the organizations to manufacture, sell and deliver the products / services, quickly and efficiently.

E-business Model

A business model is a framework with all business components to create value and meet business objectives. A business model is a set of business processes to achieve the business objectives. It’s a core architecture around which the whole business of the organization is woven. It gives the direction to implement various business processes. The business model is important as it gives structured approach to guide idea generation in early phase of the business. It also works as planning tool to define business plan and implement it. It performs as communication tool to communicate internally with various departments of the organizations as well as with partners, customers and other stake holders.

Even in e-commerce, there are many intermediate people / parties involved before the actual goods are delivered to the end customers. These intermediate people / suppliers are now integrated to a great extent with e-business. The evolution of information technology and business models has gone through various stages. The flow of information and data has replaced the intermediaries. The complexity of the overall business model has increased, but it has also resulted in improved usability. The recent complex e-business models are developed from the perspective of making them more efficient and user-friendly.

E-business model enables innovative deployment of its resources, to make the e-business objective successful. The various factors taken into consideration in this type of business model can be listed as – the offerings and value proposition, promises of the organizations, benefit or value which an organization promises to its customers, revenue model / cash flow, Market forces and available opportunities, competition, means and strategies of positioning of the product, marketing strategies of the company, the strategic use and positioning of information technology, organizational structure and development, management team, knowledge assets and the strategies for managing knowledge in an organization and so on. It should have a mention on all those aspects which help design an e-business and help make it successful.

For an e-business organization, the competition is not only from big sellers, but it’s evenly from every business on the same line. Hence, an e-business model has to plan to optimize the technology usage in e-business to develop business processes such that it will be able to achieve e-business objectives competitively. It thus represents the architecture for the products, services the organization offers and the flow of information among various departments. It can include a description of the various actors from the value chain management and their roles, revenues etc. An e-business model helps understand the relationship between and communicate among, various business partners taking part in the value chain management.

Understanding e-business has various advantages such as – an e-business model plans to optimize the technology usage to develop various processes to sustain e-business competition, it formulates the various elements in value chain management and explains the relationship among them, this further leads to proper communication among various partners of business chain management in an e-business organization, it gives a structured representation of overall business and business strategies, this helps to understand relevant measures to be applied in various e-business processes / domains to be applied in an e-business.

Elements of E-business Models

A typical e-business model helps an organization to structure its business processes, so that it will become more open and responsive to customer expectations. It also helps to foreseen the possible future state of affairs and attempts to keep ready to face them so that to remain competitive even then.

An e-business model is thus the organization along with a network of partners. A basic e-business model can then have five major elements.

1. Products / Services

The products / services company offer is nothing but a value proposition for which a customer is ready to pay. Due to information technology as well as communication technology, various ways are evolved to create and deliver value to the customers. One way to achieve it is by removing mediators between suppliers and customers. E.g. Dell, a biggest manufacturer of personal computers had started for the first time to sale their products direct to customers. Another way to improve value proposition is by customization. Because of this, a company can offer their products as per the specific requirement of the customer. E.g. Amazon.com can identify and put for the, other books the customer may choose as per their choice, by looking into the list of books the customer is currently trying to buy. This helps customers to select books from a wide range of books available with Amazon.com to fulfill their needs. Customization can also be applied to marketing activity of the business so that the products can be identified as per a specific geographical area or specific cultural, age group etc. and can be used better marketing schemes to focus on such customer groups.

Because of e-business evolution, companies can define different business strategies for different regions to achieve better customer satisfaction.

2. Customer Relationship

Customer satisfaction is the base of any business – traditional or e-business. In traditional businesses, there’s still a limit on satisfying the customer, whereas in e-businesses using IT and World Wide Web, it can offer a whole big range of opportunities to make customer feel satisfied, feel special! Customer relationship asset mainly emphasizes on the communication between the organization and the customers.

Organizations can collect and maintain information / knowledge about their customers and take advantage of it in order to discover new market segments, attract the existing customer groups and maintain the relationship with all types of customers. This can also help customize the product according to the demand. E.g. an e-business company can frequently collect feedback from its users and accordingly improve the products / services the company offers. This makes feel satisfied to the users and at the same time can attract new customers.

Providing additional services to the customers helps improve customer relationship e.g. Printer sellers can provide online free downloads of printer drivers, user manuals etc. Another example can be, real time information of a particular purchase can help customers to keep track of their orders and also gives a big relief to the customer call center. E.g. Courier services such as DHL or DTDC lets its customers to track their shipments any time on the internet.

3. Structural Resources

The structural resources element of the e-business model is essential element to improve on value proposition. An organization has to first invest in resources needed for an e-business establishment, which further generate value for the customers. The resources can be machinery, equipment’s or even human resources.

4. Virtual Network

An e-business form a virtual network of business partners to create value chain. This part of e-business model describes how value creation process is distributed among the partners of the virtual network. It helps in maintaining long term inter-organizational relationships as well as to reduce the transactional cost by improving more on virtual network relationships.

5. Financial Aspects

This part of e-business model helps to understand the costs to be invested in information technology infrastructure to create value out of e-business. Costs can also be needed to create the value, market it and finally deliver it to the end customer.

Types of E-Business Models

Following is a classification of e-business models based on different aspects.

E-business Models Based on Functionality

  1. Merchant Model is a most common e-business model in which businesses sell their goods as well as services using information technology to the customers on internet. The example websites are of Amazon.com, Alibaba.com and so on.
  2. Community model is another type of e-business model in which there are different user communities who share their data, opinions and photos etc. using these websites. The examples are Flickr.com, Wikipedia.com, Facebook.com etc. Such business models earn money through the advertising or voluntary donations. A Subscription model can be viewed as an e-business in which the e-business organization charges users for using their services. Example can be AOL, You telecom etc.
  3. The e-business organizations which follows the advertising model, provides some contents for the readers which generates good web traffic, along with ads which generates revenue. Example businesses in this model type are newspaper websites which provides news as well as ads for the readers.
  4. Another model of e-business can be called as brokerage model which brings buyer organization and seller organization together on the web. Example can be eBay, Sify shopping etc.

E-business Models Based on Transaction Types

The e-business transactions take place between different parties, using different means. One way of looking e-business models is based on parties taking part in e-business transactions and the means of the transactions.

1. B2B E-business Model

Over the last few years, the internet has brought the companies to a virtual marketplace and built what is known as “Digital economy”. Digital economy offers various opportunities for the companies to step into new markets, improve efficiency, benchmark with global companies, increase customer satisfaction, collaboration with new partners and above all to reduce cost. The use of internet in the Business-to-Business transaction is one such area where all these opportunities can be grabbed. It refers to electronic transactions of information among companies and their supply chain partners.

Business to business is the most common type of business transactions. Close to 75% to 80% of transactions are of this type. Providers, distributors, players and manufacturers and other ancillary organizations perform various business transactions among themselves. These all transactions are referred to as B2B.

Various logistics related transactions, distribution of material and storage or warehousing is one class of B2B transactions. Another major area of B2B e-business is the outsourcing of activities related to electronic transactions. There are various solutions those are outsourced that include project development, web-hosting, security services. In some cases there is a part of process outsourced. All Knowledge Process Outsourcing (KPOs) and Business Process Outsourcing (BPOs) use electronic means for transactions and are examples of B2B models. Other examples are companies involved in online bidding, web-service enhancers, On-line intra-company and inter-company marketing, the inter bank transfers, financial transactions among companies (for various reasons) and so on.

2. B2C E-business Model

B2C (Business-to-Consumer) e-business model is actually a concept of on-line distribution or on-line selling of services, products or information from companies to actual consumers. B2C model is ensemble of electronic technologies and business transactions used for the transactions between companies and consumers. This is second most popular e-business model after B2B. This includes different transactions between companies and consumers.

In B2C business environment, there is no need to maintain any physical store / warehouse to maintain product inventory or WIP. And as such no need of retailers to distribute the product. Customers can directly search through the product catalog on the company website, places the order and the product are delivered to the customer directly. Amazon.com is a perfect example of this kind of B2C business. The main things which are browsed and sell in B2C e-business include computer hardware and software (e.g. Dell), consumer electronics (e.g. digital cameras, printers, mobile phones etc.), sports goods, office supplies, books, music, toys, health and beauty, entertainment, apparel, cars, services etc.

The major activities involved in this type of e-business model can be information sharing, ordering products/services from the company, making payment against the order by various methods such as credit card, digital cash etc., fulfilling the consumer order by physically delivering the product/service to the end customer and finally providing after sales service and support.

3. C2C E-business Model

The introduction of e-business has helped to create a very individualistic and independent society. Consumers no more want to rely on corporations for business and looking for their own business transactions on the internet.

Consumer to Consumer e-business model refers to business transaction made by consumer with other group of consumer. E.g. the individuals interacting through some well-known portal or the auction site (e.g. eBay) or the individuals advertise their product through some site using classifieds or advertisement. The most well known example of Consumer to Consumer e-business is eBay.com. It’s the most famous and successful website for auctioning nearly all kinds of items. It allows customers to auction their owned items privately among other customers. The other examples of successful Consumer to Consumer e-businesses can be Monster.com, uBid.com etc. These websites provides valuable services to those consumers looking for jobs and auctioning of items respectively. Consumer to Consumer applications are growing in size every day and making more and more people involved in e-businesses.

4. B2G E-business Model

Internet has great potential to bring together people, businesses and facilitate the flow of information among them. Government organizations are also coming ahead to utilize this power of internet. Business to Government e-business model explores the switching of products / services / information from a business organization to a government agency and vice versa. B2G business model allows the businesses to bid on government request proposals or tenders. A website offering B2G business model can provide their customers a single place where they can easily locate tax forms for various levels of the government such as city, state or country. It can also provide the facility to send the filled forms along with relevant payments. It can also make a platform available where their customers can ask questions regarding government processes and get correct, quick answers. B2G can also include applications and databases designed to help functioning of government agencies. Thus it includes different transactions made between business organizations, citizens and government agencies.

To improve / increase the activities within an economy, government can facilitate and nurture e-business initiatives within the economy. This includes facilitation in terms of providing the relevant infrastructure, talent / skills development initiatives, favorable policies (e.g., taxation, rules and regulations) that support the growth of E-business.

To be able to face and sustain the pressure from competitive organizations, there’s a great need of tightly integrated e-business infrastructure. Governments are no exceptions to this. Government agencies are also responsible to quickly respond for queries and applications coming from various levels of customers such as local citizens to business organizations and satisfy them. Businesses need to go through various government rules and regulations, time to time. If both of them can bond with each other through one business integration architecture, it will improve the customer service, operation quality by a large extent. It can also help bring technology in government and government disciplinary rules, regulations in the businesses which will achieve overall superiority in business and government standards.

IT Infrastructure Requirements of E-business Models

Information technology infrastructure is the foundation to start any e-business. An e-business initiative needs to connect various suppliers, customers and other business partners. Investing in IT infrastructure is as critical as it was in place, plant, machineries and equipment’s in earlier traditional businesses. The new market leader will be companies those who can successfully move from traditional enterprise model to the virtual enterprise model where business partners are integrated to get e-business advantage. An initiate to integrate various business partners, information technology infrastructure investment etc. are the major factors which affect the successful transition to e-business.

Business integration brings all business partners together and remove the barriers in the supply chain, barriers to customer relationship, barriers to stakeholders and barriers in partners intercommunication. Examples of these kinds of business integration can be seen in the organizations such as Cisco, Ford etc. It makes the competitors very difficult to tumble and at the same time, make the integrated partners together far stronger than individual organizations finding / leading its place in the digital economy.

The perfect example of business integration is Cisco systems. The website of Cisco is completely integrated with its other business systems, such as Oracle ERP system and channel partners. “Cisco is completely integrated with our back-end systems, so if you press the submit [order] button on the web, within 15 minutes it drops into our order management system and you’ll be able to view that on the web. Then, usually within a few hours after that, it is literally sitting on the manufacturing floor. That happens without a human being ever having touch the order.”

Another major success factor in achieving successful e-business and competing in this internet world is speed. Things are becoming faster and faster and at the same time the expectation are increasing with higher rate. Faster marketing strategies, faster product delivery, customers expect faster response to their query, organization dying to respond faster to the changing markets and use faster new technology innovations! Companies need to introduce technology faster and faster to keep and maintain competitive edges. Once, amazon.com started a new tradition of giving instant response to customer’s orders by sending confirmation email. When customer used to place an order on Amazon.com, he / she receive instant confirmation within few seconds. Now, every e-business organization does the same. It is no more Amazon.com selling point, rather it is necessary for any organization doing business on the web.

To deliver business integration and speed requires an approach based on technology and IT infrastructure. The technology and infrastructure should enable an organization to quickly change to innovations. An organization’s infrastructure in Information Technology to establish an e-business can be defined as the total investment in computing as well as in communication technologies. Thus it may include various hardware, software devices to collect data, devices to represent that data, e-data, communication channel and the people who provide these and other IT services.

This IT infrastructure in turn can be linked to other external organizations’ infrastructures such as bank payment, credit card payment systems, public infrastructures such as internet, telecommunication network etc. Thus, combination of company’s internal and external infrastructure makes a complete infrastructure model of that company.

To maintain business relationship with the partners of the e-business and to change continuously in this internet time, organizations need a flexible and adaptable set of infrastructure services. These infrastructure services help to manage company identity, security and surrounding policies which define business relationships.

This service view of infrastructure is very powerful. It allows for better planning of e-business as well as integrating supply chain or value chain. The infrastructure services generally include large scale computing stations such as servers or mainframe computers. The management of these computing stations is also part of infrastructure services. In addition to this, various telecommunication services, management of shared customer databases, R & D investments to identify emerging useful technologies for businesses, company intranet etc. are also part of infrastructure services.

These services required by a firm need not be changed time to time. Once they are created for an e-business, those will be relatively stable over time. In contrast to these services, the Information Technology requirement for various business processes changes continuously. It can be on quarterly, monthly or even on daily basis. E.g. A construction company wants to start a new construction business and makes it web enabled. It may need to use Information Technology infrastructure services such as main database server or mainframe computer, customer databases, systems which will help provide security and local intranet and global internet. If these services are already in place, it reduces the time and cost to build e-business model for the construction company.

These common, shared infrastructure services help business processes to be consistently applied across the infrastructure. It helps deploy various applications across the virtual network which allows applications to share common databases and processes such as information about employees, customers, partners, files and print and messaging services etc. Apart from just business processes, these common, shared services help apply security and policy management strategies within and outside their organization, but within their e-business value chain partners.

In summary, World Wide Web is the foundation of Information Technology infrastructure needed to integrate one business to other business partners. This helps establish cross organizational processes such as customer relationship management, value chain management, knowledge management etc. It helps organizations to extend to unify across the business boundaries. The basic differentiation between Businesses to Business, Business to Consumers may disappear soon. Many feasible e-business models will serve a combination of various businesses, customers etc.

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