Business Application of E-Commerce
Typical business organizations (or parts within a business organization) design, produce, market, deliver and support its product(s)/service(s). Each of these activities adds cost and value to the product/service that is eventually distributed to the customer. The value-chain consists of a series of activities designed to satisfy a business need by adding value (or cost) in each phase of the process.
In addition to these primary activities that result in a final product/service, supporting activities in this process also should be included:
- Managing company infrastructure
- Managing human resources
- Obtaining various inputs for each primary activity
- Developing technology to keep the business competitive
For instance, in a furniture manufacturing company, the company buys wood (raw materials) from a logging company and then converts the wood into chair (finished product); chairs are shipped to retailers, distributors, or customers. The company markets and services these chairs products. Those are the primary activities (value-chain) that adds value and result in a final product/service for the company. Value-chain analysis may highlight the opportunity for the company to manufacture products directly, This means, for furniture manufacturer, it may enter in the logging business directly or through partnership with others. The value chain may continue after delivering chairs to the furniture store. The store, by offering other products/services and mixing and matching this product with other products, may add additional value to the chair.
The Internet can increase the speed and accuracy of communications between suppliers, distributors, and customers. Furthermore, the Internet’s low cost allows companies of any size to be able to take advantage of value-chain integration. E-commerce may improve value chain by identifying new opportunities for cost reduction. For instance, using e-mail to notify customers instead of using regular mail helps for reducing cost. Selling to distant customers using the company web site may allow revenue improvement or generation. These sales may not have been materialized otherwise or selling digital products such as songs or computer software or distributing software through the Web. Offering online customer service or new sales channel identification helps for product/service improvement Dell Computer generates a large portion of its revenue through the Web by eliminating the middleman. Cisco Systems sells much of its networking hardware and software over the Web, improving revenue and reducing cost. United Parcel Service (UPS) and Federal Express use the Internet to track packages that result in enhanced customer service
E-Commerce Business Models
The ultimate goal of an e-business is to generate revenue and make a profit, similar to traditional businesses. It is factual that the Internet has improved productivity for almost all the organizations that are using it. Nevertheless, the bottom line is that productivity must be converted to profitability. To achieve profitability as the final goal, different e- businesses or e-commerce sites position themselves in different parts of the value-chain.
To generate revenue, an e-business either sells products/services or shortens the link between the suppliers and consumers. Many business-to-business models try to eliminate the middleman by using the Web to deliver products/services directly to their customers. By doing this they may be able to offer cheaper products and better customer service to their customers. The end result would be a differentiation between them and their competitors, increased market share, and increased could be either traditional products, such as books and clothing, or digital products, such as songs, computer software, or electronic books.
E-commerce models are either an extension or revision of traditional business models, such as advertising model, or a new type of business model that is suitable for the Web implementation, such as infomediary.
The most popular e-commerce models are:
- Merchant Model
- Brokerage Model
- Advertising Model
- Mixed Model
- Infomediary Model
- Subscription Model
1. Merchant model:
This model basically transfers the old retail model to the e- commerce world by using the Internet. There are different types of merchant models. The most common type of merchant model is similar to a traditional business model that sells goods and services over the Web.
Amazon.com is a good example of this type. An e-business similar to Amazon.com utilizes the services and technologies offered by the Web to sell products and services directly to the consumers. By offering good customer service and reasonable prices, these companies establish a brand on the Web.
The merchant model is also used by many traditional businesses to sell goods and services over the Internet. Dell, Cisco Systems, and Compaq are popular examples. These companies eliminate the middleman by generating a portion of their total sale over the Web and by accessing difficult-to-reach customers. An example that uses this model is Amazon.com Corporation.
2. Brokerage model:
The e-business brings the sellers and buyers together on the Web and collects a commission on the transactions by using this model. The best example of this type is an online auction site such as eBay.com, gittigidiyor.com which can generate additional revenue by selling banner advertisement on their sites.
3. Advertising model:
This model is an extension of traditional advertising media, such an television and radio. Search engines and directories ouch as Google and Yahoo provide contents (similar to radio and TV) and allow the users to access this content for free. By creating significant traffic, these e-businesses and able to charge advertisers for putting banner ads or leasing spots on their sites.
4. Mixed model:
This model generates revenue both from advertising and subscriptions. Internet service providers (1SPs) such as America On-line (AOL), and Super Online generate revenue from advertising and their customers’ subscription fees for Internet access.
5. Infomediary model:
E-businesses that use this model collect information on consumers and businesses and then sell this information to interested parties for marketing purposes. For instance, bizrate.com collect information related to the performance of other sites and sells this information to advertisers. Netzeo.com provides free Internet access; in behavior of customers. This information is later sold to advertisers for direct marketing. eMachines.com offers free PCs to its customers for the same purpose.
6. Subscription model:
An e-business might sell digital products to its customers, by using this model. The Wall Street Journal and Consumer Reports are two examples. Sreeet.com, AjansPress.com is another example of this model that sells business news and analysis based on subscription.