e-business-model

What is an E-business model?

E-business models utilize advanced communication technologies and digital information to streamline various business processes online. These processes include customer relationship management (CRM), supply chain management, payment processing, employee services and recruitment, and information sharing.

Understanding E-business models

E-business models are used by companies to create value and become profitable online.

E-business models were developed in response to the increasing prevalence and technological capabilities of the internet.

Seemingly overnight, the internet removed geographical barriers and allowed businesses to operate wherever it was available.

Businesses can now enter new markets with ease and can be open 24 hours a day, 7 days a week for very little outlay.

This shift has resulted in four broad transformations:

  1. Domestic business to multinational business.
  2. An economy based on industrial manufacturing to one that characterized by knowledge-based services.
  3. Enterprise resource management to enterprise network management, and
  4. Manual, document-driven business processes to those that are electronic, automated, and paperless.

With e-business models developed to take advantage of these transformations, they have virtually rendered traditional models of organizational design obsolete.

The four components of E-business models

In general terms, E-business models should have four components:

Value proposition

value-proposition-canvas-business-model-canvas
The Value Proposition Canvas, part of the Business Model Canvas, is a tool used to ensure a product or service is positioned around customer values and needs.

Advances in IT and communications have enabled many E-businesses to create and deliver various forms of customer value.

For example, Dell uses the internet to sell customizable, direct-to-consumer PCs.

Other companies offer value in the form of reduced prices, fast delivery, or access to more diverse inventories.

Customer relationships

There is a limit to how much an offline business can interact with its customers.

For the e-business, however, customer relationships have benefitted from data collection, increased communication, order tracking, and personalized support.

Revenue streams

revenue-modeling
Revenue modeling is a process of incorporating a sustainable financial model for revenue generation within a business model design. Revenue modeling can help to understand what options make more sense in creating a digital business from scratch; alternatively, it can help in analyzing existing digital businesses and reverse engineer them.

When clarifying revenue streams, it’s important to look beyond obvious sources of income such as eCommerce.

Other sources include advertising, licensing, sales commissions, syndication, subscription, and sponsorship.

Activities, capabilities, and resources

Like traditional business models, e-business models must define how the mission or vision of the company will be carried out and how much it will cost.

Some of these methods may be patented – such as Amazon’s 1-click checkout process – while others can be utilized for free.

E-business models also place more of an emphasis on less tangible resources such as intellectual property, software, customer data, and other IT infrastructure.

E-business model types

digital-business-models
A digital business model might be defined as a model that leverages digital technologies to improve several aspects of an organization. From how the company acquires customers, to what product/service it provides. A digital business model is such when digital technology helps enhance its value proposition.

Let’s conclude by taking a look at some common e-business model types categorized according to functionality and transaction type.

Functionality

  • Community model – a model used by Facebook, Wikipedia, and Flickr where communities share information, photos, or opinions. Revenue is earned via donations, advertising, and subscriptions.
  • Advertising model – where businesses such as newspapers and journals provide content to readers and serve ads to generate revenue.
  • Brokerage model – companies such as eBay and Amazon make money by bringing buyers and sellers together.

Transaction type

  • Business-to-consumer (B2C) – where merchants sell products and services to buyers who then purchase them online.
  • Business-to-business (B2B) – electronic transactions that occur between two businesses. Many SaaS companies follow this model.
  • Consumer-to-business (C2B) – the reverse of B2C where consumers sell to businesses. A freelance graphic designer may sell a logo to a company, for example.
  • Consumer-to-consumer (C2C) – this model is prevalent on online auction sites and other marketplaces for consumers.
  • Business-to-government (B2G) – where government procures products, services, or information from external contractors. For example, governments that require city and open space maintenance will solicit these services from private companies.

Key takeaways:

  • E-business models are used by companies to create value and become profitable online. These models have taken advantage of the proliferation and technological advancement of the internet, rendering offline models almost obsolete.
  • Most e-business models will incorporate four components: value proposition, customer relationships, revenue streams, and activities, capabilities, and resources.
  • Various e-business model types have been developed over the years. In terms of functionality, some examples include the community model, advertising model, and brokerage model. The ever-evolving and diverse transaction types include B2C, B2B, C2B, C2C, and C2G.

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