WHAT IS A E-COMMERCE

Introduction
In the past few years, enterprises across the globe have experienced significant changes in their business
information system. Huge investments were made in enterprise resource planning system implementations
but still they struggle to get timely information that is needed to make effective business decision and to
ensure continuous growth of enterprises. Placing "e" in front of any process or function seemed to be the
magic prescription for never ending story of success and rapid returns for enterprises. E-business, eprocurement, e-sales, e-payment, e-banking, e-CRM, e-CAD, e-delivery are just a few. Internet, for example
is becoming one of the most popular medium in transmitting various data. Users can find any kind of
information within a shorter time compared with conventional method that consumes more time.
DEFINITION OF E-COMMERCE
The word commerce is the basic concept for electronic commerce, pertaining to buying and selling of goods
while commercial denotes business practice and activities intended to make profits. Electronic commerce,
like any other business, deals with the exchange of money for soft or hard goods and services.
Kalakota and Whintons in 1997 defined the term E-commerce from different perspectives. These
perspectives are:
Communication
Business Process
Service
Online
Electronic Commerce (e-commerce) is electronic business. Its using the power of computers, the Internet
and shared software to send and receive product specifications and drawings; bids, purchase orders and
invoices; and any other type of data that needs to be communicated to customers, suppliers, employees or
the public.
E-commerce is the new, profitable way to conduct business which goes beyond the simple movement of
information and expands electronic transactions from point-of-sale requirements, determination and
production scheduling, right through to invoicing, payment and receipt. E-commerce uses key standards and
technologies including Electronic Data Interchange (EDI), Technical Data Interchange (TDI), Hypertext
Mark-up Language (HTML), Extensible Mark-up Language (XML), and the Standard for Exchange of
Product model data (STEP). E-commerce is made possible through the expanded technologies of the
Internet, the World Wide Web, and Value-Added Networks.
There are five major segments under the broader category of e-business. However, the following are some
popular e-commerce models used by companies engaged in e-commerce: Business to business e-commerce (B2B)
Business to consumers e-commerce (B2C)
Consumers to consumers e-commerce (C2C)
Business to employees e-commerce (B2E) and
Consumer to business e-commerce (C2B)

THE BENEFITS OF E-COMMERCE

Few innovations in human history encompass as many potential benefits as E-Commerce does. The global
nature of the technology, low cost, opportunity to reach hundreds of millions of people, interactive nature,
variety of possibilities, and resourcefulness and growth of the supporting infrastructure (especially the web)
result in many potential benefits to organizations, individuals, and society.
Benefits to Organizations
The benefits to organizations are as follows:
Electronic commerce expands the market place to national and international market with minimal
capital outlay; a company can easily and quickly locate more customers, the best suppliers, and the
most suitable business partners worldwide.
Electronic commerce decreases the cost of creating, processing, distributing, storing, and retrieving
paper-based information. For example, by introducing an electronic procurement system, companies
can cut the purchasing administrative costs by as much as 85 percent.
Ability for creating highly specialized businesses. For example, dog toys which can be purchased only
in pet shops or department and discounts stores in the physical world are sold now in a specialized
www.dogtoys.com (also see www.cattoys.com).
Electronic commerce allows reduced inventories and overhead by facilitating pull type supply chain
management. In a pull-type system the process starts from customer orders and uses just-in-time
manufacturing.
The pull-type processing enables expensive customization of products and services which provides
competitive advantage to its implementers.
Electronic commerce reduces the time between the outlay of capital and the receipt of products and
service
Electronic commerce initiates business processes reengineering projects By changing processes,
productivity of salespeople, knowledge workers, and administrators can increase by 100 percent or
more.
Electronic commerce lowers telecommunication cost the internet is much cheaper than value added
networks.
Other benefits include improved image, improved customer service, new found business partners,
simplified processes, compressed cycle and delivery time, increased productivity, eliminating paper,
expediting access to information, reduced transportation costs, and increased flexibility.
Benefits to Consumers
The benefits of E-Commerce to consumers are as follows:
Electronic commerce enables customers to shop or do other transactions 24 hours a day, all year round,
from almost any location.
Electronic commerce provides customer with more choices; they can select from many vendors and
from many more products.

 Electronic commerce frequently provides customers with less expensive products and services by
allowing them to shop in many places and conduct quick comparisons.
In some cases, especially with digitized products, E-Commerce allows quick delivery.
Customers can receive relevant and detailed information in seconds, rather than days or weeks.
Electronic commerce makes it possible to participate ate in virtual auctions.
Benefits to Society
The benefits of E-Commerce to society are as follows:
Electronic commerce enables more individuals to work at home and to do less traveling for shopping,
resulting in less traffic on the roads and lower air pollution.
Electronic commerce allows some merchandise to be sold at lowest prices, so less affluent people can
buy more and increase their standard of living.
Electronic commerce enables people in third world countries and rural areas to enjoy products and
services that otherwise are not available to them.
Electronic commerce facilitates delivery of public services, such as health care, education, and
distribution of government social services at a reduced cost and/or improved quality. Health care
services, e.g., can reach patients in rural areas.

LIMITATION OF AN ECOMMERCE
Technical Limitations of EC
The technical limitations of EC are as follows:
There is a lack of system security, reliability, standards, and some communication protocols.
There is insufficient telecommunication bandwidth.
The software development tools are still evolving and changing rapidly.
It is difficult to integrate the Internet and EC software with some existing applications and databases.
Vendors may need special Web servers and other infrastructures, in addition to the network servers.
Some EC software might not fit with some hardware, or may be incompatible with some operating
systems or other components. As time passes, these limitations will lessen or be overcome;
appropriate planning can minimize their impact.
Nontechnical Limitations
Of the many nontechnical limitations that slow the spread of EC, the following are the major ones.

Cost and justification the cost of developing EC in-house can be very high, and mistakes due to lack
of experience may result in delays. There are many opportunities for outsourcing, but where and how
to do it is not a simple issue. Furthermore, to justify the system one must deal with some intangible

benefits (such as improved customer service and the value of advertisement), which are difficult to
quantify.
o Security and privacy these issues are especially important in the B2C area, especially security
issues which are perceived to be more serious than they really are when appropriate
encryption is used. Privacy measures are constantly improved. Yet, the customers perceive
these issues as very important, and, the EC industry has a very long and difficult task of
convincing customers that online transactions and privacy are, in fact, very secure.
o Lack of trust and user resistance Customers do not trust an unknown faceless seller
(sometimes they do not trust even known ones), paperless transactions, and electronic money.
So switching from physical to virtual stores may be difficult.
o Other limiting factors. Lack of touch and feel online. Some customers like to touch items
such as clothes and like to know exactly what they are buying.

Many legal issues are as yet unresolved, and government regulations and standards are not refined
enough for man circumstances.
o Electronic commerce, as a discipline, is still evolving and changing rapidly. Many people are
looking for a stable area
Before they enter into it.
o There are not enough support services. For example, copyright clearance centers for EC
transactions do not exist, and high-quality evaluators, or qualified EC tax experts, are rare.
o In most applications there are not yet enough sellers and buyers for profitable EC operations.

What is a business model?

Business is human activity in a competitive market setting, usually characterized by the exchange of goods
and services for money. A business refers to a real collection of people, decisions, resources, buildings,
products, values, actions and any other ingredients necessary to conduct and sustain this particular human
activity.
BUSINESS MODELS ON THE WEB

Business models are perhaps the most discussed and least understood aspect of the web. There is so much
talk about how the web changes traditional business models. But there is little clear-cut evidence of exactly
what this means.
Set of planned activities designed to result in a profit in a market place

In the most basic sense, a business model is the method of doing business by which a company can sustain
itself -- that is, generate revenue. The business model spells-out how a company makes money by specifying
where it is positioned in the value chain.
Some models are quite simple. A company produces a good or service and sells it to customers. If all goes
well, the revenues from sales exceed the cost of operation and the company realizes a profit. Other models
can be more intricately woven. Broadcasting is a good example. Radio and
Later television programming has been broadcasted over the airwaves free to anyone with a receiver for
much of the past century. The broadcaster is part of a complex network of distributors, content creators,
advertisers (and their agencies), and listeners or viewers. Who makes money and how much is not always
clear at the outset. The bottom line depends on
many competing factors.
Internet commerce will give rise to new kinds of business models. That much is certain. But the web is also
likely to reinvent tried-and-true models. Auctions are a perfect example. One of the oldest forms of
Brokering, auctions have been widely used throughout the world to set prices for such items as agricultural
commodities, financial instruments, and unique items like fine art and antiquities. The Web has popularized
the auction model and broadened its applicability to a wide array of goods and services.
The basic categories of business models discussed in the table below

Brokerage
Advertising
Infomediary
Merchant
Manufacturer (Direct)
Affiliate
Community
Subscription
Utility

01. Brokerage Model

Brokers are market-makers: they bring buyers and sellers together and facilitate transactions. Brokers play a frequent
role in business-to-business (B2B), business-to-consumer (B2C), or consumer-to-consumer (C2C) markets. Usually a
broker charges a fee or commission for each transaction it enables. The formula for fees can vary. Brokerage models
include:
Marketplace Exchange -- offers a full range of services covering the transaction process, from market assessment to
negotiation and fulfillment. Exchanges operate independently or are backed by an industry consortium.
[Orbitz, ChemConnect]
Buy/Sell Fulfillment -- takes customer orders to buy or sell a product or service, including terms like price and
delivery. [CarsDirect, Respond.com]
Demand Collection System -- the patented "name-your-price" model pioneered by Priceline.com. Prospective buyer
makes a final (binding) bid for a specified good or service, and the broker arranges fulfillment. [Priceline.com]
Auction Broker -- conducts auctions for sellers (individuals or merchants). Broker charges the seller a listing fee and
commission scaled with the value of the transaction. Auctions vary widely in terms of the offering and bidding rules.
[eBay]

Transaction Broker -- provides a third-party payment mechanism for buyers and sellers to settle a transaction.
[PayPal, Escrow.com]
Distributor -- is a catalog operation that connects a large number of product manufacturers with volume and retail
buyers. Broker facilitates business transactions between franchised distributors and their trading partners.
Search Agent -- a software agent or "robot" used to search-out the price and availability for a good or service
specified by the buyer, or to locate hard to find information.
Virtual Marketplace -- or virtual mall, a hosting service for online merchants that charges setup, monthly listing,
and/or transaction fees. May also provide automated transaction and relationship marketing services.
[zShops and Merchant Services at Amazon.com]

02. Advertising Model

The web advertising model is an extension of the traditional media broadcast model. The broadcaster, in this case, a
web site, provides content (usually, but not necessarily, for free) and services (like email, IM, blogs) mixed with
advertising messages in the form of banner ads. The banner ads may be the major or sole source of revenue for the
broadcaster. The broadcaster may be a content creator or a distributor of content created elsewhere. The advertising
model works best when the volume of viewer traffic is large or highly specialized.
Portal -- usually a search engine that may include varied content or services. A high volume of user traffic makes
advertising profitable and permits further diversification of site services. A personalized portal allows customization of
the interface and content to the user. A niche portal cultivates a well-defined user demographic. [Yahoo!]
Classifieds -- list items for sale or wanted for purchase. Listing fees are common, but there also may be a membership
fee.
[Monster.com, Craigslist]
User Registration -- content-based sites that are free to access but require users to register and provide demographic
data. Registration allows inter-session tracking of user surfing habits and thereby generates data of potential value in
targeted advertising campaigns. [NYTimes]
Query-based Paid Placement -- sells favorable link positioning (i.e., sponsored links) or advertising keyed to
particular search terms in a user query, such as Overture's trademark "pay-for performance" model.
[Google, Overture]
Contextual Advertising / Behavioral Marketing free ware developers who bundle adware with their product. For
example, a browser extension that automates authentication and form fill-ins, also delivers advertising links or popups as the user surfs the web. Contextual advertisers can sell targeted advertising based on an individual user's surfing
activity.
Content-Targeted Advertising -- pioneered by Google, it extends the precision of search advertising to the rest of the
web. Google identifies the meaning of a web page and then automatically delivers relevant ads when a user visits that
page. [Google]
Intromercials -- animated full-screen ads placed at the entry of a site before a user reaches the intended content.
[CBS MarketWatch]
Ultramercials -- interactive online ads that require the user to respond intermittently in order to wade through the
message before reaching the intended content. [Salon in cooperation with Mercedes-Benz]

03. Infomediary Model

Data about consumers and their consumption habits are valuable especially when that information is carefully
analyzed and used to target marketing campaigns. Independently collected data about producers and their products are
useful to consumers when understand a given market.
Advertising Networks -- feed banner ads to a network of member sites, thereby enabling advertisers to deploy large
marketing campaigns. Ad networks collect data about web users that can be used to analyze marketing effectiveness.
[DoubleClick]
Audience Measurement Services -- online audience market research agencies. [Nielsen//Netratings]
Incentive Marketing -- customer loyalty program that provides incentives to customers such as redeemable points
or coupons for making purchases from associated retailers. Data collected about users is sold for targeted advertising.
[Coolsavings]
Metamediary -- facilitates transactions between buyer and sellers by providing comprehensive information and
ancillary services, without being involved in the actual exchange of goods or services between the parties. [Edmunds]

04. Merchant Model

Wholesalers and retailers of goods and services. Sales may be made based on list prices or through auction.
Virtual Merchant --or e-tailer, is a retail merchant that operates solely over the web. [Amazon.com]
Catalog Merchant -- mail-order business with a web-based catalog. Combines mail, telephone and online ordering.
[Lands'End]
Click and Mortar -- traditional brick-and-mortar retail establishment with web storefront. [Barnes & Noble]
Bit Vendor -- a merchant that deals strictly in digital products and services and, in its purest form, conducts both sales
and distribution over the web. [Apple iTunes Music Store]
05. Manufacturer (Direct) Model
The manufacturer or "direct model", it is predicated on the power of the web to allow a manufacturer (i.e., a company
that creates a product or service) to reach buyers directly and thereby compress the distribution channel. The
manufacturer model can be based on efficiency, improved customer service, and a better understanding of customer
preferences. [Dell Computer]
Purchase -- the sale of a product in which the right of ownership is transferred to the buyer.
Lease -- in exchange for a rental fee, the buyer receives the right to use the product under a terms of use agreement.
The product is returned to the seller upon expiration or default of the lease agreement. One type of agreement may
include a right of purchase upon expiration of the lease.
License -- the sale of a product that involves only the transfer of usage rights to the buyer, in accordance with a terms
of use agreement. Ownership rights remain with the manufacturer (e.g.,with software licensing).
Brand Integrated Content -- in contrast to the sponsored content approach (i.e., the advertising model), brandintegrated content is created by the manufacturer itself for the sole basis of product placement.

06. Affiliate model

In contrast to the generalized portal, this seeks to drive a high volume of traffic to one site, the affiliate model,
provides purchase Opportunities wherever people may be surfing. It does this by offering financial incentives (in the
form of a percentage of revenue) to affiliated partner sites. The affiliates provide purchase point click-through to the
merchant. It is a pay-for-performance model if an affiliate does not generate sales, it represents no cost to the
merchant. The affiliate model is inherently well-suited to the web, which explains its popularity. Variations include,
banner exchange, pay-per-click, and revenue sharing programs.
[Barnes & Noble, Amazon.com]
Banner Exchange -- trades banner placement among a network of affiliated sites.
Pay-per-click -- site that pays affiliates for a user click-through.
Revenue Sharing -- offers a percent-of-sale commission based on a user click-through in which the user subsequently
purchases a product.

Basic functions of the business model:

Value proposition - a description the customer problem, the product that addresses the problem,
and the value of the product from the customer's perspective.

Market segment - the group of customers to target, recognizing that demarked segments have
different needs. Sometimes the potential of an innovation is unlocked only when a different
market segment is targeted.

Value chain structure - the firm's position and activities in the value chain and how the firm will
capture part of the value that it creates in the chain.

Revenue generation and margins - how revenue is generated (sales, leasing, subscription,
support, etc.), the cost structure, and target profit margins.

Position in value network - identification of competitors, complementary, and any network

effects that can be utilized to deliver more value to the customer.

Competitive strategy - how the company will attempt to develop a sustainable competitive
advantage, for example, by means of a cost, differentiation, or niche strategy.

Value proposition

A value proposition is a promise of value to be delivered. Its the primary reason a prospect should buy from
you. Value proposition is a clear statement that

explains how your product solves customers problems or improves their situation (relevancy),

delivers specific benefits (quantified value),

Tells the ideal customer why they should buy from you and not from the competition (unique
differentiation).

A value proposition is a promise of value to be delivered and acknowledged and a belief from the
customer that value will be delivered and experienced. A value proposition can apply to an entire
organization, or parts thereof, or customer accounts, or products or services.

Creating a value proposition is a part of business strategy. Kaplan and Norton say "Strategy is based
on a differentiated customer value proposition. Satisfying customers is the source of sustainable
value creation."

Developing a value proposition is based on a review and analysis of the benefits, costs and value that
an organization can deliver to its customers, prospective customers, and other constituent groups
within and outside the organization. It is also a positioning of value, where Value = Benefits Cos

2 Market segmentation
Is a marketing strategy which involves dividing a broad target market into subsets of consumers, businesses,
or countries that have, or are perceived to have, common needs, interests, and priorities, and then designing
and implementing strategies to target them. Market segmentation strategies are generally used to identify
and further define the target customers, and provide supporting data for marketing plan elements such as
positioning to achieve certain marketing plan objectives. Businesses may develop product differentiation
strategies, or an undifferentiated approach, involving specific products or product lines depending on the
specific demand and attributes of the target segment.

Few companies are big enough to supply the needs of an entire market; most must breakdown the total
demand into segments and choose those that the company is best equipped to handle.

Four basic factors that affect market segmentation are

1

clear identification of the segment,

measurability of its effective size,

its accessibility through promotional efforts, and

Its appropriateness to the policies and resources of the company.

The four basic market segmentation-strategies are based on

1

behavioral,

demographic,

psychographic, and

Geographical differences.

Geographic segmentation
Marketers can segment according to geographic criterianations, states, regions, countries, cities,
neighborhoods, or postal codes. The geo-cluster approach combines demographic data with geographic data
to create a more accurate or specific profile. With respect to region, in rainy regions merchants can sell
things like raincoats, umbrellas and gumboots. In hot regions, one can sell summer clothing. A small
business commodity store may target only customers from the local neighborhood, while a larger department
store can target its marketing towards several neighborhoods in a larger city or area, while ignoring
customers in other continents. Geographic segmentation is important and may be considered the first step to
international marketing, followed by demographic and psychographic segmentation.

Demographic segmentation
Segmentation according to demography is based on variables such as age, sex, generation, religion,
occupation and education level or according to perceived benefits which a product or service may provide.
Benefits may be perceived differently depending on a consumer's stage in the life cycle. Demographic
segmentation divides markets into different life stage groups and allows for messages to be tailored
accordingly.
A variant of this approach known as firm graphic or feature based segmentation is commonly used in
business-to-business markets (its estimated that 81% of B2B marketers use this technique). Under this
approach the target market is segmented based on features such as company size (either in terms of revenue
or number of employees), industry sector or location (country and/or region)

Behavioral segmentation
Behavioral segmentation divides consumers into groups according to their knowledge of, attitude towards,
usage rate, response,loyalty status, and readiness stage to a product. There is an extra connectivity with all
other market related sources. Behavioral segmentation divides buyers into segments based on their
knowledge, attitudes, uses, or responses concerning a product. Many marketers believe that behavior
variables are the best starting point for building market segments.

Psychographic segmentation
Psychographic segmentation, which is sometimes called lifestyle, is measured by studying the activities,
interests, and opinions (AIOs) of customers. It considers how people spend their leisure, and which external
influences they are most responsive to and influenced by. Psychographics are very important to
segmentation, because psychographics identify the personal activities and targeted lifestyle the target subject
endures, or the image they are attempting to project. Mass media has a predominant influence and effect on

psychographic segmentation. Lifestyle products may pertain to high involvement products and purchase
decisions, to specialist or luxury products and purchase decisions.

Occasional segmentation
Occasion segmentation focuses on analyzing occasions, independent of the customers, such as considering
Coke for occasions of being thirsty, having dinner or going out, without taking into consideration the
differences an affluent and middle-class customer would have during these occasions.
Occasional customer segmentation merges customer-level and occasion-level segmentation models and
provides an understanding of the individual customers needs, behavior and value under different occasions
of usage and time. Unlike traditional segmentation models, this approach assigns more than one segment to
each unique customer, depending on the current circumstances they are under.

The Value Chain

To analyze the specific activities through which firms can create a competitive advantage, it is useful to
model the firm as a chain of value-creating activities. Michael Porter identified a set of interrelated generic
activities common to a wide range of firms. The resulting model is known as the value chain and is depicted
below:

Primary Value Chain Activities

Inbound
Logistics

>

Operations

>

Outbound
Logistics

>

Marketing
& Sales

>

Service

The goal of these activities is to create value that exceeds the cost of providing the product or service, thus
generating a profit margin.

Inbound logistics include the receiving, warehousing, and inventory control of input materials.

Operations are the value-creating activities that transform the inputs into the final product.

Outbound logistics are the activities required to get the finished product to the customer, including
warehousing, order fulfillment, etc.

Marketing & Sales are those activities associated with getting buyers to purchase the product,
including channel selection, advertising, pricing, etc.

Service activities are those that maintain and enhance the product's value including customer
support, repair services, etc.

Any or all of these primary activities may be vital in developing a competitive advantage. For example,
logistics activities are critical for a provider of distribution services, and service activities may be the key
focus for a firm offering on-site maintenance contracts for office equipment.
These five categories are generic and portrayed here in a general manner. Each generic activity includes
specific activities that vary by industry.

Support Activities
The primary value chain activities described above are facilitated by support activities. Porter identified four
generic categories of support activities, the details of which are industry-specific.

Procurement - the function of purchasing the raw materials and other inputs used in the valuecreating activities.

Technology Development - includes research and development, process automation, and other
technology development used to support the value-chain activities.

Human Resource Management - the activities associated with recruiting, development, and
compensation of employees.

Firm Infrastructure - includes activities such as finance, legal, quality management, etc.

Support activities often are viewed as "overhead", but some firms successfully have used them to develop a
competitive advantage, for example, to develop a cost advantage through innovative management of
information systems.

Value Chain Analysis

In order to better understand the activities leading to a competitive advantage, one can begin with the
generic value chain and then identify the relevant firm-specific activities. Process flows can be mapped, and
these flows used to isolate the individual value-creating activities.
Once the discrete activities are defined, linkages between activities should be identified. A linkage exists if
the performance or cost of one activity affects that of another. Competitive advantage may be obtained by
optimizing and coordinating linked activities.
The value chain also is useful in outsourcing decisions. Understanding the linkages between activities can
lead to more optimal make-or-buy decisions that can result in either a cost advantage or a differentiation
advantage.

The Value System

The firm's value chain links to the value chains of upstream suppliers and downstream buyers. The result is a
larger stream of activities known as the value system. The development of a competitive advantage depends
not only on the firm-specific value chain, but also on the value system of which the firm is a part.

4. Analyzing Revenue and Gross Margin

Gross margin is a ratio a company uses to determine how much money remains after deducting the cost of
goods from the revenue it earns. Scrutinizing the numbers is a way for a company to find out if it is
generating enough revenue to cover costs. Businesses also analyze revenue and gross margin as a way to
gauge if they are doing well financially in comparison to their competition.

Revenue
Revenue is the money a company receives during a particular financial period. For example, the price per
product or service multiplied by the number of units sold. Total revenue or sales is not the same as profit. To
calculate revenue, subtract the cost of creating the goods or performing services sold from a companys total
sales revenue. Besides net sales, revenue includes any exchange of assets, earned interest or increases in
owners equity. Add up all these items before deducting expenses. Revenue is listed as revenue, sales, net
sales or net revenue on the first line of a companys income statement. Generally, companies report net
revenue rather than gross revenue. Net sales deduct discounts, returns and funds set aside for unexpected
expenses from gross sales.

Gross Margin
Calculate gross margin by subtracting the cost of goods sold from the total sales revenue, and then divide by
the total net sales. The margin represents the percentage of total sales revenue that a company keeps as gross
profit after deducting the costs directly related to producing the goods or services sold. For example, a
company with a margin of 45 percent retains $0.45 for every dollar of revenue it receives. Different
businesses and industries have different levels of gross margin.

Different business and revenue models

Each of the actors in the value network has its own business and revenue models and actors outside the
industry may at any time enter with business models disrupting the whole industry, such as Apple entering
the music industry or Google entering the navigation technology industry. Organizations need to constantly
monitor actors in the value network, at the edges of the industry and potential outside actors that could for
example provide something at a much lower cost or even for free. A good question to ask is what an industry
outsider would do to take advantage of the weaknesses in existing value network and business models?
Some examples of potentially disruptive business models:

Give away or subsidize hardware to sell software or services

Give away or subsidize software to sell hardware or services

Give away or subsidize services to sell hardware or software

Give away one version of the hardware, software and/or service to sell another

Give away or subsidize hardware, software and/or services, supported by advertising

Give away or subsidize hardware, software and/or services, sell access to 3rd party

05.Value

network analysis and positioning

There is an increasing need for companies to gain insights into what is actually happening around them and
where value can be created and captured. Linear value chains have in many cases been replaced by complex,
interdependent and dynamic relationships between multiple sets of actors in different industries, different
parts of the world, using different business and revenue models.
The increased turbulence creates threats and opportunities for organizations to respond to and quickly
reconfigure its business models and with that its different roles in relation to external actors. To capture
opportunities more quickly than rivals do, organizations must have agile business models and constantly
analyze where value can be created and captured.

An intricate network of roles and relationships

The value network surrounding an organization comprises of different stakeholders and organizations
(nodes) that have an effect on the outcome of the organization's activities. Between the nodes are different
forms of formal and in-formal relationships connecting the nodes, forming the network. In contrast to linear
value chains and One-Sided Business Models, such as buying ingredients to sell lemonade on the driveway,
the number of different actors having multiple roles creates an intricate network of roles and relationships.

Nodes with multiple roles

One actor in the value network can simultaneously be a value provider (e.g. out-licensing important
technology, co-educating customers, partner in working towards establishing a standard, co-developing new
technology, supplier of services, providing user data), a value recipient (e.g. in-licensing technology, buying
products and services, having access to process knowledge and technical know-how, benefiting from
complementary products and services), a value neutral (e.g. competing with similar products and services,
providing substitute technology, products or services, non-connected experts, authorities and regulators,
standardization bodies). Additional to the complexity of nodes having multiple roles is that roles,
relationships and business models are constantly changing.

Mapping the value network

To understand the value network, an organization should for every value proposition map out each and every
actor that could have an effect on the outcome. This should initially be done as broadly as possible
generating a very long list of actors. Different approaches can be used to identify actors such as:

Roles in relation to ones own organization "all suppliers, partners, competitors, customers,
substitutes"

Type of organizations "all incumbents, SMEs, start-ups, research institutes, university research
groups, governmental organizations"

Different forms of activities or expertise "content idea, content creation, publishing, distribution,
content aggregation"

The next step is to categorize each actor in the list to make it more manageable. This can be done in the style
of a mind-map or in Excel lists that are perhaps more easy to sort and filter. The way to categorize and group
actors is very situational specific and the approaches above can be used as a starting point.

06. Competitive strategy

Long-term action plan that is devised to help a company gain a competitive advantage over its rival. This
type of strategy is often used in advertising campaigns by somehow discrediting the competition's product or
service. Competitive strategies are essential to companies competing in markets that are heavily saturated
with alternatives for consumers.

Porter's Generic Competitive Strategies (ways of competing)

A firm's relative position within its industry determines whether a firm's profitability is above or below the
industry average. The fundamental basis of above average profitability in the long run is sustainable
competitive advantage. There are two basic types of competitive advantage a firm can possess: low cost or
differentiation. The two basic types of competitive advantage combined with the scope of activities for
which a firm seeks to achieve them, lead to three generic strategies for achieving above average
performance in an industry: cost leadership, differentiation, and focus. The focus strategy has two variants,
cost focus and differentiation focus

1. Cost Leadership
In cost leadership, a firm sets out to become the low cost producer in its industry. The sources of cost
advantage are varied and depend on the structure of the industry. They may include the pursuit of economies
of scale, proprietary technology, preferential access to raw materials and other factors. A low cost producer
must find and exploit all sources of cost advantage. if a firm can achieve and sustain overall cost leadership,
then it will be an above average performer in its industry, provided it can command prices at or near the
industry average.
2. Differentiation
In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that are widely
valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and
uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a premium price
3. Focus
The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The
focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the
exclusion of others.
The focus strategy has two variants.
(a) In cost focus a firm seeks a cost advantage in its target segment, while in
(b) Differentiation focus a firm seeks differentiation in its target segment. Both variants of the focus strategy
rest on differences between a focuser's target segment and other segments in the industry. The target
segments must either have buyers with unusual needs or else the production and delivery system that best
serves the target segment must differ from that of other industry segments. Cost focus exploits differences in
cost behavior in some segments, while differentiation focus exploits the special needs of buyers in certain
segments.

References

https://en.wikipedia.org/wiki/Function_model
https://servicexen.wordpress.com/2008/05/19/6-functions-of-a-business-model/
http://www.audiencedialogue.net/busmod.html
http://www.tutorialspoint.com/e_commerce/e_commerce_business_models.htm
https://en.wikipedia.org/wiki/Value_proposition