Forms of Business Models Used in Electronic Commerce - Term Paper Example

Business Models for Electronic Markets The article that was written by Timmers discusses the various business models that exist in electronic commerce. The author begins by defining electronic commerce as a form of business that involves the electronic exchange of tangible goods such as physical products and intangible ones such as information (Timmers 1). The author also argues that although there are new business models of conducting business electronically, some techniques of this form of business, for example, Computer Assisted Life-cycle Support (CALS) and Electronic Data Interchange (EDI) were developed long ago in the twentieth century (Timmers 1). This argument indicates that electronic commerce emerged a long time ago, but it was known to only few industries. This also means that electronic commerce has spread around the world in recent times because of the development of the internet through the World Wide Web (Funk 10). Therefore, organizations should embrace the internet because it is the most significant platform that enables them to conduct business electronically between themselves and consumers and also between them and other businesses. According to the author, the development of the internet enabled electronic commerce to grow by 1000% annually in the years between 1996 and 1997 (Timmers 1). This growth rate is so huge and it indicates that the internet has had a massive effect on the ways in which organizations conduct their businesses. The article also argues that the research that was conducted by Data monitor in 1997 indicated that by the year 2002, around 630,000 organizations in the United States and other 245,000 in the European Union would be conducting all of their functions electronically (Timmers 1). This means that if these statistics were expected to take effect in 2000, in the current times, the organizations that conduct business electronically exceed this number both in the United States and in the European Union. The author has, however, not indicated the statistics for other parts of the world such as Asia, Africa, and Australia. These regions also have organizations that conduct their functions online, and it means that the author did not research on them efficiently. Categorization of Business Models In this section of the article, the author classifies various business models into groups. Timmers begins this section by defining a business model as a design of the flow of services and products in an organization (2). The design also explains the roles of the actors who take part in the flow of the goods and services. According to the author, the understanding of marketing strategies that organizations use to promote their products enables the reader to comprehend factors such as marketing mix, competitive advantage, and market positioning (Timmers 2). The marketing strategies that an organization uses to promote its products make up a marketing model (Shelton 31). Relationship between Value Chains and Business Models Timmers argues that electronic business models are constructed along the value chains of various businesses. The construction of business models along the value chain may take the form of interaction patterns, reconstruction, or deconstruction. Deconstruction breaks down the value chain activities into primary and secondary activities such as inbound and outbound logistics; while reconstruction involves combining these factors again to form fewer activities (Eisenmann, Hallowell and Tripsas 58). The interaction patterns, on the other hand, involve determining the number of parties that are involved in a transaction, for example, it may be one to one meaning that there is one buyer and a single seller. The pattern may also be many sellers to one buyer, for example, in businesses that take place in malls (Timmers 2). The next step in constructing business models is combining of the value chain activities with the interaction patterns. The author also argues that the construction of business models also depends on the availability of technology. Technology enables organizations to conduct numerous business models; however, technology does not wholly determine the business models that companies choose for commercial use (serentschy 290). Despite the availability of numerous business models, the author argues that only few of them are implemented in reality. Therefore, Timmers argues that in his next section, he analyzes eleven business models. Some of the designs are experimental while others are applicable. The argument that some models are applicable while others are not indicates that a lot needs to be done to encourage businesses to utilize the unutilized electronic business designs. This is because some of the unutilized models may be more beneficial than those that are already in use (Blundell, Atkinson and Roulet 58). Business Models E-shop An e-shop is a place where businesses sell their products on the internet. The electronic shop consists of the description of products, their prices, and their availability (Eisenmann, Hallowell and Tripsas 69). E-shops enable organizations to advertise products at low costs, and they enable them to capture large market shares that increase their sales volume and profits. This business model also enables consumers to access a variety of products at low prices, and it also exposes consumers to a wide range of information, which they cannot access by buying from physical shops (Timmers 3). E-procurement This business model enables organizations to procure raw materials from suppliers electronically. Organizations ask suppliers to bid online and then they choose the dealer who offers products of high quality at low prices (Shelton 40). This means that electronic procurement saves firms the high cost of raw materials because they communicate with numerous suppliers and choose the one who offers the best deal. This model also enables companies to save the time that they would spend while moving from their premises to those of suppliers to view and purchase raw materials. Suppliers, on the other hand gain by reducing the cost of placing tenders and gaining access to a variety of buyers, which increases their sales and profits (Funk 54). E-auction This form of electronic business model, on the other hand, enables firms to conduct their auctioneering processes on the internet. The seller posts the pictures of the goods that a company sells then buyers bid for prices on the same electronic platform. In this model, the winning bidder may pay for the goods electronically and wait for their physical delivery (Serentschy 294). The benefit of this model is that it saves time and cost for both buyers and sellers. Sellers receive special benefits such as elimination of surplus stock and efficient exploitation of capacity. Buyers, on the other hand, save the time that they spend on travelling and bidding physically. E-mall This electronic business design consists of numerous e-shops in one large shop known as the mall. The e-shops in the mall sell different products that have a similar brand name, which helps them to increase their sales (Timmers 3). The fact that the e-mall is a combination of numerous e-shops, it means that buyers and sellers receive similar benefits as those of an e-shop. However, there are additional benefits that include trust and convenience for buyers. Benefits to sellers include additional customers, sales, profits, and time saving (Blundell, Atkinson and Roulet 82). The applicability of the e-mall business model has been doubted by some researchers who argue that it is complicated and that customers concentrate on the seller who sells the goods that they demand rather than paying attention to the numerous sellers (Funk 77). This model has also been doubted because sellers prefer third party business models instead of e-malls. Third party marketplace The third party marketplace business model is the one where by organization contract out their web marketing functions to a third party who does not work in their company (Timmers 4). The party provides consumers with an interface that contains the catalogues of all products that the contractor sells. The third parties may also conduct activities involved in logistics, ordering, and branding on behalf of the contractor. This form of electronic business model helps sellers to reduce the cost of performing the activities that they contract out. This also enables organizations to concentrate on other value adding activities to ensure that their products remain competitive in the market (Serentschy 296). Virtual Communities Virtual community is a business model that enables consumers to provide their information in an implicit environment. After providing their information, the consumers then go ahead and purchase products and services from this community (Shelton 68). The membership to the virtual communities involves the payment of a fee that enables the owners of the implicit environment to maintain the setting. The virtual communities enable organizations to capture large market shares and win the loyalty of customers because of the interactive marketing that takes place in this environment (Timmers 4). The feedback that companies receive from this business model also enables them to improve their products and services. Amazon is an example of an organization that uses this form of electronic commerce model. Value Chain Service Provider The value chain service provider business model is the one in which an organization concentrates on performing one of the functions of its value chain. The concentration on one of the functions aims at enabling organizations to achieve competitive advantage in the market. Banks are the main organizations that have been using this model in the past, but they are also adopting the use of other techniques such as employment of intermediaries to conduct these functions (Blundell, Atkinson and Roulet 295). This means that value chain service provider is an almost outdated electronic business model. UPS is an example of a company that performs value chain activities on behalf of their clients. Value Chain Integrator This model is similar to the value chain service provider, and it involves providing more than one function of the value chain. Companies that provide these services earn income from consultancy and transaction fees (Timmers 4). An example of company that provides these services is Marshall, which provides its clients with information of various transactions through networks such as Marshall net and Part net. Researchers argue that this model is gaining popularity among third party marketplace providers (Funk 85). Collaboration Platforms Collaboration platforms are tools that enable organizations to communicate with one another concerning issues such as engineering designs. Businesses also engage in these platforms to communicate with others when they take part in similar projects (Funk 91). The communication enables the firms to ensure that there is teamwork in completing the activities involved in the project. Collaboration platforms enable companies to save the time that they would spend while moving to a similar location to conduct their meetings (Eisenmann, Hallowell and Tripsas 78). The model also saves the cost of travel from the business premises to the location of collaboration meetings. Therefore, it means that this model is installed by companies that conduct business together; no firm can use this business design on its own if it does not have a project that it conducts with others. Information Brokers and Trusts These are models that deal with the provision of information services to companies. In this model, an organization collects information of consumers that exist in open networks on the internet such as Yahoo and Face book (Shelton 101). The organization then analyzes the data from the internet to give rise to meaningful information as what consumers demand in the market and how they would like goods to be delivered and packaged. The company with this information then provides other organizations with the data at a fee; Belsign Company conducts this form of business. The advantage of this is that firms acquire information at a lower cost than the one that they would spend on conducting real market research. Companies are then able to provide firms with value because they produce goods that fit the requirements of the clients (Timmers 5). Conclusion The article discusses the various forms of business models that businesses use in electronic commerce. According to the author, there are numerous models, but organizations choose the ones that are applicable to their businesses. The various business models are made up of value chain activities and interactive patterns that describe the number of parties that are involved in transactions. Among the available business models, some of them were developed a long time in the twentieth century, for example, Electronic Data Interchange; while others are new because their development has been enabled by the growth of the internet. The other models include trusts, value chain integrator, e-shop, e-mall, and third party exchange. These models enable companies to save time and cost that they would spend moving from one place to another to sell their products to customers, and to conduct meetings with other organizations. Works Cited Blundell-Wignall, Adrian, Paul E. Atkinson, and Caroline Roulet. "The Business Models of Large Interconnected Banks and the Lessons of the Financial Crisis." National Institute Economic Review, 2012. Print. Eisenmann, Thomas R, Roger Hallowell, and Mary Tripsas. Internet Business Models: Text and Cases. Boston, Mass: McGraw-Hill/Irwin, 2002. Print. Funk, Tom. Web 2.0 and Beyond: Understanding the New Online Business Models, Trends, and Technologies. Westport, Conn: Praeger, 2009. Print. Serentschy, Georg. "Telco Business Models at a Crossroads: Towards New Ways of Financing Super-Fast Broadband." Intereconomics. 47.5 (2012): 290-230. Print. Shelton, Ted. Business Models for the Social Mobile Cloud: Transform Your Business Using Social Media, Mobile Internet, and Cloud Computing. Hoboken: John Wiley & Sons, 2013. Print. Timmers, Paul. “Business models for electronic markets.” Internet business models, 1998. Print. (http://www.cs.uu.nl/docs/vakken/ec/Timmers_BMem.pdf) Read More