Business Models

The Internet and World Wide Web have transformed and adapted traditional methods of commerce. Elements of real-world shopping have also been transmogrified and successfully implemented on the Internet. Features such as browsing, researching, and comparing, are all available without visiting physical shops. This does have negative repercussions on the physical shops; however the online world can be used as an extension, both in expanding the business virtually and at lower costs, as well as increasing and broadening their prospective audience and market.

Electronic trading of physical goods and services, known as e-commerce, has foundations and frameworks for success. Known commonly as business models, these are geared towards harnessing the potential and the convenience of the Internet.

Essentially, a business model is a framework for making money, and is a system which creates value for both sellers and consumers (Zhang, 2009). Company policies, operations, technologies and ideologies are part of defining a business’s model (PrenticeHall, 2001).

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With the migration to online services, real-world business models have also been reinvented. These include, but are not limited to advertising, merchant, affiliate, and community models (Rappa, 2010). However, brokerage and auctions have been remodelled and take advantage of the expansive market found on the Net (Boris, 2011). The most successful example is eBay.

Encompassing many facets of Rappa’s (2010) brokerage model are present within eBay and its subsidiaries; including auction broker, transaction broker, distributor, and virtual marketplace. All of these elements are ever present within eBay for both the sellers and buyers.

Business models will vary depending on the purpose of the business, but will always work to benefit all parties involved. As Internet technologies have evolved, so has eBay and the business models it employs. Brokerage and auctioning may be the fundamental foundation of the site, however as its popularity has increased, so has its venture. Encompassing the aforementioned models, as well as, advertising, merchant, affiliate, and community; eBay is recognised as a hub of information, products, and retailers.

The company behind eBay envisioned the business venture to be an online community driven by a marketplace, purely interested in connected people with items to sell; very much like a real-world auction house. This is their brokerage business model; remaining in the background and providing an intermediary platform and environment for bringing buyers and sellers together, including monitoring of transactions.

Within a business model, there is also a profit model. Every business is out to make a profit and raise revenues; this is done by following a set of processes. Both on the Internet and within real-world shops, product innovation, customer relationship, infrastructure management, and financial aspects contribute to the four main pillars of the profit model (Zhang, 2009).

Product innovation is based on deliverable capabilities and target customers’ demographics. Together, these form value proposition. This allows the company to tailor their range of products and services to the customer, their pricing schedules, and customer service options.

Customer relationship relies on information. Personalising, profiling, and exploiting. Through such data, sellers and consumers alike can benefit. The seller can improve their business and methods to promote value, as well as retain and attract new customers. An imperative factor for e-businesses is trust. As with any business, a trusting relationship needs to be established and nurtured for repeat patronage. This also relies upon customer satisfaction

Infrastructure management leverages from value proposition. Determining the products which will sell and create value for all parties involved. Also involves extending the idea of chain supply and networks. Such networks involve the alliances formed with suppliers of required goods. The human component of infrastructure is staff resourcing, as well as real and intangible assets such as technological equipment to run the business, and cash flow; as well as copyright information, and reputation, respectively.

All pillars ultimately influence the financial aspect. Everything boils down to revenue. A company’s financial model is the crux to the success of their business. Creating value through products and services plays to a consumer’s wants and needs, which may lead to repeat patronage and/or introduction of more clientele, which builds trust and returns a profit.

Based on the four pillars, revenue is maximised by product innovation and customer relationship, whereas effective infrastructure management minimises costs, therefore optimising the overall profit model. e-commerce automatically enables profits to be greater than real-world shopping and trading.

In essence, consumers are drawn to online shopping for numerous reasons. These entail convenience, broader selection and competitive pricing for products, as well as the abundance of information, which is generally not available in physical stores. Businesses are attracted to ecommerce with similar motives. There are lower costs involved and larger returns with managing a website than a ‘brick and mortar’ store, the Internet offers a larger market with more customers, and less direct competition.
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