17 Sep 09 E-Business Model Explained
e-Business Model
An e-business-model, which is similar to an ordinary business model, focuses on online business (e-business). Any individual or business looking at branching out or developing an internet business needs to have a sound ‘e-business model’ which will set out the path of the internet business covering all the main business areas.
Main Components of An E-Business Model
So what does an e-business model consist of? How do you put together an e-business model? Below I have listed the main general components of a standard e-business model focusing on the sale of products or services online.
1. Value Propositions – Who, What, Why! Who are you targeting, What are you selling and Why should someone buy/use your internet based product/service above the competition. An e-business model will have an in-depth Value Proposition which covers the above points and also includes a ‘Value Proposition Statement’ which is used to convince consumers/users of the features/benefits of the What.
To produce a Value Proposition as part of an e-business model a certain degree of research needs to take place such as;
Market segmentation – defining which market or segment of market your internet product / service is best suited; age, gender and socio-economic grouping.
Target market performance – what is the current consumer/user need; usage and revenue spend within your target market related to the internet product / service you intend to supply.
2. Distribution Channels – how does the e-business get its products and services to the end user? On the internet there are various distribution cannels for both products and services and they consist of; direct distribution channels and third party distribution channels. Once you have your distribution channels in place you would then need to look at your e-business infrastructure to manage these channels.
Direct Distribution Channel – as this implies it equates to directly selling the product or service to the end user via your own online channels such as a website. A seller’s / service provider’s own channels may incorporate multiple direct methods including off-line such as a shop or walk in office.
Third Party Distribution Channels – this is where it gets really exciting! The internet has evolved so much that there are third party distribution channels for practically every type of product and service; affiliate schemes, general and specialised e-commerce and auction channels, product and service integration websites (were your product or service can be combined with others as a set package and sold on to end users), search engine marketing (Google Adwords, Yahoo Search Marketing and Microsoft Ad Centre), social networks and lots more.
Distribution Channel Management – once you have identified the channels for your e-business product or service you then need to consider how to manage these channels using technology and / or manual input. Managing orders and queries for a single product or service from your own channel website is fine as most websites today come with full Content Management Systems which can track, queue and process sales automatically. Using an analytical system can track end users performance related to the product or service. However if you have 1000’s of products or multiple services and are using multiple third party marketplaces then the task of having to use lots of management systems for tracking, analyzing and so forth can seem daunting not to mention the staff costs. Distribution channel management is crucial to the performance of your business making sure you’re abreast of end user behavior, channel performance/underperformance and it pays to have the right management software in place.
3. Customer Relationships – a key aspect of a successful e-business model is the importance placed on the ‘customer relationship’ part of the e-business. Finding customers / users is one thing, keeping them and having them work for you is an entirely different matter. The customer relationship part of the e-business model can be broken down into methodologies, software and internet technology, combining to help you, the e-business owner, manage all aspects of your customer relationships. Below are some key areas that need to be focused on within this section (all the below can be managed by an intergrated online/off-line CRM system):
Operational Customer Relationship Management – this focuses more on the front end of the e-business related to sales and marketing, administration, customer care and so on. An online system can be used to store customer details, purchase history, previous interaction and more.
Analytical Customer Relationship Management – heavy use of the online analytical systems to track and monitor end user behaviour which can give an e-business owner the heads-up when it comes to product / service development, pricing and placement.
Sales Intelligence Customer Relationship Management– tied closely to the above this deals with customer trends, alignment and sales performance.
Collaborative Customer Relationship Management – deals with ‘connecting the dots’ within the e-business infrastructure, sourcing information from all the different areas, sales, customer care, customer feedback etc allowing the e-business owner to further improve their product or service and over all customer experience.
Customer Communication Management – deals with all areas connected with customer communication so the e-business can maintain contact with end users on an on-going basis using systems such as regular e-mail campaigns / newsletters that keep customers and end users aware of product / service updates and new features.
Customer Retention – as most online businesses make a fair degree of revenue from repeat sales its important to develop methodologies that attract a customer to return to your e-business again (User Loyalty), there are various ways to do this including loyally points, discount vouchers, competitions and so forth.
4. Cost Structure – many e-businesses have failed due to lack of attention to this module of their e-business model. A realistic cost structure is crucial to understanding not only start-up costs but also on-going business costs. Analysing a proper cost structure will allow you to generate a profitable ‘revenue model’ for your e-business. Cost structures should include:
Manufacture / Service Supply Costs – what does it cost to produce the product or service per unit.
Distribution Costs – what are the costs associated with using the distribution channels.
Infrastructure Costs – what are the costs associated with the e-business infrastructure, development, software, application and staff.
Customer Management Costs – what are the costs associated with the customer care management.
Transaction Costs – what are the costs associated with the sale of the product or service such as third party channel commissions.
Fixed Costs – What are the costs associated with rent, insurance and utilities.
5. Revenue Model – product or service cost to the customer or end user and revenue streams. An e-business revenue model will incorporate the various ‘revenue generations’ for your e-business such as product / service cost, affiliate revenue, direct sales revenue, add-on sale revenue.
Revenue models don’t just take into account an individual product or service price but also include long-term and customer-return features such as buy-one-get-one-free, discounts on second purchases or free trials. Product / service add-ons are where the e-business owner splits the product / service into segments; for example selling a pair of shoes and adding a further small cost to include the laces. The most important things about an e-business revenue model is making sure it is realistically based upon the above four e-business model components and it shows clear PROFIT after costs.
E-Business Model Consultants
Researching, analysing and applying the above e-business model components can seem a bit daunting, it requires some know-how and skill to be able to formulate a realistic e-business model. A tried and tested way of generating a solid and profitable e-business model is to use an experienced e-business consultant who not only has experience in putting together standard and bespoke models tailored for your particular business but also has the necessary skills, technologies and e-business know how that can prove invaluable to your e-business.
Video of Google’s Napkin E-Business Model:
Tags: E-Business, e-Business Model
Reader's Comments
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Really interesting blog, more information about e-business models out there the better. The revenue model of e-business is fundamental (as with all businesses), I saw another great resource for e-business models here: http://digitalenterprise.org/models/models.html which would also be of benefit to anybody thinking about setting up an e-business.
Took me 3 years of trial and error setting my online enterprise as there was not much info out there on specific models being used but now there are so many different available models for all types of e-business.