Classification of E-Comm Companies

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Classification of E-Commerce Firms

Professor Joshua Livnat, Ph.D., CPA


311 Tisch Hall New York University 40 W. 4th St. NY NY 10012 Tel. (212) 998-0022 Fax (212) 995-4230 [email protected] Web page: www.stern.nyu.edu/~jlivnat

Classifications
Classification by seller/buyer Classification by product or activity Classification by sources of revenues

Classification by seller/buyer
Business to Consumer (B to C)
Southwest Airlines generates over 15% of its revenues from its online site.
http://www.southwestairlines.com/

Business to Business (B to B)
Automobile manufacturers organizing an exchange to buy components from suppliers.
http://www.generalmotors.com/cgi-bin/pr_display.pl?1202

Consumers to Consumers (C to C)
Auctions sites like E-Bay. http://www.ebay.com/

Consumers to Business (C to B)
Selling information to businesses like gorefer.
http://www.gorefer.com/ http://www.mercata.com/
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Classification by product or activity


Media Metrix Report - Dec 1999
Category SEARCH ENGINE COMMERCIAL ONLINE MARKETING/CORPORATE WEB SERVICES SHOPPING NEWS INFO/ENTERTAINMENT DIRECTORIES INTERNET SERVICE PROVIDER ADULT CONTENT TRAVEL/TOURISM GOVERNMENT EDUCATION All Other AIRLINE SITES Domain YAHOO.COM MSN.COM MICROSOFT.COM GEOCITIES.COM BLUEMOUNTAINARTS.COM ABOUT.COM INFOSPACE.COM EARTHLINK.NET PORNCITY.NET MAPQUEST.COM NASA.GOV BERKELEY.EDU DASH.COM AA.COM Digital Media Reach % 52.6 47.3 36.8 31.1 26.1 15 10 6.7 5.1 5 3.3 2.4 2 1.7

Classification by Revenue Sources


Revenues from selling products or services
Traditional sales http://www.amazon.com Commissions http://www.priceline.com/ Per-transaction fees http://www.nytimes.com/

Advertising revenues - See Appendix A Referral fees: See Appendix B


per referral fixed amount percentage of transaction

Market creation fees http://www.ebay.com/


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Advantages of Classifications
Classifications by seller/buyer emphasize the markets in which the firm operates. Classifications by product/activity emphasize the nature of the business. Classifications according to revenue sources focus on the underlying business model. An E-Commerce company is likely to be in more than one category. The analysis of categories helps in profiling the business (segments). 6

Warning
The Following Definitions of Various Business Models are not mine. They were developed by Professor Michael Rappa:
http://ecommerce.ncsu.edu/business_models.html

Brokerage
Bringing buyers and sellers together
Buy/sell fulfillment
Online stock trading

Market exchange
B2B (metals exchange)

Virtual mall
Internet fashion mall

Auction broker
E-Bay

Search agent
My Simon, Dealtime

Fee per transaction

Advertising
Free content or services to users. Content (service) providers get advertising revenues. Model in existence for radio and TV. Need very high volume or very specialized audience.
Generalized portals. Personalized and specialized portals. Attention/incentive marketing. Free products or services. Bargain discounters.
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Infomediary
Collecting and selling data about consumers, interests and buying habits. Sharing information among consumers
Book reviews on Amazon

Registration
Collecting information on users in exchange for access to content (newspapers, free phone services).
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Merchants
Wholesalers and retailers on the Web.
Web-based only, with no brick and mortar operations. Catalog services
New form of direct mail

B&M on the Web


Staples

Digital content
Music Software
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Manufacturer
Manufacturer bypasses the wholesaler to reach final customer.
Dell
Personalization

Flowerbud
Faster delivery

May cause distribution channel conflicts


Airlines and travel agents
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Affiliate
Referring to other sites Similar to Yellow Pages or referral fees for lawyers. Hitting the customer when the purse is open. Using information on current purchases to induce further purchases of complementary products and services.
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Community
Creating a community of similar users.
Soliciting donations from users and foundations

Creating knowledge networks


Collection of experts who can respond to questions Sometimes experts get paid directly per question.
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Subscription
Pay for content General reluctance to pay for content on the Web. Exceptions:
Wall Street Journal Premium content (detailed stock research reports) Archived information
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Utility
Pay per use or per time Similar to Pay Per View movies Renting software and applications Payment per data extracted
Credit reports Retrieving old publications

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Mixture of Business Models


Most E-Commerce firms have a mixture of business models
Community and advertising Merchant and affiliate

Business models change and continue to evolve


The environment is very dynamic The need to remain flexible
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The Business Model


Identify the value drivers:
Number of visitors Number of members Number of transactions

Assess the required long-term volume to make a profit Assess the reasonableness of the required volume and costs to achieve it.
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Sources of Information
Forms filed with the SEC (http://www.sec.gov :
/)

Registration statement Form 10-K Form 10-Q Proxy statement Special reports

Companys own Web site http://www.aol.com/


http://www.corp.aol.com/

Investment research Tracking organizations http://www.mediametrix.com


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Long-Term Business Models


Surviving advertising models
High volume free content services
The broadcasting model

Personalized and specialized content services


Free tourist guides

Interactive models

Surviving community models


Right demographics
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Long-Term Business Models


Surviving brokerage models
Only if B&M do not offer their own services

Merchants
Only if reduces transaction costs or increases the pie

Affiliates
Will it be pay per referral? Pay per listing (like Yellow Pages)?
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Long-Term Survival
Depends on the long-term tradeoff between revenues and costs. Cheap initial financing masks true longterm costs. The recent decline in prices of Internet stocks can force people to think through more carefully of the long-term viability of the business model.
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Summary
Classifications help think about the business model. Classifications also help in assessing the long-term viability of the business.

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