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					  Ozan Akın
  Bekir Candar
  Özhan Bar
  Eren Yanık
  Ufuk Cansev

Boğaziçi University
E-commerce (EC) refers to the process of buying, selling, transferring, serving or
     exchanging products, services, or
information via computer networks including Internet. On the other hand, e-business
     includes not only the buying
and selling of goods and services, but also servicing customers, collaborating with business
     partners, conducting e-
learning and conducting electronic transactions within an organization. In this presentation
     the two terms will be
used interchangeably.

Focusing on the success stories of e-firms can lead one to believe that a well-established
     business model is needed
to create a successful e-firm. While evaluating any EC venture during the Internet boom, it
     was likely to ask “What is
the business model?”. But after the crash the approach is changed, and the
     question increasingly being
asked now is “Hasn’t that model been tried and failed?”.

A business model is nothing else than the architecture of a firm and its network of partners
    for creating, marketing and delivering value and relationship capital to segments of
    customers in order to generate profitable and sustainable revenue streams.

According to Persson and Stirna (2001); in general, e-business modeling has similar goals to
    enterprise modeling.
Modeling helps firms develop business visions and strategies, redesign and align business
    operations, share
knowledge about the business and its vision and ensure the acceptance of business
    decisions through committing
One of the most important factors that determine the success probability of an e-business
    model is the Supply
Chain Model it uses. There are many different types of supply chain model applications,
    however, they can be
categorized in four main types:

•   Direct sales is the model where the firm provides the product directly to the customer,
    using no third party. Some examples to this model are Dell, Cisco and AOL.
•   E-tailer (or intermediary) is the model in which a third party is used by the firm to
    reach the customer. Amazon is one of the most classical examples for e-tailers.
•   Portal is a different application of e-tailers. In a portal, the firm only introduces or
    locates the provider and does not involve in direct selling process. An example for a
    general purpose is Yahoo or specifically e-steel for the steel industry.
•   Electronic market place is the model which facilitates direct communication between
    the buyers and the sellers. E-bay uses auction technique and another example is
    Autobytel which is a used car trading site. The volume of the market is vital for the
    success of the firm because of easy switches.

Also note that any combination of these models or different applications may also be
    preferred by various firms
depending on the type of business the firm is conducting.
We can distinguish between two different types of “Revenue Model” according to how the
business earns money online :

i)Models which generate income from customer transactions
ii)Models which are referred as “free-sites” and which generate income through advertising
or sponsorships

•The ‘web catalog’ model: In this revenue model, an e-business sells products by
providing pictures and information of physical products on its website and encouraging
customers to make purchases either via internet or via telephone lines. Companies like
Amazon, Betterworld and Target are examples for this model.
•The ‘digital content’ model: In this revenue model, customers are required to register
and pay a subscription fee in order to access the information provided by the company. In
this model, products offered by companies are intangible products and basically they are
information-based products. This type of product is more suitable for selling online compared
to the physical products. Example for this model is ProQuest. ProQuest sells published
journal articles online and requires its customers to pay subscription fee before they can
access to its products.    
•The ‘advertising-supported’ model: In this model, companies earn money from
advertisements made on their websites. The simplest examples for this model are Yahoo and
Google. E-business that adopts this revenue model must maintain its website to be as
attractive as possible, so that more audiences will visit the website and therefore more
companies will put more advertisements on the website. Yahoo and Google provide search
engines for this purpose.
•The ‘fee for transaction’ and ‘fee for services’ model: In this model, companies earn
money from each transaction or services provided to their customers. Examples for this
model are travel agents, online games and online payment systems. Travel agents charge
fees for every ticket / accommodation bookings made for their customers. Online games
B2B refers to business-to-business transactions where businesses act both as the buyers and
    the sellers;
whereas B2C transactions refer to businesses dealing with individual consumers or end-

Some differences between B2B and B2C:

•   Consumer purchases are generally more smaller in quantity and more frequent than
    those in industrial markets. So, there is a greater need for mass advertising in B2C than
    in B2B.
•   B2B transactions are more complex and have a greater need for security than B2C e-
•   B2C e-commerce just involves user-defined profiles and e-mail promotions whereas B2B
    e-commerce needs the involvement of complex issues such as studying order history
    data, the preferences of trading partners, payment records and locations.
•   B2C requires that sellers update their sites regularly regarding product costs and
    incorporate product catalogues with pictures and descriptions of the product. On the
    other hand, B2B involves syndication of catalogues of different suppliers that need to be
    formatted, priced, and presented to buyers in a consolidated fashion. It has a greater
    need for BI systems as well as analytic software.
•   B2B transaction involves direct-sourcing contract management which involves
    negotiation terms that will establish the price based on which other factors such as
    warranty coverage, volume-based pricing, carrier, and logistics preferences will be
    decided. B2C offers spot sourcing contract management that offer a flat rate retail price
    for each of the goods sold.
•   B2C has more convinient options like cyber cash which enable the business to function
    easily. But, payment options are not that easy with B2B, which involves back-office
    connectivity, invoicing etc.
EC can take several forms depending on the degree of digitization involved. The degree of
     digitization can relate to:
(1) the product (service) sold, (2) the process, or (3) the delivery agent.

In tradional commerce all three dimensions are physical and such organizations are referred
     to as brick-and-mortar
organizations. However with the development of computer networks, especially the
     Internet, all of these
dimensions can either be physical or digital. It is possible to distinguish between e-
     businesses depending on
whether the business is purely net-based or relies on physical assets as well. Companies that
     are engaged only in EC
are considered pure play organizations (Amazon, E-Bay). On the other hand, click-and-
     mortar organizations are
those that conduct business both in the physical world as well as in the digital environment

In most of the cases, a click-and-mortar EC service is significantly more complex to build,
    deploy and manage than a
pure-play counterpart. The reason for this complexity is not due the existence of the multiple
    channels (Internet
and non-Internet) through which consumers are reached, but rather that in click-and-mortar
    services there tends to
be a significant back-end infrastructure that is key to succesful execution of a business

In contrast to pure play firms, the click-and-mortar can provide a convenient pathway in
     which customers gain
A Study of E-Business Failures:

The study was made to show the failure rates of firms conducting e-business. For this
     purpose, a list of 453 US
Internet firms was prepared. Those firms were in existence in 1999 and they were considered
     as the best of their
class by the magazines; PC Magazine, Forbes’s Best of Web and Net Marketing. Table – 1
But this analysis is unable to give us an insight to distinguish
     shows the failure
betweenthese firms according to the e-business models they were applying.
rates of the different
factors and ignores the possible joint effects of two or more factors.
By applying advanced statistical techniques, more meaningful data
can be established. Table – 2 shows the odds of survival of different
business models compared to each other.

In the Table – 2, it is shown that direct sales has a better chance to
survive than e-tail and portal where as marketplace sites are more
likely to survive than direct sales sites. Likewise, free sites are
slightly more likely to survive than pay sites. Although these
differences are not statistically very significant, the effect of offline
revenues is highly significant indicating that click-and-mortars are
11 times more likely to survive than pure Internet sites. This is
because of the fact that, nearly all of the click-and-mortar firms are
a part of a group and the firms that are part of a group often have
strategic advantage over independent firms since the parent
company can provide support through the use of common
resources; such as brands, customer and supplier relationships and
financial resources. And this support of the parent company makes
more sense when the high “burn rates” of e-firms (the rate at which
The Benefits of Clicks-and-Mortars:
If physical goods are involved in the business processes, click-and-mortars with a working logistics
     in place have an
additional advantage, which in many situations can be the key to success. But, click-and-mortars
     may also have
some problems. A major one is channel conflict. Although an existing channel can provide an
     advantage in delivery,
it can also be an obstacle if it conflicts with the use of the Net as an alternative channel. For
     example Levi’s,
Starbucks, and Reebok had to stop trading via the net because of channel conflicts.

Free vs. Pay Websites:
The main problem with the free sites has been the increasing competition and a reduction in the
     sources of
revenue. But instead of analyzing only the effects of the revenue model, it is more important to
     consider the effect
of payment joint with other dimensions of e-business models. The risk of failure decreases with
     payment in the case
of e-tail and direct sales sites, but increases in the case of portals and marketplaces. The reason in
     the latter case
may be the difficulty to attract a huge amount of users unless the services are offered free.

Supply Chain Model:
The key problem in direct sales methods resembles to those in offline businesses – matching price
     to demand and
costs to revenues in order to generate profits. The second major problem faced by the direct sales
     model is the cost
of setting up operations, particularly on a large scale. On the other hand, one of the most common
So far, statistically the most important factor is the corporate structure. The chances of
     succeding are significantly lower
for new startups that seek to go it alone, the chances are much higher when the firm is part of a
     larger group. The
companies that have succeed have been those that understood and managed to overcome the
     particular problems in
their model.

E-business is not just another way of doing business. On the one hand it is ‘the age old way’ of
    doing business in terms of formulating and managing complete business solutions. On the
    other hand it is a fundamentally different way of doing business in terms of global
    instantaneous communications and information. To be successful, e-businesses must take
    into account the minute operating details about each specific industry and company, and
    clearly define their path to profitability.

The following suggestions may be useful before starting a new e-business.

(i) Research whether people are actually searching for your business service or product.
(ii) Do not ignore the keywords in question. Once you have a keyword list, you must focus on it.
      The list is telling you what problem people have in your field and you must supply them
      with a solution to each specific problem.
(iii) Do not go for the broadest subject matter possible. You should focus on a niche. If you want
      to open an online bookstore, you will never be able to compete with Amazon. Amazon
      simply has far too big of a head start. If you focus on books devoted just to a certain
      subject, such as Eastern philosophy or history, you have a good chance of making a profit.
(iv) Conduct a detailed research. Take the time to properly research the situation before
      jumping in with both feet. Take your time to fully understand your market and what you are
      getting into.
Question – 1:
Suppose you are the CIO of a firm which sells stationary materials (such as paper,
    pencils, pens, ink etc.) in its
stores all over the country. The company sells lts own products as well as the products of
    some firms in the
industry.You are asked to create a web site to increase the sales of the company. Taking
    into consideration all of
the business models that we discussed, which model(s) you would use on the web site of
    your company.
Explain your choice(s).

Question – 2:
What are the main advantages of a click-and-mortar firm over a pure-play, and what
     possible problems may a
click-and-mortar face?
Answer – 1:
Please note that the web site that we are supposed to create will be the site
     of a brick-and
mortar company with a working logistics in place, so it is obvious that the
     site will be a click-
and-mortar. Since the company sells both its own products and the products
     of other firms, the
web site will be doing direct sales as well as e-tailing. The company is
     currently making sales to
end-customers through its stores, so the site will employ a B2C model. But
     note that if the
company is making sales to other businesses as well, then it can be a
     combination of B2C and
B2B. And finally, when it comes to the revenue model, it will absolutely be a
     pay site,
specifically use the “web catalog” model indicating that it will sell products
     by providing
pictures and information of physical products on its website and
     encouraging customers to
make purchases either via internet or via telephone lines.

Answer – 2:
First of all according to the study made about the failure rates of e-firms,
     click-and-mortars are
11 times more likely to survive than pure Internet sites. This is because of
     the fact that, nearly
all of the click-and-mortar firms are a part of a larger group and this
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