BUSINESS MODELS ON THE WEB - Managing the Digital …

1 BUSINESS MODELS on the Web | Professor Michael [1/17/10 1:06:45 PM]..Printer Friendly | PDFU pdated: Sunday, 17 -Jan -2010 13:05:27 | Home | About | Forum | Help | THE Digital ENTERPRISE MICHAEL RAPPABUSINESS MODELS ON THE WEBS ocial Networks:NEW! Join theDigital Enterprisesocial networks andmeet otherlearners onLinkedinandFacebookThings to watch:Charlie Roseseries of executiveinterviews:__/ 11-19-2007 \__Amazon: Jeff Bezos__/ 07-19-2007 \__Craigslist: Craig Newmark__/ 05-22-2007 \__Wikipedia: Jimmy Wales__/ 12-29-2006 \__A panel discussion on thefuture of the Internetand Web 09-20-2006 \__Yahoo: Terry Semel__/ 04-13-2006 \__Google: Eric Schmidt__/ 12-27-2005 \__Netflix: Reed Hastings__/ 03-01-2005 \__Yahoo: Jerry Yang__/ 07-26-2001 \__Google: Sergey Brin andLarry Page__/ 03-07-2001 \__eBay: Meg Whitman__/ 09-02-1999 \__Dell: Michael DellBusiness MODELS are perhaps the mostdiscussed and least understood aspectof the web.

2 There is so much talk abouthow the web changes traditionalbusiness MODELS . But there is littleclear-cut evidence of exactly what the most basic sense, a BUSINESS model is the method of doing businessby which a company can sustain itself -- that is, generate revenue. Thebusiness model spells-out how a company makes money by specifyingwhere it is positioned in the value MODELS are quite simple. A company produces a good or serviceand sells it to customers. If all goes well, the revenues from sales exceedthe cost of operation and the company realizes a profit. Other MODELS canbe more intricately woven. Broadcasting is a good example. Radio andlater television programming has been broadcasted over the airwaves freeto anyone with a receiver for much of the past century. The broadcaster ispart of a complex network of distributors, content creators, advertisers(and their agencies), and listeners or viewers.

3 Who makes money andhow much is not always clear at the outset. The bottom line depends onmany competing commerce will give rise to new kinds of BUSINESS MODELS . Thatmuch is certain. But the web is also likely to reinvent tried-and-truemodels. Auctions are a perfect example. One of the oldest forms ofbrokering, auctions have been widely used throughout the world to setprices for such items as agricultural commodities, financial instruments,and unique items like fine art and antiquities. The Web has popularizedthe auction model and broadened its applicability to a wide array ofgoods and MODELS have been defined and categorized in many differentways. This is one attempt to present a comprehensive and cogenttaxonomy of BUSINESS MODELS observable on the web. The proposedtaxonomy is not meant to be exhaustive or definitive. Internet businessmodels continue to evolve. New and interesting variations can beexpected in the basic categories of BUSINESS MODELS discussed in the table belowinclude:BrokerageHear the podcast:Audio | TranscriptThings to read:Important NoteLearning Objectives__/ 09-30-2005 \__What Is Web :Design Patterns andBusiness MODELS for theNext Generation ofSoftwareTim O'Reilly__/ 05-06-2005 \__Do Some BusinessModels Perform Betterthan Others?

4 A Study of the1000 Largest US FirmsPeter Weill__/ 01-14-2004 \__The Utility BusinessModel and the Future ofComputing ServicesMichael Rappa__/ 07-04-2005 \__The Abundance of SimpleBusiness MODELS on theWorld Wide WebMichael FeatherstoneAllan Ellis__/ 05-27-2002 \__The Role of theBusiness model inCapturing Value fromInnovationHenry ChesbroughRichard S. Rosenbloom__/ 11-00-2001 \__Business MODELS on the Web | Professor Michael [1/17/10 1:06:45 PM]__/ 11-05-1998 \__AOL: Steve Case__/ 10-30-1996 \__Apple: Steve Jobs__/ 01-27-2007 \__The Impact of Web Emerging SocialNetwork ModelsWorld Economic Forum__/ 09-27-2006 \__Web-scale ComputingServices at Bezos__/ 05-17-2006 \__Users, Not Money: theGoogle BUSINESS ModelMarissa Mayer__/ 01-27-2006 \__Digital : Powering aCreative EconomyWorld Economic Forum__/ 06-05-2004 \__Strategy for HighTech CompaniesMichael Cusumano__/ 09-26-2002 \__A Conversation withMichael Dell__/ 05-01-2002 \__How Does GoogleActually Make Money?

5 Larry PageCase OnlineChemConnectClassmatesCoolsavingsCo unterpaneCraigslistDell ComputerDoubleClickeBayFlickrGoogleiTune sLands' York TimesOrbitzOverturePayPalPricelineAdvert isingInfomediaryMerchantManufacturer (Direct)AffiliateCommunitySubscriptionUt ilityThe MODELS are implemented in a variety of ways, as described belowwith examples. Moreover, a firm may combine several different modelsas part of its overall Internet BUSINESS strategy. For example, it is notuncommon for content driven businesses to blend advertising with asubscription MODELS have taken on greater importance recently as a form ofintellectual property that can be protected with a patent. Indeed, businessmodels (or more broadly speaking, " BUSINESS methods") have fallenincreasingly within the realm of patent law. A number of businessmethod patents relevant to e-commerce have been granted. But what isnew and novel as a BUSINESS model is not always clear.

6 Some of the morenoteworthy patents may be challenged in the of model :Description:BrokerageModelBrokers are market-makers: they bring buyers and sellerstogether and facilitate transactions. Brokers play a frequent role inbusiness-to- BUSINESS (B2B), BUSINESS -to-consumer (B2C), orconsumer-to-consumer (C2C) markets. Usually a broker charges afee or commission for each transaction it enables. The formula forfees can vary. Brokerage MODELS include:Marketplace Exchange -- offers a full range of services coveringthe transaction process, from market assessment to negotiationand fulfillment. Exchanges operate independently or are backed byan industry consortium. [Orbitz, ChemConnect]Buy/Sell Fulfillment -- takes customer orders to buy or sell aproduct or service, including terms like price and delivery.[CarsDirect, ]Demand Collection System -- the patented "name-your-price" model pioneered by Prospective buyer makes a final(binding) bid for a specified good or service, and the brokerarranges fulfillment.

7 [ ]Auction Broker -- conducts auctions for sellers (individuals ormerchants). Broker charges the seller a listing fee and commissionscaled with the value of the transaction. Auctions vary widely interms of the offering and bidding rules. [eBay]Transaction Broker -- provides a third-party paymentmechanism for buyers and sellers to settle a transaction. [PayPal, ]Distributor -- is a catalog operation that connects a largenumber of product manufacturers with volume and retail facilitates BUSINESS transactions between franchiseddistributors and their trading Agent -- a software agent or "robot" used to search-outthe price and availability for a good or service specified by theMigrating to ProfitableElectronic CommerceBusiness ModelsJeanne W. RossMichael R. VitalePeter WeillOn the airwaves:__/ 12-22-2007 \__Google Captures the'Zeitgeist' of 2007__/ 11-20-2007 \__Ed Burns Makes FirstStraight-to-iTunes Movie__/ 11-19-2007 \__Netflix's Million-DollarQuest for Good MovieTipsScott Horsley__/ 11-19-2007 \__Amazon Rolls Out NewWireless Reading Device__/ 09-25-2007 \__Amazon to Enter MusicDownload BusinessLaura Sydell__/ 08-22-2007 \__Internet ThreatensLocal NewspapersGeoffrey Bennett__/ 07-19-2007 \__Drop in eBay ItemsConcerns InvestorsWendy Kaufman__/ 03-27-2007 \__Blockbuster Targets Netflixwith 'Total Access'Greg Allen__/ 02-07-2007 \__Steve Jobs Wades intoDigital Music Debate__/ 02-01-2007 \__Michael Dell's ReturnAlex Chadwick__/ 01-02-2007 \__Wikinomics: How MassCollaboration ChangesEverythingDon TapscottData sources:Online Classifieds DataPew InternetBusiness MODELS on the Web | Professor Michael [1/17/10 1:06.]

8 45 PM]Red HatSlashdotTrusteWikipediaYahoo!Hungry minds:The Long TailChris AndersoniTunes: How Copyright,Contract, andTechnology Shapethe BUSINESS ofDigital MediaWilliam W. Fisher, et e- BUSINESS ModelOntology for Modelinge-BusinessAlexander OsterwalderYves PigneurThe Truth aboutInternet BusinessModelsJeffrey F. RayportB2B E-Commerce HubsSteven KaplanMohanbir SawhneyBusiness MODELS forElectronic MarketsPaul TimmersA Taxonomy ofInternet CommercePaul BamburyPrevious topic:Web Analytics buyer, or to locate hard to find Marketplace -- or virtual mall, a hosting service foronline merchants that charges setup, monthly listing, and/ortransaction fees. May also provide automated transaction andrelationship marketing services. [zShops and Merchant Services ]return to topAdvertisingModelThe web advertising model is an extension of the traditional mediabroadcast model . The broadcaster, in this case, a web site,provides content (usually, but not necessarily, for free) andservices (like email, IM, blogs) mixed with advertising messages inthe form of banner ads.

9 The banner ads may be the major or solesource of revenue for the broadcaster. The broadcaster may be acontent creator or a distributor of content created elsewhere. Theadvertising model works best when the volume of viewer traffic islarge or highly -- usually a search engine that may include varied contentor services. A high volume of user traffic makes advertisingprofitable and permits further diversification of site services. Apersonalized portal allows customization of the interface andcontent to the user. A niche portal cultivates a well-defined userdemographic. [Yahoo!]Classifieds -- list items for sale or wanted for purchase. Listingfees are common, but there also may be a membership fee.[ , Craigslist]User Registration -- content-based sites that are free to accessbut require users to register and provide demographic allows inter-session tracking of user surfing habits andthereby generates data of potential value in targeted advertisingcampaigns.

10 [NYTimes]Query-based Paid Placement -- sells favorable link positioning( , sponsored links) or advertising keyed to particular searchterms in a user query, such as Overture's trademark "pay-for-performance" model . [Google, Overture]Contextual Advertising / Behavioral Marketing -- freewaredevelopers who bundle adware with their product. For example, abrowser extension that automates authentication and form fill-ins,also delivers advertising links or pop-ups as the user surfs theweb. Contextual advertisers can sell targeted advertising based onan individual user's surfing Advertising -- pioneered by Google, itextends the precision of search advertising to the rest of the identifies the meaning of a web page and thenautomatically delivers relevant ads when a user visits that page.[Google]Intromercials -- animated full-screen ads placed at the entry ofa site before a user reaches the intended content.