Evitación y escape

as a firm that creates and provides content (information, products, or services) in digital form to customers via third parties. The physical-world analogy of a content provider is a journalist, recording artist, or stock analyst. Digital products such as software, electronic travel guides, and digital music and video are examples of content. A virtual-world example of a content provider is weather forecasters such as Storm Weather Center (www.storm.no). • Infrastructure: Content providers must excel at tailoring and manipulat-

ing their core content to meet the specific needs of customers. Content providers must categorize and store their content in well-indexed modules so it can be combined and customized to meet customer needs via a wide variety of channels. Customers and transactions tend to be relatively few, at least compared with the number of end consumers and their transactions. Often complex and unique IT infrastructures are needed to support the particular needs of the specialized professionals employed by the content provider. Field research by Weill and Vitale (2001) identified the most important infrastructure services: multimedia storage farms or storage area network infrastructures to deal with large amounts of information; a strong focus on architecture, including setting and enforcing standards particularly for work; detailed data architectures to structure, specify,

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link manipulate, and manage the core intellectual property; workstation network infrastructures to enable the fundamentally online business of a content provider; and a common systems development environment to provide compatible and integrated systems, ensuring the systems can provide content across multiple channels to their customers.

• Sources.of.revenue: The primary source of revenue for a content provider is fees from its third parties or allies. These fees may be based on a fixed price per month or year, or on the number of times the third party’s own customers access the content. In some situations, the fees paid are lower for content branded by the provider, and higher for unbranded content, which then appears to the customer to have been generated by the third party itself.

• Critical.success.factors: To succeed, a content provider must provide reliable, timely content in the right format and at the right price. The criti- cal success factors for this model include the following: branding (the value of content is due in part to reputation), recognized as best in class (the business of content provision will be global and competitive), and network (establishing and maintaining a network of third parties through which content is distributed).

One way of comparing these e-business models is to analyze to what extent each model creates integration with customers and to what extent each model creates integration with partners. As illustrated in figure 7.3, the business model of Direct Figure 7.3. E-business models integration with customers vs. partners

Drect to Customer Vrtual Communty Full-Servce Provder Content Provder Intermedary Whole of Enterprse

Value Net Integrator

Shared Infrastructure Great Extent Integration With Customers Little

to Customer mainly creates integration with customers, while Shared Infrastructure mainly creates integration with partners.

Determining.Appropriate.Models

Despite works by Weill and Vitale (2002) and others, how an e-business model must be defined and specified is largely an open issue. Business decision-makers tend to use the notion in a highly informal way, and usually there is a big gap between the business view and that of IT developers.

The electronic business landscape is confusing for many new entrants, and many of them face the paradox that hesitation would run the risk of being left behind, but rushing in and making an incorrect choice regarding electronic business initiatives could have dire consequences for organizations. According to Hayes and Finnegan (2005), Internet-only or “dot-com” models have proven particularly vulnerable. For example, the dot-com implosion of Spring 2000 led to a large number of high-profile collapses including boo, ClickMango, and eToys. “Clicks and mortar” strategies have also met with mixed success (e.g., Wall Street Journal Interactive and Fyffes’ World-of-Fruit).

The Internet age has produced many Internet business models. For example, Afuah and Tucci (2003) distinguish between the following nine: brokerage model, adver- tising model, infomediary model, merchant model, manufacturing model, affili- ate model, community model, subscription model, and utility model. An Internet business model — sometimes labeled b-Web — is a business on the Internet that represents a distinct system of suppliers, distributors, commerce service providers, infrastructure providers, and customers that use the Internet for their primary busi- ness communication and transactions.

Another classification of Internet business models is presented by Laudon and Laudon (2005):

• Virtual.storefront:.Sells physical products directly to consumers or to indi- vidual businesses (amazon.com, EPM.com)

• Information.broker: Provides product, pricing, and availability information to individuals and businesses. Generates revenue from advertising or from directing buyers to sellers (Edmunds.com, Kbb.com, Insweb.com, Industri- alMall.com)

• Transaction.broker: Saves users money and time by processing online sales transactions, generating a fee each time a transaction occurs. Also provides information on rates and terms (E*TRADE.com, Expedia.com)

The CIO Developing E-Business 6

• Online.marketplace: Provides a digital environment where buyers and sellers can meet, search for products, display products, and establish prices for those products (eBay.com, Priceline.com, ChemConnect.com, Pantellos.com) • Content. provider: Creates revenue by providing digital content, such as

digital news, music, photos, or video, over the Web (WSJ.com, CNN.com, TheStreet.com, Gettyimages.com, MP3.com)

• Online.service.provider: Provides online service for individuals and businesses. Generates revenue from subscription or transaction fees, from advertising, or from collecting marketing information from users (@Backup.com, Xdrive. com, Employease.com, Salesforce.com)

• Virtual.community: Provides an online meeting place where people with similar interests can communicate and find useful information (Motocross. com, iVillage.com, Sailnet.com)

• Portal: Provides initial point of entry to the Web along with specialized content and other services (Yahoo.com, MSN.com, StarMedia.com)

Hayes and Finnegan (2005) present several classifications of e-business models. One classification includes e-shop, e-mall, e-procurement, third-party marketplace, e-auction, virtual community, collaboration platform, value chain service provider, value chain integration, information brokerage, and trust services. Another clas- sification includes aggregation, agora/open market, alliance, and value chain. Next classification includes catalogue hubs, other hubs, yield managers, exchanges, forward aggregator, and reverse aggregator. A final classification consists of a long list including “clicks and mortar” merchant model, virtual merchant, catalogue merchant, virtual mall, metamediary, distributor, manufacturer model, buy/sell fulfillment, market exchange, bounty broker, auction broker, reverse auction, verti- cal Web community, specialized portal, knowledge networks, open source model, content services, trust services, and transaction broker.

Electronic business poses significant challenges for organizations as it affects both how organizations relate to external parties (customers, suppliers, partners, competitors, and markets) and how they operate internally in managing activities, processes, and systems. Porter (2001) argues that the companies that succeed with e-business will be those that use the Internet in conjunction with their traditional business models and activities.

Hayes and Finnegan (2005) argue that business models are possibly the most discussed, yet least understood, area of electronic business. They refer to how consultants, executives, researchers, and journalists have abused the phrase business model but have rarely given a precise definition of what they exactly meant by using it, and that this has led to the loss of credibility of the concept.

A business model can be understood as a blend of three streams: value, revenue, and logistics. The value stream is concerned with the value proposition for buyers, sellers, and market makers. The revenue stream identifies how the organizations will earn revenue, and the logistics stream involves detailing how supply chain issues will affect the organizations involved (Hayes & Finnegan, 2005).

A business model also can be understood as an architecture for product, service, and information flows, incorporating a description of the sources of revenue, the actors involved, their roles, and the benefits to them. An electronic business model is comprised of components, linkages, and dynamics. Components are factors such as customer scope, product (goods and services) scope, customer value, pricing, revenue sources, connected activities, implementation, capabilities of the firm, and sustainability. Linkages exist when one activity affects another in terms of cost- effectiveness, and trade-offs and optimization are sought to find the right blend to achieve competitive advantage. The dynamics represent how a firm reacts to or initiates change to attain a new competitive advantage, or to sustain an existing one, to have sustainable competitive advantage and to perform better than its rivals in the long term (Hayes & Finnegan, 2005).

While the atomic business models by Weill and Vitale (2002) were distinguished along dimensions such as infrastructure, sources of revenue, and critical success factors, we can think of other criteria to classify an e-business model. For example, three major areas that impact on the sustainability and growth of an e-business are revenue streams, value streams, and logistical streams. These three elements are interrelated with changes in any one impacting on the other. Furthermore, e-business models can be classified in terms of integration with customers versus integration with partners, as illustrated in Figure 7.3.

At the moment, there is no single, comprehensive, and cogent taxonomy of the Web business models. Businesses face questions as to what is their appropriate business model. This is made more difficult when we consider that companies in the same industry often pursue different Internet business models. For example, companies in the automobile industry have industry consortia models such as shared infrastructure, while others have virtual community models.

As a result, determining and employing an appropriate Internet business model has become a major business issue. The problem is that there is no well-developed or complete framework to aid the decision of choosing a model.

In addition to outlining the components of a business model, some authors offer a set of business model representation tools. Weill and Vitale (2001) have developed a formalism to assist analyzing e-business initiatives, which they call e-business model schematic. The schematic is a pictorial representation, aiming to highlight a business model’s important elements. This includes characteristics of the firm of interest, its suppliers and allies, the major flows of product, information, and money, and finally the revenues and other benefits each participant receives.

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In determining an appropriate e-business model, several criteria can be used, such as:

• Involved.parties, such as business-to-business, business-to-consumer, and/or consumer-to-consumer.

• Revenue. sources, such as transaction fee, product price, and/or exposure fee.

• Value configuration, such as value chain, value shop, and/or value net- work.

• Integration with customers and/or partners.

• Relationships, such as one-to-many, many-to-many, and/or many-to-one. • Knowledge, such as know-how, know-what, and know-why.

Unfortunately, e-business models still fall under open and weak theory domains. An open domain is one that cannot be realistically modeled. A weak theory domain is a domain in which relationships between important concepts are uncertain. General knowledge in such domains is theoretically uncertain, incomplete, and subject to changes. Methods that rely on deductive proofs are not readily applicable. Concepts and statements in Internet business models are more or less plausible, stronger or weaker supported, rather than true or false.

Fortunately, new research on e-business models is emerging. For example, Hayes and Finnegan (2005) present different approaches to understanding e-business models. One approach is the e-business model ontology, which can be defined as a rigorous definition of the e-business issues and their interdependencies in a company’s business model. The e-business model ontology focuses on four aspects of the organization: product innovation, infrastructure management, customer re- lationship, and financials.

Dimensions of product innovation are target customer segment, value proposition, and capabilities. Dimensions of customer relationship are information strategy, feel and serve, and trust and loyalty. Dimensions of infrastructure management are re- sources, activity configuration, and partner network, while dimensions of financials are revenue model, cost structure, and profit/loss.

Architectures for business models can be identified through the deconstruction and reconstruction of the value configuration. Value configuration elements are identi- fied as well as the possible ways that information can be integrated in the value configuration and between the respective value configurations of the parties that are interacting.

models can prove daunting. Such research is a feature of what has been termed the intelligence phase of decision-making. This phase is important as options excluded at this stage do not get considered at a later stage. Hayes and Finnegan (2005) de- veloped a framework for use at the intelligence phase to exclude models that are incompatible with prevailing organizational and supply chain characteristics. The framework assesses the following characteristics: economic control, supply chain integration, functional integration, innovation, and input sourcing:

• Economic.control refers to the degree to which a market is hierarchical or self-organizing. This characteristic can be measured in terms of the extent of regulatory bodies, government policy, customers, asset specificity, switching costs, proprietary products, capital requirements, and access to necessary inputs for new entrants in this industry.

• Supply.chain.integration is considered to be a measure of the degree to which the business functions and processes of an organization are integrated with those of their supply chain partners. This characteristic can be measured in terms of shipping scheduling, transportation management, tax reporting, negotiating customer credit terms, negotiating supplier credit terms, determin- ing freight charges and terms, resource planning, and inventory control. • Functional.integration refers to the degree to which multiple functions are

integrated in a business model. In order to measure the degree to which func- tions within an organization are integrated, a scale that considers a detailed list of processes can be applied. Examples of process integrations are purchase order processing with servicing functions, shipping scheduling with manu- facturing, transportation management with financial functions, tax reporting with financial functions, negotiating customer credit terms with distribution, and negotiating supplier credit terms with distribution.

• Innovation is the degree of innovation of an e-business model, which can be defined as the extent to which processes can be performed via the Internet that were not previously possible. Innovation can be divided into internal and external components based on the firm’s ability (internal) to innovate or as- similate innovations within the innovative environment of the industrial sector (external).

• Sourcing refers to the way in which inputs are sourced by the organization, either systematically from a long-term supplier or through spot markets. The issue of sourcing raw materials is more straightforward as manufacturing and operating inputs are either sourced systematically or on spot markets. Hayes and Finnegan (2005) believe that their framework has the potential to help decision-makers by providing a method of excluding from consideration those

The CIO Developing E-Business 

electronic business models that are unsuitable given prevailing organizational and environmental characteristics. Business models are excluded based on scale ratings for items measuring economic control, supply chain integration, functional integra- tion, innovation, and sourcing. For each scale, the decision-maker needs to determine the number of attributes that are applicable to their organization.