逢 甲 大 學 國際貿易學系研究所 碩 士 論 文

The Integrated Business Model for E-Commerce

指 導 教 授：黃焜煌 博士 研 究 生 ：譚雅

中華民國一百年一月

The Integrated Business Model for E-Commerce Abstract In today’s ever developing e-commerce world, the success of any enterprise strongly depends on its chosen business model. Since the peculiarities of each firm’s external and internal environment differ drastically, sometimes it is difficult to find a unified scheme for any organization to implement. Therefore, the purpose of this study is to create a universal business model, the Integrated Business Model for E-Commerce, which could be applied to any business. This Model consists of nine main categories, which in their turn are subdivided into different business models. Through its major characteristics:1) it can be implemented for the analysis of any business; and 2) it can be used for the future investment purposes; the Integrated Business Model will serve companies as an efficient tool in the analysis and evaluation of their business. Keywords: e-commerce, integrated, business model, categories

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The Integrated Business Model for E-Commerce

CONTENTS CHAPTER 1 Introduction ..................................................................... 1 CHAPTER 2 Literature Review ............................................................ 3 CHAPTER 3 The Integrated Business Model ...................................... 9
3.1 Creating an Integrated Business Model ..................................................... 10 3.2 Business ......................................................................................................... 12 3.3 Transaction Parties ...................................................................................... 15 3.4 Product .......................................................................................................... 16 3.5 Revenue ......................................................................................................... 17 3.6 Value Proposition ......................................................................................... 19 3.7 Cost ................................................................................................................ 22 3.8 Positioning in E-Commerce ........................................................................ 24 3.9 Sustainability ................................................................................................ 26 3.10 Pricing ......................................................................................................... 27

CHAPTER 4 Application of the Integrated Business Model ........... 31
4.1 Google............................................................................................................ 31 4.2 Amazon.com ................................................................................................. 36

CHAPTER 5 Conclusion and Discussion .......................................... 42 References .............................................................................................. 44

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The Integrated Business Model for E-Commerce

LIST OF FIGURES
Figure 2-1 Comparison of Business Models .................................................................. 7 Figure 3-1 Business Type Category of the Integrated Business Mode ........................ 14 Figure 3-2 Transaction Parties Category of the Integrated Business Model ............... 16 Figure 3-3 Product Type Category of the Integrated Business Model ......................... 17 Figure 3-4 Revenue Type Category of the Integrated Business Model ....................... 18 Figure 3-5 Value Proposition Type Category of the Integrated Business Model......... 22 Figure 3-6 Cost Type Category of the Integrated Business Model .............................. 24 Figure 3-7 Positioning in E-Commerce Category of the Integrated Business Model . 26 Figure 3-8 Sustainability Category of the Integrated Business Model ........................ 27 Figure 3-9 Pricing Type Category of the Integrated Business Model.......................... 28 Figure 3-10 The Integrated Business Model for E-Commerce .................................... 30 Figure 4-1 The Integrated Business Model for Google ............................................... 35 Figure 4-2 The Integrated Business Model for Amazon.com ...................................... 40

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The Integrated Business Model for E-Commerce

LIST OF GRAPHS
Graph 4-1 Google (Return on Equity) ......................................................................... 32 Graph 4-2 Google (Operating Profit) ........................................................................... 33 Graph 4-3 Google (Operating Cash Flow)................................................................... 33 Graph 4-4 Amazon.com (Return on Equity)................................................................ 37 Graph 4-5 Amazon.com (Operating Profit) ................................................................. 38 Graph 4-6 Amazon.com (Operating Cash Flow) ......................................................... 38

LIST OF TABLES
Table 2-1 Review of Business Models........................................................................... 3 Table 4-1 Google’s Return on Equity, Operating Profit, and Operating Cash Flow.... 32 Table 4-2 Amazon’s Return on Equity, Operating Profit, and Operating Cash Flow .. 37

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Chapter 1 Introduction
The contemporary business world demands any company, which desires to contribute to development of the trade and/or succeed, a considerable number of skills and characteristics. (Rappa, 2000) In order to survive in such cruel environment the management of any firm must have clear understanding of how this firm is going to operate and, what is more important, gain its profit. The same can be addressed to business on-line. E-commerce has experienced its ups and downs but it sustains its consistent growth and the number of participants is constantly increasing. With the beginning of the E-commerce era e-companies started to adjust their style of leading business to the novel at that period of time environment which resulted in appearance of various business models. Within less than ten years the number of different business models has grown dramatically and at the present moment a continuous emergence of new business models or transformation of the old ones takes place. And nowadays, a considerable segment of this subject is dedicated to business models on the Web in the theoretical study of E-commerce. So, what is it, a “business model”? There are probably hundreds of definitions of this term given by different scholars. Wikipedia offers the following explanation: the term business model describes a broad range of informal and formal models that are used by enterprises to represent various aspects of business, such as operational processes, organizational structures, and financial forecasts. According to Laudon and Traver (2007), a business model is a set of planned activities (sometimes referred to as business processes) designed to result in a profit in a marketplace. As Afuah (2003) explains, a business model is the set of which activities a firm performs, how it performs them, and when it performs them as it uses its resources to perform activities, given its industry, to create superior customer value (low-cost differentiated products) and put itself in a position to appropriate the value. Also Afuah and Tucci (2003) believe that an Internet business

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The Integrated Business Model for E-Commerce model is how each firm plans to make money long term using the Internet. As we can see, the essential meaning implied is business model is a plan of how a firm is going to make money. Naturally, the appearance of such great amount of business models in E-commerce required their thorough analysis and classification. However, it seems every scholar has their own approach to creating taxonomies of business models. Therefore, the objective of this research study is to analyze the existing e-business models and their categories in order to reorganize and combine them into a single business model, the Integrated Business Model for E-commerce. The main reason for creating the Integrated Business Model is to enhance the company’s operation since this model can be applied to a business by decomposing it into subordinate business models giving clear understanding of the business’ components and their interaction. This will be possible due to the Integrate Business Model’s two major characteristics: 1) it can be applied to any business; and 2) by analyzing existing successful and failed businesses it will provide information for the future investing purposes. The first characteristic can be explained by the ability of the Integrated Business Model to examine any business form different aspects, tangible and intangible, due to its original structure. The second characteristic arose from the results of the analysis of a company; these results will allow investors to make better investment decisions. The next chapter briefly reviews the extant literature on business models and their taxonomies. The third chapter explains how the Integrated Business Model is constructed, the fourth chapter presents empirical results, and the final chapter concludes.

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Chapter 2 Literature Review
The theoretical study of Internet business models evolves along with the development of ecommerce itself. According to Afuah and Tucci (2003), the first attempt to classify the different ways of doing business in the Internet era was made by Timmers in 1998. Another revolutionary work on the taxonomy of the categories of business models was presented by Rappa. There are a great number of other scholars who contributed to the development of this topic. See table 2-1 (www.draganvaragic.com; Wang & Chan, 2003).

Table 2-1. Review of Business Models Year of Presenting the Taxonomy Number of categories Number of Business Models

Author of Taxonomy

Classification of Business Models - E-shop (Value chain integrators) - E-procurement (Virtual communities) - E-auction (Collaboration

1998

Timmers

11

platforms) - E-mall (Third-party marketplace) - Information brokers.

1998

Bambury

14

Transplanted Real-World Business Models (8): Mail-Order, Advertising

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The Integrated Business Model for E-Commerce Based, Subscription, Free Trial, the Direct Marketing Model, the Real Estate Model, Incentive Scheme, and Business to Business Native Internet Business Models (6): Freeware Model, Library Model, Information Barter, Access Provision, Web Site Hosting & Other Internet Services, and Digital Products & The Digital Delivery Model - Virtual retailer - Distributed storefront - Buyer-led pricing. - B2C variation (e.g. portals /general,vertical/, e-tailers /virtual merchant, click and mortar/, content provider, service provider) - B2B variation (e.g. marketplace /vertical, horizontal/, application service provider, matchmaker, lead generator)

1999

Viehland

3

2000

Laudon & Traver

2

20

2001

Applegate

4

25

2001

Weill & Vitale

8

Focused distributor (etailers, market-places, aggregators, infomediaries) Portal (horizontal, vertical, affinity) Producer (manufacturer, info services) Infrastructure (ISP, hardware, software) - Content provider - Direct to consumer - Full service provider

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The Integrated Business Model for E-Commerce - Intermediary - Shared infrastructure - Value net integrator - Virtual community - Whole of enterprise - Brokerage (e.g., buyer aggregator, auctions, search agent, marketplace) - Advertising (e.g., portals, free model, attention marketing, bargain discounter) - Infomediary (e.g. registration) - Merchant (e.g., virtual store) - Manufacturer (i.e., disintermediation) - Affiliate (i.e.,clickthrough purchase) - Community (e.g., knowledge networks) - Subscription - Utility (i.e., pay as you go) - E-business storefront - Infomediary - Trust intermediary - E-business enabler - Infrastructure provider Online Retailers, Online Portals, Internet Access Providers, Online Content Providers, Application Service Providers, Online Brokers, Online Market Makers, and Networked Utility Providers - Transactional - Informational - Promotional - Relational

2002

Rappa

9

30+

2002

Hartman & Sifonis

5

2002

Eisenmann

8

2003

Abrams

4

2004

Turban, King, Lee,

17

- Group purchasing

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The Integrated Business Model for E-Commerce & Viehland - Product and service customisation - Deep discounting - Supply chain improvers

As it can be seen from the table above, some authors construct their taxonomies according to the tangible aspects of the business describing its structure (Timmers, Viehland, Rappa, Applegate etc.); others according to the intangible aspects focusing on the position the business takes in the value chain or trust (Weill & Vitale, Hartman & Sifonis, Abrams etc.). At the same time, Laudon and Traver classified business models according to the parties involved in the transaction (B2B, B2C, C2C etc.). Also, some business models have accordant definitions, for example, Manufacturer by Rappa and Applegate; E-auction by Timmers and Auction by Rappa. Others have different definitions but similar meanings, for example, Retailer by Applegate, E-shop by Timmers, Merchant by Rappa, Online retailers by Eisenmann and E-business storefront by Hartman & Sifonis represent a business model which assumes control of inventory, set a nonnegotiable price to the consumer, and sell physical products online (Applegate, Austin, McFarlan, 2003), however, the names differ slightly. Infomediary business model is represented by three authors, Applegate, Rappa, and Hartman & Sifonis; Timmers defines it as Infomediary broker. All these models involve a third party between a buyer and a seller assisting them with the transaction of the information product. At the same time, Applegate’s Infomediary business model is a variation of Aggregate, characteristics of which other scholars combined into one definition. Figure 2-1, which originally included Timmers, Rappa and Eisenmann (Wang & Chan, 2003), was extended by adding two more sets of business models by Applegate and Hartman & Sifonis and shows similarities between different business models.

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Applegate
Retailers Marketplaces Aggregators Informediaries Exchanges Portals Manufacturers Service providers Educators Advisers Information and news services Producer portals

Timmers
E-shop E-auction E-mall 3rd-party marketplace E-procurement Virtual communities Value Chain integrators Collaboration platforms Value chain service provider Information brokerage Trust services

Rappa
Merchant Advertising Subscription Brokerage Utility Community Manufacturer Affiliate Infomediary

Eisenmann
Online retailers Online portals Internet access provider Online content providers Application service providers Online brokers Online market makers Networked utility providers

Hartman & Sifonis
E-business storefront Infomediary E-business enabler Infrastructure provider Trust infomediary

Applegate
Retailers Marketplaces Aggregators Infomediaries Exchanges Portals Manufacturers Service providers Educators Advisers Information and news services Producer portals

7 Figure 2-1. Comparison of Business Models

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The Integrated Business Model for E-Commerce As a result, the extant literature reveals the fact that there is a big diversity and, simultaneously, complexity of business models and their taxonomies; which could lead to a certain misunderstanding of the e-business models and difficulty in their application. Therefore, a more simplified model for the analysis of a business is required.

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The Integrated Business Model for E-Commerce

Chapter 3 The Integrated Business Model
The extant literature reveals the exuberance of existing business models and their progressively increscent complexity. The latter can be explained by the inevitable evolution of the business world. The major driving forces behind the rapid and unpredictable change in the business environment include deregulation and privatization, technological changes and globalization. (Voelepel, Leibold, Tekie, 2004) These forces make companies in any industry continuously adjust their business models to these changes and sometimes drive them to the edge in order to outperform their competitors. As a result, the field of study about business models is becoming more intricate and tangled. Mostly, it is due to a specific business style of a company and/or a scholar’s particular approach to the description of a model The diversification of a category also creates a certain level of confusion. For example, the category of e-auction can include reverse auctions, dutch auctions, blind auctions, Japanese auctions, Vikrey auctions and many other exotic variants. (Keen, Qureshi, 2006) These conditions reveal: 1) Business models consist of many dimensions and there does not seem to be a single set of dimensions of a business model that applies to all companies and to all industries. (Schmid et al., 2001); 2) There is no established general classification, which means that there is yet little theoretical base for business model research application. (Keen, Qureshi, 2006) Therefore, a necessity for simplification of this complex system of business models appears. In order to do that, a certain number of categories which are able to encompass all the business models and, at the same time, provide their clear explanation should be determined. Therefore, a thorough analysis of different business models revealed a possibility to simplify and reorganize them into more generalized groups of categories. By means of such unification a new

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The Integrated Business Model for E-Commerce system of categories or the Integrated Business Model will be created. Since the purpose of this research study is not to invent but to restructure the existing business models, the definitions given by the authors included will be preserved as they are.

3.1 Creating an Integrated Business Model Since characteristics of the Integrated Business Model are: 1) simplicity in application to any business and 2) interaction of the categories within the model, the model itself can be comparable to a molecule consisting of a group of atoms which in their turn can be further split into smaller particles like neutrons and protons. In this case, the Integrated Business Model represents a number of categories which are comprised of different business models. Each category can be closely connected to any other category within the model. However, the absence of one of the components or categories, does not imply imperfection of a business model under analysis. It would mean that the structure of a business model is different but not insufficient. As it was noted above there are very few guidelines in the research literature on business models as to the principles for designing a business model. (Keen, Qureshi, 2006) According to the step-by-step approach to analyzing business models (Applegate, Austin, McFarlan, 2003) one should start with profiling his/her current business models which imply identifying the generic models being used today. The analysis of the current business models revealed that despite the authentic meaning of each business model certain similarities can be found in a number of them. The same can be said about the taxonomies of business models. Some of the categories imply the same definition with the only difference in the name of the category. As it can be seen, a number of business models defined by different scholars are related to each other in meaning.

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The Integrated Business Model for E-Commerce Another important way of developing the Integrated Business Model is through the analysis of various aspects of the business model itself: its components, place in e-commerce and profile. According to Afuah and Tucci (2001), the components of a business model include: customer value, scope, price, revenue sources, connected activities, implementation, capabilities, and sustainability. As McKay and Marshal (2004) state it, a comprehensive business model consists of six elements: customer value proposition, products and services, business process, resources, supply chain, revenue model / financial viability. To understand what place a business model takes in the e-commerce one should refer to the definition of the latter. According to Turban et al. (2006), Electronic Commerce is the process of buying, selling, transferring or exchanging products, services, and/or information via computer networks, including the Internet. Further, it was pointed out that e-commerce can be defined from the following perspectives:        Communications Commercial (trading) Business process Service Learning Collaborative Community

As a result of the cumulative analysis of the aforementioned parameters of a business model and their taxonomies we developed the following categories of the Integrated Model:

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The Integrated Business Model for E-Commerce 1. Business 2. Transaction parties 3. Product 4. Revenue 5. Value proposition 6. Cost 7. Positioning in E-commerce 8. Sustainability 9. Pricing As it can be seen, some of the mentioned above categories offered by other authors are included into the Integrated Business Model, whilst others are excluded due to their similarities in meaning. For example, a pricing model is close to a revenue model by its implication. Thus, for the convenience of the application of the new model these two categories were unified into one group, Revenue type. Whilst such categories as a commerce strategy or a profit site don’t coincide with others and were included in the Integrated Business Model as two different categories, Transaction Type and Business Type, respectively. The category Producer proposed by Applegate (2001) is probably the only category which characterizes a company by a type of product it provides. However, the category of the new model corresponding to the Producer, Product, incorporates a wider range of business models.

3.2 Business For the Business category five business models defined by Timmers (1998) were selected. These business models give a full picture and understanding of a company’s business style and are

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The Integrated Business Model for E-Commerce able to embrace a number of other models offered by other authors. They are: - E-shop - E-procurement - E-auction - E-mall - Information brokers - Etc. According to Timmers (1998), E-shop is Web marketing of a company or a shop which promotes the company and its goods or services. Basically, this kind of business model is suitable for companies which have a traditional establishment with a website to provide increasing demand, reduction of costs for promotion and sales as well as global recognition. These characteristics of eshop given by Timmers are similar to those offered by Rappa (2002) for description of a Merchant model. In his definition, merchant model encompasses wholesalers and retailers of goods and services. Therefore, it seems to be reasonable to combine these two models, an e-shop and a merchant model, into one, E-shop. Consequently, the subdivisions of the merchant model (virtual merchant, catalog merchant, click and mortar and bit vendor) will become the components of the Eshop model. A Mail-order model, proposed by Bambury (1998), where a website shop front is employed to sell physical goods which are then posted or delivered, corresponds with the Merchant model (Rappa, 2002). Therefore, this model can also be included into E-shop model. Other two models which possess the same characteristics but a different name are virtual retailing and online retailer offered by Viehland (1999) and Eisenmann (2002) respectively. E-procurement is electronic tendering and procurement of goods and services. E-auction

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The Integrated Business Model for E-Commerce offers an electronic implementation of the bidding mechanism also known from traditional auctions. (Timmeres, 1998) So far, there have been only two scholars who included this kind of business model in their taxonomy. They are aforementioned Eisenmann (1998) and Rappa (2002) who named it as an Auction broker. However, despite of its seeming unimportance the e-auction model plays a significant role in the e-commerce and occupies a considerable niche in the electronic market. Therefore, in this Integrated Business Model this business model was distinguished into a separate category. E-mall consists of a collection of e-shops, usually enhanced by a common umbrella, for example of a well-known brand. (Timmers, 2002) Information brokers represent the companies which add value to the huge amount of data available on the open networks or coming from integrated business operations, such as Information search. (Timmers, 2002) Graphically the Business category can be viewed as in Figure 3-1.

Business

E-shop E-procurement E-auction E-mall Inf. Brokers Etc.

Figure 3-1. Business Category of the Integrated Business Model

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The Integrated Business Model for E-Commerce 3.3 Transaction Parties In describing categories of the second type, Transaction parties, the emphasis could be put on the taxonomy offered by Laudon and Traver (2007). These are: - Business-to-Consumer (B2C) - Business-to-Business (B2B) - Consumer-to-Consumer (C2C) - Business-to-Business-to-Consumer (B2B2C) - Peer-to-Peer (P2P) - Etc. Following the definitions given by Laudon and Traver (2007), in Business-to-Consumer ecommerce online businesses seek to reach individual consumers; Business-to-Business is characterized by businesses selling to other businesses; Consumer-to-Consumer ventures provide a way for consumers to sell to each other; and Peer-to Peer business models link users, enabling them to share files and computer resources without a common server. These categories encompass a wide range of business models such as portals, virtual merchant, content provider, service provider, marketplace vertical, horizontal, application service provider, lead generator and others. Graphically the Transaction parties category can be viewed as in Figure 3-2.

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The Integrated Business Model for E-Commerce

Transac. Parties
B2C B2B C2C B2B2C P2P Etc.

Figure 3-2. Transaction Parties Category of the Integrated Business Model

3.4 Product The Product category includes the taxonomy offered by Applegate (2001) except for the Focused Distributor category which can be related to a Business category; and two models by Eisenmann (2007): - Portal - Producer - Focused distributor - Infrastructure - Online content provider - Online access provider - Etc. As Applegate (2001) explains, Portal category includes business models which offer an integrated package of content and content-search, services, news, e-mail, chat, music downloads,

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The Integrated Business Model for E-Commerce video streaming, calendars etc.; a Producer category includes such business models as manufacturers, service providers, educators, advisors information and news and others; Focused distributors provide products and services related to a specific industry or market niche; Infrastructure consists of equipment or component manufacturers, software, custom software integration and infrastructure providers. Following Eisenmann (2002), Online content provider delivers and provides up-to-date news and special-interest how-to-guidance and tips and/or information sales. Online access provider provides residential and business customers with connections to the Internet. These categories include horizontal or vertical portals, affinity, manufacturer, info services, ISP, hardware, software etc. Graphically the Product category can be viewed as in Figure 3-3.

Product

Portal Prod. Foc. Distr. Infrastr. Onl. Cont. Prov. Onl. Acc. Prov. Etc.

Figure 3-3. Product Category of the Integrated Business Model 3.5 Revenue The next category is presented by Rappa (2002) and two by Laudon and Traver (2000): - Advertising

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The Integrated Business Model for E-Commerce - Subscription - Affiliate - Sales of goods - Sales of services - Etc. According to Rappa (2002), in the Advertising model, the owner of a website provides some content and services that attract visitors; in Subscription models members pay a subscription price and in return receive high-quality content; and in the affiliate model, a merchant has affiliates whose websites have click-through to the merchant. Following Laudon and Traver (2007), Sales of goods and Sales of services are constituents of a revenue model. However, in this research study they function as an independent unit. These categories consist of portals, free models, attention marketing, bargain discounter, click-through purchase etc. Graphically the Revenue category can be viewed as in Figure 3-4.

Revenue

Advert. Subscription Affiliate Sls of goods Sls of serv. Etc.

Figure 3-4. Revenue Category of the Integrated Business Model

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The Integrated Business Model for E-Commerce 3.6 Value Proposition Value proposition or customer value, as some scholars refer to it, is one of the most important components of a business model since it was included into in the business model components framework by many authors. Moreover, according to Laudon &Traver (2007), a company’s value proposition is at the very heart of its business model. And as Kambil, Ginsberg, and Bloch (1998) state it, a value proposition defines how a company’s product or service fulfills the needs of customers. Following Afuah and Tucci (2003), customer value can take the form of differentiated or low cost products/services. Turban, King, Viehland, and Lee (2006) provide a following definition: a value proposition refers to the benefits, including the intangible, nonquantitative ones, that a company can derive from using the model. Further, the following sets of values are stated: search and transaction cost efficiency, complementarities, lock-in and novelty. Therefore, the subcategories of the Value proposition can be stated as follows: - Differentiation - Low cost - Search and transaction cost efficiency - Complementarities - Lock-in - Novelty - Profitability - Etc. A product can be differentiated in eight ways: product features (offering features that competitors don’t have), timing (being the first to introduce the product), location (geographical

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The Integrated Business Model for E-Commerce position of the product), service (how quickly the products can be repaired if they break down), product mix (the mix of products that a firm sells), linkages between functions, linkages with other firms, and brand-name reputation. Low cost simply means that a firm’s product or services cost customers less than those of its competitors. (Afuah, Tucci, 2003) Search and transaction cost efficiency enables faster and more informed decision making, wider product service selection, and greater economies of scale. Complementarities involve bundling some goods and services together to provide more value than from offering them separately. Lock-in is attributable to the high switching cost that ties customer to particular suppliers. Novelty creates value through innovative ways for structuring transactions, connecting partners, and fostering new markets. (Turban, King, Viehland, and Lee 2006) Profitability of the Value proposition category is one of the most important parameters in defining the company’s value for investors. Profit is a very broad term and covers different sides of the company’s financial activities; this might be the reason for its frequent misintepretation, Therefore, for the analysis of this category we would suggest to use three parameters: Return on equity (ROE), Operating profit (OP), and Operating Cash Flow (OCF). These variables will provide a better opportunity to examine the company’s profit deeper; at the same time, providing consistent results due to their interdependence. ROE is a measure of profitability that calculates how many dollars of profit a company generates with each dollar of shareholders' equity (www.streetauthority.com). Moreover, it is a measure of efficiency and its increase indicates its ability to generate profit without needing as much capital. Another peculiarity of ROE is that it is more appropriate for comparison of profitability of different companies within the same industry as ROE varies from industry to industry. Hence, the

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The Integrated Business Model for E-Commerce Integrated Business Model can apply ROE for analyzing profitability of various dot-com companies in the industry of e-commerce. ROE can be obtained directly from the database or using equation:
ROE  Net Income Shareholder's Equity

OP is a measure of a company’s earning power from the ongoing operations, equal to earnings before deduction of interest payment and income taxes. (www.investorwords.com) According to Moneyterms.com, profit generated by a company's operations before interest payments and tax is called operating profit. Operating profit is closely related to earnings before interest and taxes EBIT, and is usually the same and can be obtained from the Income Statement of the company. It can be stated that:

Operating Profit = Earnings before Interest and Taxes

Therefore, we obtain data for EBIT to analyze OP.

OCF is the cash that company generates through running its business and is a measure of a business’s profit (www.investopedia.com). OCF can be calculated through the following equation: Operating Cash Flow = Operating Profit -  RWC where  RWC is the result of Current Operating Assets less Current Operating Debt. Data for the last two parameters can be obtained through the Balance Sheet of a company.

As a result, through the analysis of the three variables (ROE, OP, and OCF) it is possible to gain a full picture of a company’s ability to make profit and, therefore, assist investors with the investing

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The Integrated Business Model for E-Commerce decisions. To gain more consistent results it is advisable to examine the data for the previous five years.

Graphically the Value proposition category can be viewed as in Figure 3-5.

Value Propos.
Different. Low cost Search & trans. cost effic. Complem. Lock-in Novelty Profitab. Etc.

Figure 3-5. Value Proposition Category of the Integrated Business Model 3.7 Cost The components of this category will be adopted from the business models offered by Applegate (2003). These are: - People and partners - Advertising, marketing, sales - Business development - Materials and supplies - Specialized equipment

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The Integrated Business Model for E-Commerce - Research and development (R&D) - Physical facilities and infrastructure - Information technology infrastructure (ITI) - Etc. As Applegate states it, the characteristics of the above mentioned business models are: People and partners: cost to acquire, develop and retain skills and expertise needed to execute strategy; includes employees and partnerships. Advertising, marketing, sales: cost of offline and online advertising, marketing, sales. Business development: cost of designing and launching new business, developing alliances, and acquiring partners. Materials and supplies: cost of physical materials used in production of products and delivery of services; includes general purpose and specialized supplies and components. Specialized equipment: cost of equipment – especially capital equipment – used in design, production, delivery and distribution. It does not include (IT) Research and development: cost of designing and developing products and services; may overlap with IT infrastructure costs. Physical facilities and infrastructure: cost of corporate and regional headquarters, sales offices, factories, warehouses, distribution centers, retail stores, service centers, etc. Information technology (IT) infrastructure: cost of computers and equipment; operation and maintenance of data centers; design, development, implementation, and maintenance of software; voice, data and video network equipment; design, operation, and maintenance of networks. Graphically the Cost category can be viewed as in Figure 3-6.

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The Integrated Business Model for E-Commerce

Cost

People & partn. Advert., Mark., Sls.

Bus. Devel. Mat. & suppl. Spec. Equip. R&D Phys. Facil. & Infrastr.
ITI Etc.

Figure 3-6. Cost Category of the Integrated Business Model

3.8 Positioning in E-commerce For this category we adopt the aforementioned classification of e-commerce perspectives proposed by Turban et al. (2006). As a result, we obtain eight business models in the positioning in e-commerce category. They are: - Communications - Commercial (trading) - Business process - Service - Learning - Collaborative

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The Integrated Business Model for E-Commerce - Community - Etc. After slight modification of the definitions given by Turban et al. (2006), the business models can be presented by the following characteristics: Communications type: business models which deliver goods, services, information, or payments over computer networks or by any other electronic means. Commercial (trading) type: business models which provide of the capability of buying and selling products, services, and information over the Internet and other online services. (Turban, King, Viehland, and Lee 2006) Business process: business models which do business electronically by completing business processes over electronic networks, thereby substituting information for physical business processes (Weill & Vitale, 2001) Service: business models which address the desire of governments, firms, consumers, and management to cut service costs while improving the quality of customer service and increasing the speed of service delivery. Learning: business models which enable online training and education in schools, universities, and other organizations, including business. Collaborative: business models which possess the framework for inter- and intraorganizational collaboration. Community: business models, which provide of a gathering place for community members to learn, transact, and collaborate. (Turban, King, Viehland, and Lee 2006) Graphically the Positioning in E-Commerce category can be viewed as in Figure 3-7.

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FCU e-Theses & Dissertations (2011)

The Integrated Business Model for E-Commerce

Posit. in EC

Communic. Commerc. Bus. Process Service Learning Collabor. Community Etc.

Figure 3-7. Positioning in E-Commerce Category of the Integrated Business Model

3.9 Sustainability According to Afuah (2003), sustainability is the ability of a firm to sustain its competitive advantage. It can be done by pursuing three generic strategies, which will represent the sustainability of the integrated model: - Block strategy - Run strategy - Team-up strategy - Etc. In the block strategy, a firm erects barriers around its product market space. The run strategy means changing some subset of components or linkages of business models or reinventing the whole business model to offer customers better value. The team-up strategy involves a strategic alliance, joint venture, acquisition, or equity position in order to sustain the competitive advantage o f the firm.

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FCU e-Theses & Dissertations (2011)

The Integrated Business Model for E-Commerce Graphically the Sustainability category can be viewed as in Figure 3-8.

Sustainab.

Block strategy Run strategy Team-up strategy

Etc.

Figure 3-8. Sustainability Category of the Integrated Business Model

3.10 Pricing For this category five main business models of pricing by Afuah and Tucci (2003), and one by Turban, King, Viehland and Lee (2006) will be adopted. They are: - Menu - One-to-One Bargaining - Auction - Reverse Auction - Barter - Nonbusiness - Etc. Following the definitions given by Afuah and Tucci (2003), in menu pricing, or fixed pricing, the seller sets a price and buyers can either take it or leave it. In one-to-one bargaining, a seller

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FCU e-Theses & Dissertations (2011)

The Integrated Business Model for E-Commerce negotiates with a buyer to determine at what point the buyer considers the price appropriate for the value that he or she is getting. In auction pricing, the seller solicits bids from many buyers and sells to the buyer with the best bid. In a reverse auction, sellers decide whether to fulfill the orders of potential buyers. Barter refers to the swapping of goods for goods, or goods for services, and the use of those goods or services by partners involved. According to Turban, King, Viehland and Lee (2006), a nonbusiness type includes organizations or businesses which use electronic commerce to reduce their expenses or to improve their general operations and customer service. Graphically the Pricing category can be viewed as in Figure 3-9.

Pricing

Menu One-to-One barg. Auction Rev. Auction Barter Non-Bus. Etc.

Figure 3-9. Pricing Category of the Integrated Business Model After having combined all the components into one graph the Integrated Business Model can be presented as it is shown in Figure 3-10. The core of the Integrated Business Model is comprised

28

FCU e-Theses & Dissertations (2011)

The Integrated Business Model for E-Commerce of nine categories which in their turn include different number of business models. This number can be changed due to future appearance of new business models which can be referred to a definite category by a scholar himself/herself.

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FCU e-Theses & Dissertations (2011)

The Integrated Business Model for E-Commerce

The Integrated Business Model

Business

Transac. Parties

Product

Revenue

Value Propos.

Cost

Posit. in EC

Sustainab.

Pricing

E-shop

B2C

Portal Prod.

Advert.

Different.

People & partn. Advert., Mark., Sls.

Communic.

Block strategy

Menu

E-procurement

B2B

Foc. Distr.

Subscription

Low cost

Commerc. Run strategy Bus. Process Team-up strategy Service

One-to-One barg.

E-auction

C2C

Infrastr.

Affiliate

Search & trans. cost effic.

Bus. Devel. Mat. & suppl. Spec. Equip.

Auction

E-mall

B2B2C

Onl. Cont. Prov.

Sls of goods Complem.

Etc.
Learning

Rev. Auction

Inf. Brokers etc.

P2P Etc. Onl. Acc. Prov. Etc.

Sls of serv. Lock-in Etc. Novelty

R&D Phys. Facil. & Infrastr.
ITI Etc. Collabor.

Barter

Non-Bus. Community Etc. Etc.

Profitab. Etc.

30 Figure 3-10. The Integrated Business Model for E-Commerce

FCU e-Theses & Dissertations (2011)

The Integrated Business Model for E-Commerce

Chapter 4 Application of the Integrated Business Model
As it was stated above, that the Integrated business Model can be applied to any company or business. To be consistent with the choice two companies from different industries from the top 10 most visited websites of February 2008 posted by Nielsen Online, Google and Amazon.com. While Google is the leader on this list, Amazon.com takes only the eighth place. Through the analysis of these two companies we will be able to see the reasons for the success of the former and deterioration of the latter.

4.1 Google The search engine marketing is one of the fastest-growing: revenues generated by search engine marketing have grown from 1% of total online spending in 2000 to over 40% in 2005. (Laudon & Traver, 2007) The leading search engines have been Google, Yahoo! and MSN, with Google taking the first place according to the Nielsen Online research of February 2008. Google, by providing different kinds of information on the open networks, represents Information broker. Its customers are individual consumers; hence, it is a Business –to-Consumer company. The product Google provides is information of different types: news, special interests, howto-guidance etc. Therefore, it can be placed in the Product type as an Online content provider. According to the Revenue type, Google possesses the characteristics of Affiliate and Advertising model since its website has click-through mechanisms to the merchants and it provides some content and srvices that attract visitors. The Value Proposition type of google can be represented by three models: Differentiation, which involeves product features, product mix and brand-name reputation; Search and transaction

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The Integrated Business Model for E-Commerce cost efficiency which enabes wider product selection; and Profit. As it was mentioned above, for the analysis of a company’s profit, it is advisable to examine three parameters: ROE, OP and OCF for the previous five years: from 2003 to 2007. The data are summarized in the table below. Table 4-1. Google’s Return on Equity, Operating Profit, and Operating Cash Flow Profit Year 2003 2004 2005 2006 2007 19.405 13.626 15.558 18.06 18.527 354.082 852.535 2,129.318 3,590.796 5,089.190 266.272 502.862 1,584.69 2,480 3,063.526 ROE OP OCF

Graphically ROE, OP and OCF can be presented in Graph 4.1 (Return on Equity) as follows: Graph 4.1. (Return on Equity)

Google (ROE)
25 20 15

%

ROE 10 5 0 2003 2004 2005 2006 2007

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The Integrated Business Model for E-Commerce Graph 4-2. Google (Operating Profit)

Google (OP)
6000 5000

USD, Million

4000 3000 2000 1000 0 2003 2004 2005 2006 2007 OP

Graph 4-3. Google (Operating Cash Flow)

Google (OCF)
3500 3000

USD, Million

2500 2000 OCF 1500 1000 500 0 2003 2004 2005 2006 2007

Graph 4-3. Google (Operating Cash Flow)

The data and the graphs indicate a constant growth of all three parameters: ROE, OP, and OCF. It implies that Google’s profitability is increasing steadily and this company, or a company

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The Integrated Business Model for E-Commerce with the similar trend, is a good opportunity to invest in. Google is aimed at constant developing of new skills and retaining the old ones involving its employees and partners. Therefore, it can be related to the business model People and partners of the Cost type. It is also closely related to the Information technology infrastructure in the same category since it includes cost of computers and equipment; operation and maintanace of data centers; design, development, implementation, and maintenance of software; voice, data and video network equipment; design, operation, and maintenance of networks. In the Positioning in e-commerce category Google can be regarded as a commercial (trading) model due to its providing of capability to buy and sell products, services, and information over the Internet and other online services. Sustainability is represented by the Run strategy, which involves changing some subset of components or linkages of business models or reinventing the whole business model to offer customers better value. For the last category of the Integrated Business Model, Pricing type, Google can be referred to as a Menu since it sets the price providing a buyer with an option to take it or leave it. The Integrated Business Model for Amazon.com is presented below, in Figure 4-3.

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FCU e-Theses & Dissertations (2011)

The Integrated Business Model for E-Commerce

Google

Business

Transac. Parties

Product

Revenue

Value Propos.

Cost

Posit. in EC

Sustainab.

Pricing

E-shop

B2C
B2B

Portal Prod.

Advert.
Subscription

Different.
Low cost

People & Partn.
Advert., mark., sls Bus. Devel. Mat. & suppl.

Communic.

Block strategy

Menu
One-to-One barg. Auction

E-procurement

Commerc. Run strategy
Bus. process Service Learning Team-up strategy Etc.

Foc. Distr. E-auction C2C Infrastr.

Affiliate
Sls of goods

E-mall

B2B2C

Onl. Cont. Prov.
Onl. Acc. Prov. Etc.

Search & Trans. Cost Effic.
Complem.

Rev.auction

Inf. brokers
Etc.

Sls of serv. P2P Etc. Etc.

Spec. equip.
Collabor.

Barter

R&D
Lock-in Novelty

eE
Community Etc. Non-Bus. Etc.

Phys. Facil. & Infrastr.

Profitab.
Etc.

ITI
Etc.

35 Figure 4-1. The Integrated Business Model for Google

FCU e-Theses & Dissertations (2011)

The Integrated Business Model for E-Commerce 4.2 Amazon.com Amazon.com is one of the popular websites which many researches refer to. Such popularity can be explained by a long history of the company and, of course, it’s ability to survive during the dot-com bubble burst, when the stock market value of e-commerce, telecommunications, and technology stocks plummeted by more then 90% in March 2001. It is one of the Web’s most exciting and instructive stories. (Lauden & Traver, 2007) Starting as an online bookstore Amazon.com now represents a variety of products including VHSs, DVDs, music CDs, MP3s, computer software, video games, electronics, apparel, furniture, grocery, tools etc. At the present moment Amazon.com operates as an E-shop, since it promotes the company and its goods or services, according to the first category of the Integrated Business Model. Therefore, other categories depend on the Business Type category since any changes in this category will influence the rest of the structure of the Model. For example, if at some point of the time Amazon.com decides to switch to E-auction, other categories will change as well. The target consumer of the company is an individual, which implies that Amazon.com is a Business-to Consumer company. Since Amazon.com provides products and services related to a specific industry or market niche it can be referred to the Focused distributor model of the Product category. Amazon.com provides a wide range of products which it sales on-line; therefore, it corresponds to the Sales of goods model of the Revenue category. According to the Value proposition category Amazon.com can be regarded as the Search and transaction cost efficiency model due to its ability to make faster and more informed decisions, wider product service selection, and greater economies of scale. Value proposition of Amazon.com also includes Differentiation since the company

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FCU e-Theses & Dissertations (2011)

The Integrated Business Model for E-Commerce constamtly offers a variety of products to its customersand Profitability for the previous three years. The data are summarized in Table 4-2. Table 4-2. Amazon’s Return on Equity, Operating Profit, and Operating Cash Flow Profit Year 2003 2004 2005 2006 2007 -3.405 -251.989 135.366 44.084 39.766 270.735 431.378 465.000 409.000 655.000 796.629 1,081.399 1,250 1,331 2,227 ROE OP OCF

Graphically ROE, OP and OCF can be presented as follows:

Amazon.com (ROE)
160 140 120 100 80

%

60 40 20 0 -20 -40 2003 2004 2005 2006 2007

ROE

Graph 4-4. Amazon.com (Return on Equity)

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FCU e-Theses & Dissertations (2011)

The Integrated Business Model for E-Commerce

Amazon.com (OP)
700 600

USD, Million

500 400 OP 300 200 100 0 2003 2004 2005 2006 2007

Graph 4-5 Amazon.com (Operating Profit)

Amazon.com (OCF)
2500 2000

USD, Million

1500 OCF 1000 500 0 2003 2004 2005 2006 2007

Graph 4-6 Amazon.com (Operating Cash Flow) From the data and the graphs presented above it could be seen that while Amazon.com’s ROE is experiencing decrease with the first two negative years, OP and OCF are increasing with slight fluctuations. However, in the case of Amazon.com, the profit growth this company generates

38

FCU e-Theses & Dissertations (2011)

The Integrated Business Model for E-Commerce is not stable and requires a deeper analysis, should the necessity to invest arise. Amazon.com’s busness activity involves constant advertising, marketing, sales, which implies it is the Advertising, marketing, sales model of the Cost type category. In the Positioning in E-commerce category the company under analysis can be viewd as the Business process model since it does business electronically by completing business process over electronic networks. As Google, Amazon.com follows the Run strategy model in the Sustainability category and a Menu in the Pricing type category. The Integrated Business Model for Amazon.com is presented below, in Figure 4-2.

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FCU e-Theses & Dissertations (2011)

The Integrated Business Model for E-Commerce

Amazon.com

Business

Transac. Parties

Product

Revenue

Value Propos.

Cost

Posit. in EC

Sustainab.

Pricing

E-shop
E-procurement

B2C
B2B

Portal Prod.

Advert.

Different.
Low cost

People & partn.

Communic.

Block strategy

Menu
One-to-One barg. Auction

Foc.Dstr.
Infrastr.

Subscription

Advert., mark., sls
Bus. Devel. Mat. & suppl. Spec. equip. R&D

Commercial

E-auction

C2C

Affeliate

E-mall

B2B2C

Onl. Cont. Prov.

Sls of goods
Sls of services Etc.

Search & Trans.cost Effic.
Complem.

Bus. process
Service

Run strategy
Team-up strategy Etc.

Rev.auction

Inf. Brokers Etc.

P2P Etc. Onl. Acc. Prov.

Barter

Learning Collabor. Community Non-Bus. Etc.

Lock-in

Etc.

Phys. Facil. & Infrastr.
ITI

Novelty

Etc.

Profitab.
Etc.

Etc.

40

FCU e-Theses & Dissertations (2011)

The Integrated Business Model for E-Commerce

FiFigure 4-2. The Integrated Business Model for Amazon.com

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FCU e-Theses & Dissertations (2011)

The Integrated Business Model for E-Commerce

From the analysis of the companies presented above it can be seen that the Integrated Business Model for E-commerce characterizes a business from different aspects giving a clear understanding of how this company operates. This could assist managers with identifying the faults in the company’s operating and improve its performance. For investors Profitability is one of the most important components of the model. Profitability reveals the company’s stability and constant growth, which could be useful for taking investment decisions. For example, Google’s profitability has been increasing steadily for the last five years which implies it is a more preferred company to be invested in as compared to Amazon.com which profitability has experienced some considerable negative changes for the same period of time. In the case of Amazon.com, it would be advisable for investors to undergo a more thorough financial analysis of the company before.

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FCU e-Theses & Dissertations (2011)

The Integrated Business Model for E-Commerce

Chapter 5 Conclusion and Discussion
In this research paper we have presented the Integrated Business Model for e-commerce. The source for this model is e-business models, which are further classified into different groups/categories. Therefore, the model consists of two main layers: 1) categories of the business models; and 2) business models themselves. The Integrated Business Model is constructed in a way that would allow looking at the business from different sides. At the same time, the absence of one of the categories will not influence in any way since the units of the Model are independent of each other. This makes the Integrated Business Model universal in that it can be applied to any business. The main purpose of the Integrated Business Model is to analyze a business by means of segmentation of the latter into nine basic categories giving a clear insight on the style of business, the transaction parties it is connected with, the product it offers, etc. As a result, the contribution of this paper is that the model enables: 1) researchers to comprehend the essence of the business model without overloading him/her with intricate details; 2) investors to take decisions about the companies they would like to invest in by comparing their business with the already existing ones. These two characteristics distinguish the Integrated Business Model from just business models by its simplicity and efficiency. However, e-commerce is a continually evolving organism which closely interacts with the surrounding environment and it is obvious that more and more business models and their taxonomies will appear in the future. This implies that a necessity for further reorganization or restructuring of the Integrated Business Model will arise in the future providing more possibilities for research in this field. Therefore, it is fair to expect some changes in the Integrated Business Model. It can be modified as a result of appearance of new business model and their categories. In this case, new business models

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FCU e-Theses & Dissertations (2011)

The Integrated Business Model for E-Commerce and/or their categories can be added to the Model without causing any damage to it and increasing the degree of its flexibility. Another possibility for further research lies in adjusting the Integrated Business Model to different industries. Since in this research paper two businesses from different industries were taken for the analysis, it is possible that the results of such comparison can be inaccurate. Therefore, it is advisable to examine different companies within one kind of industry for obtaining more precise results. The industry can be defined within the first category, Business, of the Integrated Business Model; as in given above examples, Google belongs to Information brokers, Amazon.com to e-shop. In the first case, besides Google such companies as Yahoo! or MSN can analyzed within the category Information brokers; and for the comparison of Amazon.com other companies which represent e-shop can be included. The more detailed analysis will provide deeper understanding of the interaction of different companies within one industry. Such examination is necessary due to the peculiarities each industry possesses. In conclusion, the Integrated Business Model is a dynamic tool which is closely connected to the electronic commerce itself. Therefore, it is able to undergo a number of changes without causing any substantial influence on the process of the company’s analysis.

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The Integrated Business Model for E-Commerce

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