Defining components and taxonomy of e-commerce business models

Journal of the Academy of Business and Economics, March, 2005 by Zinovy Radovilsky

ABSTRACT

In this paper, a comprehensive set of components to develop new and improve existing e-commerce business models has been introduced and explained. These components include: value proposition, value-added e-commerce offerings, supporting resources, revenue and cost models, and value creation. Also, a new taxonomy of e-commerce business models has been introduced. The taxonomy is based on clustering e-commerce models into four classification groups depending on their association with customers and suppliers, and also on their service/support role in e-commerce.

1. INTRODUCTION

E-commerce became an important factor of modern business development. According to estimates, by the end of 2005 almost 30% of all business-to-business revenues will be generated through e-commerce transactions (Jupiter, 2002). At the same time, 12% of business-to-consumer sales will be done using the online channels by 2010 (Bednarz, 2004), which is three times more than that in 2004. E-commerce applications are used by companies to increase and sustain their competitive advantage and as a way to generate more profits/revenues and reduce cost (Mullaney, 2004).

Generating successful results through e-commerce is based on a company's ability to develop an efficient e-commerce business model. A well-established business model can facilitate the company's competitive advantage and influence its monetary results. Thriving e-commerce business models, like those of Yahoo, eBay, IBM, Apple, and many others have triggered interest in understanding components of e-commerce business models. However, there are still a variety of views in terms of what an e-commerce model means, how many of these models exist today and how they are clustered. According to Rappa (2005)," Business models are perhaps the most discussed and least understood aspect of the web. There is so much talk about how the web changes traditional business models. But there is little clear-cut evidence of exactly what this means."

The main goals of this paper were to:

* Define and present a comprehensive set of components used in developing and/or improving any e-commerce business model in order to provide sustainable competitive advantage and successful value creation through e-commerce

* Identify and present a new taxonomy of e-commerce business models based on the set of components and predetermined classification criteria.

2. ANALYSIS OF COMPONENTS AND TAXONOMY OF E-COMMERCE BUSINESS MODELS

Analysis of academic sources allowed to find out that the term "business model" is commonly defined as a tool/method by which a company would like to generate revenue/profit and serve the customer needs (Turban at al, 2004; Afuah and Tucci, 2003; Laudon and Traver, 2003; Timmers, 1999; Wikipedia, 2005). A typical definition would be close to the following: "A business model is a set of planned activities (sometimes referred to as business processes) designed to result in a profit in a marketplace" (Laudon and Traver, 2003). Another similar definition states that "A business model is the method of doing business by which a company can sustain itself--that is, generate revenue. The business model spells out how a company makes money by specifying where it is positioned in the value chain" (Rappa, 2005). These definitions are correct in terms of considering revenue/profit generation ad a part of an e-commerce business model. However, the described definitions are limited in their emphasis on just revenue/profit creation. They do not reflect the fact that an e-commerce business model may be used to create and/or sustain companies' competitive advantage. Also, these definitions do not consider cost reduction as an important factor, along with revenue, in generating companies' profitability and cost effectiveness. Finally, the described cluster of definitions does not address the issue of e-commerce products and processes associated with the business model, as well as how this model affects customer satisfaction and overall company results.

Analysis of literature sources allowed to identify a variety of ways that e-commerce business models are being clustered (Turban at al, 2004; Canzer, 2005). Despite of a relatively big number of the classification groups, the underlying classification criteria used to define the groups are not explained. Thus, it is hard to understand why specific groups were selected. Similar issues in terms of classification criteria are present in other academic sources that attempted to classify e-commerce business models (Rappa 2005; Rayport and Jaworski 2004; Applegate 2000; Afuah and Tucci 2003).

Besides clustering e-commerce business models, a variety of authors attempted to identify and explain general elements (components) of e-commerce business models (Porter, 2001; Amit and Zott's, 2001; Laudon and Traver, 2003). Rayport and Jaworski (2004) presented four main components of e-commerce business models:

* Value proposition--market segments, customer benefits and unique resources