Evaluating E-Business Models

BY ARA Retail Institute
15 May 2017
The purpose of investigating e-business and e-business models is to gain insights that may be useful and applicable to business and work. 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. 

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Some business models are quite simple. A company produces a product or service and sells it to customers. If all goes well, the revenues from sales exceed the cost of operation and the company realises a profit. Other models can be more intricately woven. Broadcasting is a good example. Radio and later television programming has been broadcasted over the airwaves free to anyone with a receiver for much of the past century. The broadcaster is part of a complex network of distributors, content creators, advertisers (and their agencies), and listeners or viewers. Who makes money and how much is not always clear at the outset. The bottom line depends on many competing factors. In this section we consider how to evaluate e-business models by:

  • Investigating the features and benefits of different e-business models
  • Assessing the relevance of each model to current retail and service strategies
  • Contrasting different e-business models

Investigating the features and benefits of different e-business models 

Unless you are starting a new business, your business already has a business model. It is reflected in the way that the staff, stakeholders, and customers understand and interact with the business. The main question in an e-business context is to decide how your existing business model could be transformed to gain advantage. It is useful to look at various business models and understand how they work. What you’ll probably find is that some models seem to “fit” your existing business and others clearly don’t. In fact, considering e-commerce business models can help to define, clarify (and hopefully extend) your existing business model. The more clearly your business model is understood, the easier it becomes to identify useful business strategies.  Drawing upon Linder & Cantrell, themes to consider in your business model include:

  • Pricing model
    How are prices established for your products? In addition to offering products at set prices, the internet allows for various forms of auctions, for example see ebay.com.au.
  • Revenue model
    How will your business gain revenue – for example, through sales of products, advertising, or subscriptions?
  • Channel model
    What channels and strategic relationships will you use to communicate and transact with customers? Bricks-and-mortar, Clicks-and-mortar, direct to consumer over the internet?
  • Value Proposition
    What are the elements that will constitute the foundations of your value proposition to customers? Low Price, High quality, service value, community value etc.

Business models have been defined and categorised in many different ways. Internet business models continue to evolve. New and interesting variations can be expected in the future. Moreover, a firm may combine several different models as part of its overall internet business strategy. For example, it is not uncommon for content driven businesses to blend advertising with a subscription model.

Each retailer will need to develop a business model based upon an understanding of his or her business, market and target audience. Learning from other businesses can help advise decision making however many successful online retailers have created their own business model or reinvented others to suit their purposes. 

Assessing the relevance of each model to current retail and service strategies 

Prior to considering the relevance of e-business models, it is worthwhile repeating some of the points made earlier.

Peter Drucker forwards the view that “every organisation, whether a business or not, has a theory of the business.” This theory is made up of “assumptions that shape [the] organisation’s behaviour, dictate its decisions about what to do and what not to do, and define what the organisation considers meaningful results”. In effect, the advent of the internet and ecommerce make it useful to re-consider your “theory of the business”. 

In the e-business arena, this activity is encompassed by the consideration of “business models”. Use of this terminology parallels Drucker’s concept and cuts across both e-business and traditional business thinking. Linder & Cantrell explain that: “A business model is your company’s logic for making money in the current business environment. It includes the value propositions you work out with all your important stakeholders and the operations you put in place to make good on your promises and to make use of what you get in return”.

So evaluating the relevance of an e-business model to current retail and service strategies involves arriving at a set of ideas that most usefully encompass the proposed model and these current strategies.  Linder & Cantrell suggest that a first step towards changing business models is to clarify existing models: 

This activity forms part of a process to outline existing operating business model(s), which Linder & Cantrell suggest should involve the following steps:

  1. Identify all your sources of revenue
  2. Lay out the key factors underlying your ability to attract and retain each revenue stream
    (These are your value propositions)
  3. Lay out the key factors that enable you to deliver your value propositions profitably and consistently
    (These make up your delivery model and your funding model)
  4. Lay out the assets, capabilities, relationships, and resulting knowledge that can be leveraged

Contrasting different e-business models

Evaluating prospective e-business models requires an understanding of the business’ core capabilities followed by the identification of the single most important business asset that will be leveraged to create new sources of value. Assets include capabilities, relationships, and knowledge as well as physical assets. These ‘Components of a business model’ help businesses isolate applicable model categories and the existing models within those categories.  From here businesses can then identify the new revenue sources, value proposition and / or cost structure that will be created by leveraging business assets. The final step is to identify the key factors that will enable the business to create these revenue sources profitably.   

Looking to learn the fundamentals of E-business? The ARA Retail Institute provides leading accredited training options including the Diploma of Retail Management (Multichannel).

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ABOUT THE AUTHOR

ARA Retail Institute

ARA Retail Institute is Australia’s leading retail training provider for both accredited and non-accredited learning programs. The ARA Retail Institute is a Government Registered Training Organisation (RTO) making it fully qualified to offer retail education programs to ARA members and broader retail industry.

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