Learning Objectives
By the end of this chapter, you will be able to:
- Identify and describe the 8 key elements of a business model.
- Identify and describe the major B2C business models.
- Identify and describe the major B2B business models.
- Understand how these models are being applied by e-commerce businesses in Nepal.
Eight Key Elements of a Business Model
To be successful, an e-commerce business model must effectively address eight fundamental elements:
- Value Proposition: Defines how a company’s product or service fulfills the needs of customers and why they should choose to do business with that firm over others. (e.g., personalization, reduction of search costs).
- Revenue Model: Describes how the firm will earn revenue, generate profits, and produce a superior return on invested capital.
- Market Opportunity: Identifies the intended “marketspace” (area of commercial value) and its overall financial potential.
- Competitive Environment: Refers to the other companies operating in the same marketspace selling similar products. It is influenced by the number of competitors, their size, and their market share.
- Competitive Advantage: Achieved when a firm can produce a superior product and/or bring it to market at a lower price than most or all of its competitors.
- Market Strategy: The plan a firm puts together detailing exactly how it intends to enter a new market and attract new customers.
- Organizational Development: Defines how the company will organize the work that needs to be accomplished to reach its goals (e.g., functional departments like shipping, marketing, or IT).
- Management Team: The employees responsible for making the business model work. A strong team can provide instant credibility to outside investors.
Primary E-commerce Revenue Models
Regardless of the model chosen, e-commerce firms typically generate income through one or more of these Five primary revenue streams:
- Advertising Revenue Model: A company provides a forum for advertisements and receives fees from advertisers (e.g., Google, Facebook).
- Subscription Revenue Model: A company offers users content or services and charges a subscription fee for access (e.g., Netflix, Spotify).
- Transaction Fee Revenue Model: A company receives a fee for enabling or executing a transaction (e.g., eBay, eSewa).
- Sales Revenue Model: Companies derive revenue by selling goods, information, or services to customers (e.g., Amazon, Daraz).
- Affiliate Revenue Model: A company steers business to an “affiliate” and receives a referral fee or percentage of the revenue from any resulting sales.
Major B2C Business Models
- E-tailer: Online retail stores (e.g., Amazon, Daraz).
- Community Provider: Creates a digital environment where people with similar interests can transact and communicate (e.g., Facebook, LinkedIn).
- Content Provider: Distributes information or entertainment content, such as digital news, music, video, and artwork (e.g., Netflix, Spotify).
- Portal: Offers powerful search tools plus an integrated package of content and services (e.g., Google, Yahoo).
- Transaction Broker: Firms that process transactions for consumers that are normally handled in person, by phone, or by mail (e.g., Expedia, eSewa).
- Market Creator: Uses Internet technology to create a platform where buyers and sellers can meet, display products, and establish prices (e.g., eBay, Hamrobazar).
- Service Provider: Offers intangible services online, such as data storage or photo sharing (e.g., Dropbox, Foodmandu).
Major B2B Business Models
- E-distributor: A company that supplies products and services directly to individual businesses.
- E-procurement: Creates and sells access to digital markets (e.g., Ariba).
- Exchange: An independent digital marketplace where hundreds of suppliers meet a smaller number of large commercial purchasers (e.g., Inventory Locator Service (ILS)).
- Industry Consortium: Industry-owned vertical markets that serve specific industries (e.g., SupplyOn).
- Private Industrial Network: A web-enabled network owned by a single large firm for coordinating business processes with a limited set of strategic partners (e.g., Walmart’s Retail Link).
Case Study: Daraz Nepal
Daraz is the leading e-commerce platform in South Asia (including Nepal). It serves as a prime example of a hybrid business model:
- Value Proposition: One-stop-shop for millions of products, secure payments (Daraz Wallet), and wide reach across major Nepali cities.
- Revenue Model: Primarily a Sales Revenue Model (buying from manufacturers and selling at a markup) combined with a Transaction Fee Model (charging commissions to third-party sellers on its marketplace).
- Market Opportunity: Captures the growing middle class in Nepal with increasing smartphone and internet access.
- Competitive Advantage: Exclusive brand partnerships (Brand Day), a massive logistics network (Daraz Express), and heavy investment in Alibaba’s technology stack.
- Market Strategy: Massive annual sales events like 11.11 and 12.12 to drive user acquisition.
Summary
A successful e-commerce business model is built on eight key elements, from value proposition to management team. These models are applied in both the B2C and B2B sectors. B2C models like e-tailers and content providers are common in Nepal, with local examples like Daraz and Onlinekhabar. The B2B sector, while still developing, is seeing growth with platforms like Aayo connecting businesses.
Key Takeaways
- A business model outlines how a company will be profitable, based on 8 key elements.
- Major B2C models include E-tailer, Content Provider, and Market Creator.
- Major B2B models include E-distributor and E-procurement platforms.
- The Nepali e-commerce landscape includes a variety of these models.
Discussion Questions
- What is the business model of Foodmandu? Which category does it fall into?
- How can a small e-commerce business in Nepal gain a competitive advantage against a large player like Daraz?
- What are the key differences between a B2C e-tailer and a B2B e-distributor?
