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Home , Electronic business, Value chain

Sep. 2004 Journal of Electronic Science and Technology of Vol.2 No.3

Identifying e- Models: A Value Chain-Based Analysis*

ZENG Qingfeng, HUANG Lihua

(Department of Information and Information Systems, School of Management, Fudan University Shanghai 200433 China)

Abstract E-business will change the ways that all companies do business, and most traditional will evolve from their current to a combination of place and space via e-business model. To choose the proper e-business model becomes the important strategic concern for company to succeed. The main objective of this paper is to investigate the analysis framework for identifying e-business model. Based on the e-, from the value chain to the value net perspective. This paper provides a theoretical framework for identifying e-business models, and results in 11 e-business models. The strategic intend of every e-business model is discussed in the end of this paper. An enterprise e-business model design and implementation can be specified by the combination of one or more among 11 e-business models. Key words e-business mode; value chain; e-business

Electronic business (e-business for short) is a high Along with the e-business evolution, the effective integration of enterprise business process, identification of e-business model becomes a main [1, 4, 5] application system and structure. It issue in the e-business research field . Even in [6] completes whole business activities by means of some countries, e-business model can be patented . electronic way in order to improve business So understanding e-business models and helping to efficiency[1]. A more abroad definition of e-business is design them are important research issues. Naturally that enterprise executes business process over open many scholars have done a great deal of work about networks (mainly ) so as to substitute e-business models, but it isn’t so well covered until information for original handwork business now. In this paper, from the value chain and value net [2] transactions . As a new business platform, e-business perspective, we construct a new theoretical framework is the result of ICT development and the economy to analyze e-business models, so as to provide a new globalization. How can enterprise win out in the method for enterprise analyzing and deploying dramatic changing e-business era and respond to new e-business model. competitive business environment quickly? It’s becoming the focus of today’s discussion. 1 A Review of E-Business Model Bill Gates once said that Microsoft had only two There is no uniform definition of business model [3] years to fail , because he quite realized that today’s so far. Different scholars have different opinion. Paul competition is not only the competition of technology proposes the definition of business model in Internet and products, but rather the competition of Business era. He said that business model is a system consist of Model. Therefore, the competition between enterprises product flow, flow and information flow, in in e-business era is the competition of e-business which all the business actors involved, what their role model that enterprises choose. Dell, Cisco, is, source of revenue and which potential benefits they and Eachnet (China) can serve as good examples that get are described at the same time[7]. proper e-business models make them preeminent in the E-business model plays the role bridging the new economy. enterprise strategy and business process as well as

Received 2004-06-18 * Supported by National 863 Research Project No.3 ZENG Qingfeng et al: Identifying E-business Models: A Value Chain-Based Analysis 147 information systems. This is illustrated in Fig.1. virtual communities, value chain service provider, value chain integrator and so on[7]. However these Enterprise Strategy e-business models he figured out are usually concerned with the model of pure dot-com firms, and little on E-business Model how traditional enterprise to do e-business.

Business Process & Armir identified 5 e-business models that can Information Systems change the way of value creation. They are e-shop, [8] Fig.1 The relationship of e-business model in enterprise trust intermediary and so on . Successful e-business firms usually adopt one or more of these models. The Many scholars are trying to recognize different identification is largely from the perspective of value e-business models under different frameworks. The creation of e-business model. But this classification is most widely acceptable e-business models are the confined by the narrow concept of e-business. classification from the perspective of business actors, Rappa identified 9 categories totally 25 kinds of such as B2B, B2C, and C2C. Obviously, this simple e-business models from the perspective of profit means kind of model identification is far less than enough to in Internet[9]. Even though the models recognized by guide enterprise to deploy e-business. From the two Rappa covers wide area, the identification framework perspectives of innovation and function integration, he adopted is not very clear, the dimension is too Paul Timmers identified 11 e-business models, simple and so it is difficult for enterprise to decide including e-shop, e-, e-auction, e-mall, which e-business model to be chosen.

Firm Infrastructure

Human Technology Development R & D Procurement

logistics P M S Operations Services Inbound Outbound

Fig.2 Enterprise e-business core processes from single-firm value chain perspective

Some other scholars also get various e-business based on which 11 e-business models are identified models according to different identification framework. and their strategic intents are discussed respectively. Such as Peter Weill identified 8 e-business models based on broad investigation in diverse industries[2]. 2 Core Business Processes for Enter- Lynda identified three categories totally 13 e-business prise E-Business Application [10] models from the perspective of roles . 2.1 Core Business Process Based on the Value Chain From the analysis above, three problems of the The application of enterprise e-business model is research on e-business model identification can be primarily represented in several core business concluded. Firstly, most of all lack a theoretical ground processes. Core business processes are the process of of e-business model identification framework. enterprise value creation. Secondly, there is little research on e-business model From single-firm perspective to discuss the identification framework for traditional enterprise, e-business process, the enterprise “Value Chain” theory mainly on the pure dotcom company. Thirdly, the provides a good foundation to determine enterprise e-business models recognized are not persuasive business activities. Porter divides the enterprise enough to instruct firms, which leads firms feel no way business activities into primary and support to follow. Thereby, we propose a new theoretical activities[11,12]. The two categories can be further sorted framework for identifying enterprise e-business models, into 9 generic categories, Under the premise of none 148 Journal of Electronic Science and Technology of China Vol.2 impact to enterprise basic value creation process, we Enterprise can possibly establish alliance relationship make the proper generalization, extraction and with more partners, even affiliates with competitors in abstraction of enterprise activities, so that the most the same industry by the combined means of primary enterprise business processes can be competition and collaboration. Thus, modern represented in a more concise way. Four primary enterprise e-business environment is a complex system enterprise business processes are proposed: comprising firm internal business processes as well as procurement (P), (M), sales (S), and the external business processes with partners . All the research & development (R&D). Among them, the probable relationships between enterprise and other Procurement, Manufacturing and Sales belong to the actors must be studied to analyze in depth the activities in enterprise core value chain, whereas the enterprise e-business models. Fig.4 illustrates the core R&D belongs to the support activity to fully enhance business processes of enterprise based on value net. the value of these core activities. Fig.2 illustrates the Competitor core processes for enterprise e-business from single-firm perspective based on the value chain. Collaborator Enterprise The Fig.3 demonstrates the relationship in a single value chain between enterprise and upstream value chain (suppliers) as well as downstream value Collaborator chain (distributors/).

Fig.4 Enterprise e-business core processes from virtual value-net perspective Suppliers Enterprise R&D R&D

Customers/ 3 Identifying E-Business Models P M S P M S Distributor Based on the Core Business Fig.3 Enterprise in the value chain Processes

3.1 Identifying E-Business Models Based on the 2.2 Core Business Process Based on the Value Net Value Chain As information technology and globalization From single-firm value chain perspective the core developed, Lynda and Meredit deem that it is not e-business processes for enterprise are primarily suitable any more to use conventional value chain composed of procurement (P), manufacturing (M), concept to analyze enterprise business model in the [10] sales (S), research and development (R&D). Enterprise network economy era . Because in the integrated performs various transactions with others in a single economic environment, an e-business enterprise dose value chain. Fig.5 demonstrates the e-business models not only play a unique role, but more possible act as identified from value chain perspective. diverse roles in the whole value system to realize the In Sales process, Enterprise is likely to take the maximum of value creation. Therefore, we should use most advantage of networks to skip over downstream the “ Value Web” or “Value net”, instead of “Value distributors and sell its products or service directly to Chain”, to analyze enterprise business model. Value end customers. If enterprises sell products directly to net is a dynamic network composed of customers, customers through Internet bypass tradition distributors, suppliers, collaborators and the information flow thus the 1st e-business model is identified: Direct to [13, 14] among them . The concept of Value net extends Customer. If enterprises provide service information out the concept of so as to form a virtual directly to the customers through the Internet, then the value web according to customer demands by various 2nd e-business model is identified: Content provider. collaborating enterprises in a much larger scope. The same to explore new e-business models for Under the e-business environment, enterprise is Procurement process, enterprise can also leverage able to span over its conventional value chain and Internet technology to simplify its traditional purchase expands its business into the scope of Value Net. process and bypass multi-level suppliers to link itself

No.3 ZENG Qingfeng et al: Identifying E-business Models: A Value Chain-Based Analysis 149 with raw materials producer directly. Thus the 3rd e-business model is identified: Whole of Enterprise. e-business model is identified: Direct to Supplier. As the Internet emerge, if enterprise wants to act Enterprise may utilize network technology to as intermediary getting suppliers and customers manage and integrate the internal operation process, information together, enterprise can be moved to the integrate multiple business units, optimize resource Internet and provides information service for them. allocation, and more important to provide a single Thus the 5th e-business model is identified: contact point at enterprise level to let customer achieve Informediary. services they desire more conveniently. Thus the 4th

4# Whole of Enterprise Enterprise Product 1 5# Informediary P M S

1# Director # Suppliers 3 Director Product m to Customer to Supplier Customer P M S P M S 2# Content

Product n Provider

P M S

Fig.5 Enterprise e-business models identified from single-firm value chain perspective

# 7# Shared 8 Shared Procurement Sales Platform Platform Competitor/Collaborator R & D

10# Value Net P M S Integrator

# 6 R & D Collaborator # R & D Enterprise R & D 9 Pull Integrator Service Provider P M S P M S Customer

Collaborator R & D

11# Virtual P M S Community

Fig.6 Enterprise e-business models identified from value net perspective

3.2 Identifying E-Business Models Based on the an enterprise might require more partners to participate Value Net mutually. Enterprise could leverage IT to act as R&D From value net perspective the core e-business management center and set up collaborations with processes for enterprise are chiefly the various partners to facilitate the R&D activities effectively. business relationships between the enterprise and its Thus the 6th e-business model is R&D Net Integrator. collaborators, competitors and customers as well. Fig.6 The competition strategy in the new economy is demonstrates the e-business models identified from no longer like what it was before. Enterprise is in value net perspective. search of an entirely new strategy combining both Internet brings enterprise the probability of competition and collaboration. For the Procurement integration and . In the information era, R&D of process, enterprise can ally with its competitors or 150 Journal of Electronic Science and Technology of China Vol.2 partners of the same industry to share the to customers around its core product. Thus, the 9th e-procurement platform by means of Internet. Thus, e-business model is identified: Full Service Provider. the 7th e-business model is identified: Shared In the value net, there is information flow Procurement Platform. Symmetrically, for the Sales throughout. E-business environment makes it possible process, enterprise can build the shared sales platform for enterprise to play as an integrator of value net. By with its competitors. Thus the 8th e-business model is collecting, synthesizing and distributing information to identified: Shared Sales Platform. facilitates their activities and realize the over th Affront the customer increasing demand of total the value net of the industry. Thus the 10 e-business solutions, enterprise can use Internet to associate with model is identified: Value Net Integrator. third parties in a certain realm to provide total solution Tab.1 11 e-business models for enterprise

e-Business Model Definition Strategic Intents Example Provides or services www.dell.com - Bypass channel. directly to the customer, often is a famous - Higher margins, expanded markets and bypassing traditional channel using Direct to Customer Direct to Customer greater information of customers. members. e-business. Provides content (information, - Providing content is useful and low cost www.China-review.com Content provider digital products and service) via - Greater choice, lower price and more is a corporation providing Internet. customized service to customers. famous economist papers . - Bypass multi supplier level and face raw www.ihaier.com Provides goods or services materials producer directly. is a famous Chinese directly to the supplier, often - Abundant information between enterprise company using Direct to bypassing traditional channel Direct to Supplier and suppliers to achieve customized Supplier e-business to members. procurement. procurement. Provides a firm-wide single - Multi-unit enterprise provides a single point www.ford.com point of contact, consolidating of contact for customers. it gives customers one point all services provided by a large - Make customers better understand the whole Whole of Enterprise to contact Ford. multiunit organization. services provided. - Shorten value chain and directly getting www.eachnet.com Bring together buyers and buyers and sellers. is a Chinese famous sellers by concentrating Informediary -Broaden the market quickly through corporation for C2C information. integrating suppliers and customers. e-business. Integrate the information of www.boeing.com - Speed up R&D by integrating information in every participant in R&D net boeing corporation develops each level of R&D net. and enhance the ability of and designs products - Own strong brand. R&D Net Integrator integrator to control over R&D through the network with - Better control over collaborators. activities. his partners. In the procurement process, - By enlarging purchase scale, strengthen www.covisint.com integrate several competitions bargain ability and reduce procurement cost. is a shared procurement Shared Procurement to share procurement - Satisfy supplier demand of one contact point platform for the GE, Ford Platform information and platform to multi customers. and Daimlerchrysker. infrastructure. Integrate several competitors’ - Increase sales opportunity, reduce sales cost. www.shmec.com.cn Shared Sales sales platform in order to share - Satisfy customer demand of one contact is a Chinese corporation Platform sales platform infrastructure. point to multi suppliers. providing sales platform . Provides a full range of services - Meet complete needs of targeted customers www.ctrip.com

in one domain (e.g., financial, in one domain by integrating enterprise’s own is a Chinese tour Full Service health, industrial chemicals) products and services with those of selected corporation providing full Provider directly and via allies. third-party providers. service for the tourists. Integrating the operation - Integrate information in value net, improve information of upstream and the transparency of information, and increase www.cisco.com

downstream in the value chain, the capability to control over the value net. is a famous corporation acts

so as to enhance the control - Know partners’ operation status, better as a Value Net Integrator

over the value net and facilitate facilitate the business activities in the whole providing product to Value Net Integrator the coordination between value net, and improve the marketing customers. partners. responding speed. - Build a community around common Creates and facilitates an online interests. community of people with a www.xinwang.com - Capture increasing returns as community common interest, enabling is a virtual community for Virtual Community grows. interaction and service an aluminum corporation. - Make virtual community as the supplement provision. to other models

No.3 ZENG Qingfeng et al: Identifying E-business Models: A Value Chain-Based Analysis 151

Finally, the 11th e-business model is identified: Atomic E-Business Models[M]. Boston: Harvard Business Virtual Community. It is also an e-business model that School Press (eds.), 2001 enterprise can adopt in order to take full benefit of [3] Madnick S, Siegel M, Frontini M. Surviving and Thriving share and intercommunion. The participants might be in New World of Web Aggregators[M]. Boston: MIT any one in the value net relationship and the topics of Engineering Systems Division Working Paper Series, 2000 the community could be miscellaneous. Through [4] Bloch M, Pigneur Y, Segev A. Leveraging Electronic virtual community, enterprise could collect valuable for : A Business Value th information from it. Framework[C]. The 9 International EDI-IOS Conference (ed.), 1996: 91-122 4 Summary of 11 E-Business Models [5] Maitre B, Aladjidi G. Les Business Models de la Nouvelles for Enterprise Economies[M]. Paris: Dunod (eds.), 1999 [6] Pavento M. Patent Protection for E-Commerce Business According to what analyzed above, 11 e-business Model[EB/OL], http://www.jonesaskew.com/articles/99 models for enterprise are identified respectively from /0499patpro.html, 2003-12-20 the value chain and value net theory. In order to [7] Timmers P. Business models for electronic markets[J]. explain the theoretical framework more clearly, we EM-Electronic Markets, 1998, 8 (2): 3-8 give the summary of the 11 e-business models [8] Hartman A, Sifonis J, Kador J. Net Ready: for including model definition, strategic intents and an Success in the E-Conomy[M]. New York: McGraw-Hill, example for every kind of e-business model in Tab.1. 2000 5 Conclusions [9] Rappa M. Business Models on the Web[EB/OL]. http://ecommerce.ncsu.edu/business_models.html.2003-12- In the network economy era, the proper choice of 02 e-business model is the critical factor determining [10] Applegate L M. Overview of E-Business Models[M]. enterprise to succeed. Therefore, it is of high Boston: Harvard Business School, 2000 significance to study the identification framework of [11] Porter M E. Competitive Advantage[M]. New York: Free e-business model. By analyzing typical enterprise core Press, 1985 processes, this paper studies the e-business model [12] Porter M E, Millar V E. How information gives you identification framework. 11 e-business models are competitive advantage[J]. Havard Business Review, 1985, identified and discussed, which provide valuable 63(4): 149-161 reference for enterprise to determine and implement [13] Bovel D, Martha J. Value nets: reinventing the rusty supply e-business models. So an enterprise e-business model chain for competitive advantage[J]. Strategy & Leadership, design can be specified by the combination of one or 2000, 28(4): 57-77 more among 11 e-business models. Of course, the 11 [14] Bovel D, Martha J. From supply chain to value net[J]. e-business models identified in this paper might not Journal of Business Strategy, 2000, 21(4): 24-28 cover all the possible enterprise e-business models. With the evolution of technology and business Brief Introduction to Author(s) environment, more e-business models would emerge Zeng Qingfeng is now a Ph.D. candidate at Fudan University. His research interests include: e-business, business and hence further researches are needed. transformation. HUANG Lihua is now a professor in Information References Management and Information Systems, Vice Dean of School of [1] Kalakota R, Robinston M, Tapscott D. E-Business 2.0: Roadmap for Success[M]. Reading: Addison-Wesley Management, Fudan University. She got Ph.D. degree from Publishing Co (eds.), 2001 Fudan University in 1997. Her current interests include: [2] Weill, P, Vitale M. From Place to Space: Migrating to e-commerce, e-business model, BPR, IS planning, so on.