Business Models for Electronic Markets

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Business Models for Electronic Markets
by Paul Timmers, European Commission, Directorate-General III, April 1998*

Abstract Electronic commerce over the Internet may be either complementary to traditional business or represent a whole new line of business. In either case, in view of the new features of the Internet, critical questions to be answered include: ♦ what are the emerging business models; and related to this, ♦ which strategic marketing approaches are applied, or emerging. This article addresses the first question above by providing a framework for the classification of Internet electronic commerce business models. This framework has been developed on the basis of current commercial Internet business and experimental work in European R&D programmes. Introduction Electronic commerce.i.Electronic commerce; can be defined loosely as “doing business electronically” (European Commission 1997). Electronic commerce includes electronic trading of physical goods and of intangibles such as information. This encompasses all the trading steps such as online marketing, ordering, payment, and support for delivery. Electronic commerce includes the electronic provision of services, such as after-sales support or online legal advice. Finally it also includes electronic support for collaboration between companies, such as collaborative design. Some forms of electronic commerce exists already for over 20 years, e.g. electronic data interchange (EDI), in sectors such as retail and automotive, and CALS (Computer Assisted Lifecycle Support) in sectors such as defence and heavy manufacturing. These forms of electronic commerce have been limited in their diffusion and takeup. Recently, however, we see an explo-

sive development in electronic commerce. The reasons for that are, of course, the Internet and the World Wide Web, which are making electronic commerce much more accessible. They offer easily usable and low cost forms of electronic commerce. Electronic commerce on the basis of the Internet is set to become a very important way of doing business.

Forrester (1997) forecasts that businessto-business (B-to-B) electronic commerce will grow to $327 billion in the year 2002 — that is the value of goods and services traded via the Internet. This excludes the value of the hardware, software and services that are needed to perform electronic commerce, whose value is estimated at several hundred billions of dollars likewise. Between 1996 and 1997 electronic commerce has been growing at over 1000 percent per year. While such high growth rates will not be sustained, it is clear that electronic commerce will become pervasive: Datamonitor (1997) expects in 5 years time 630,000 US companies and 245,000 European companies to be involved in fullfledged integrated B-to-B electronic commerce. The Report on Electronic Commerce (1998) expects that the business-to-business penetration rate will grow from 10% in 1997 to 90% in 2001. Although the number of consumers on the Net by the year 2000 could be several 100 millions it is expected that business-tobusiness will constitute the larger part of electronic commerce. With the new medium — the Internet – also new ways of doing business are developing. Most of those that capture the public attention are consumer-oriented (such as Amazon.com, Tesco). Less publicity is given to the way the Internet can be used for business-to-business electronic commerce, although such commerce is a reality today (e.g. Cisco, General Electronic procurement, etc). New forms of electronic commerce are being piloted in many sectors of industry, for business-to-business, business-to-consumer and business-public administrations relationships. Advanced pilot experiments in new business models are being supported by the European Commission in the ESPRIT and ACTS European research, technology development and demonstration programmes. This work is part of a more general framework of policy-making and programmes...
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