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Value Drivers of E-commerce Business Models
Presented at the Wharton Conference on WINNERS AND LOSERS IN THE E-COMMERCE SHAKEOUT

October 20, 2000 The Wharton School

Raffi Amit
The Wharton School University of Pennsylvania
! (215) 898 7731 " ( 215) 573 7189 # amit@wharton.upenn.edu

Christoph Zott
INSEAD
! (33) 1 6072 4013 " (33) 1 6072 4223 # christoph.zott@insead.fr

Customer-Centric Business Model
Financial Tools & Services

Information Community

Customer

Online Privacy & Security

Transaction Execution
Copyright © 2000 by Raphael Amit & Christoph Zott 2

E-commerce Is Creating New Sources Of Value In Many Established Industries $ $ $ $ $

Automobile sales – Autobytel.com Book and CD sales – Amazon.com Financial services – E-Trade Steel industry – E-Steel Travel – Priceline.com

Copyright © 2000 by Raphael Amit & Christoph Zott

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Key Research Objectives
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To develop a concept that enables deep understanding of the central strategic issues related to e-commerce To develop an empirically testable model for assessing the value creation potential in e-commerce

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Copyright © 2000 by Raphael Amit & Christoph Zott

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The Internet Affects Market Characteristics: Reach, Richness, Digital Representation Reach • No geographical boundaries • No time zone restrictions • Interconnectivity among economic agents Richness • Reduced asymmetry of information • More transparency • Enhanced information exchange • Two-way information exchange • Customization and personalization

Markets connected through the Internet

Source: Based on Evans and Wurster (1999), “Blown To Bits: How The New Economics of Information Transforms Strategy”

Digital representation • Lack of “touch and feel” • Reduced transaction costs • Virtual storefronts • Changed nature of search costs Copyright © 2000 by Raphael Amit & Christoph Zott 5

Some Potential Implications On Economic Transactions
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Deconstructed supply chains (disintermediation) New business opportunities (reintermediation) New business architectures (business models) New forms of collaboration among firms Changes in the scope of firms Copyright © 2000 by Raphael Amit & Christoph Zott 6

From Deconstructed Value Chain To Reconstructed Business Model Deconstructed Value Chain In The Automobile Industry
OEM Procurement Systems suppliers
Quantity Quality

Parts Assembly
Price

Marketing
Price Time Logistics

Sales

Time Logistics Source: BCG

Quantity Distribution of risk

Reconstructed Business Models In The Automobile Industry
Parts Supply Parts Assembly Distribution Through Dealerships Customers Other Dealerships Other Suppliers Other Car Firms Complementary Products & Services 7

« B2B

Hub »

« B2C »

Copyright © 2000 by Raphael Amit & Christoph Zott

The Business-Model Construct
A business model depicts the content, structure, and governance of transactions designed to create value through the exploitation of business opportunities.

Copyright © 2000 by Raphael Amit & Christoph Zott

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Synthesis Of Theoretical Perspectives
Business Model

Value Chain Analysis
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Strategic Network Theory
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Transaction Cost Economics
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Porter (1985) Main insight: Focus on processes (product flows and activities) to assess value created

Dyer and Singh (1998) Main insight: Network of firms is important locus of value creation

Williamson (1975) Main insight: Transaction is meaningful unit of analysis

Copyright © 2000 by Raphael Amit & Christoph Zott

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Example Of Business Model: E-Trade
Securities Markets
ECN

Mutual Funds

Investment Banks

Insurance Providers

Credit Card Providers

Mortgage Providers

Content Providers

E*Trade Securities

E*Trade Bank Financial/ Banking Services

Clearing services

E*Trade Website

E-Trade
Customers - Private investors, Corporate stock option plans
Copyright © 2000 by Raphael Amit & Christoph Zott 10...
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