Business Models for Internet Based E-Commerce an Anatomy

Topics: Marketing, Business-to-consumer, Value added Pages: 27 (7627 words) Published: February 22, 2011
Business Models for Internet based E-Commerce An Anatomy
B Mahadevan Associate Professor, Production & Operations Management Indian Institute of Management Bangalore 560 0 76, INDIA. e-mail:

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Abstract The success of Internet based businesses in the Business to Customer segment in recent years is an indication of the events to unfold at the dawn of the new millennium. It is widely projected that the Business to Business segment is poised for a spectacular growth. However, a consistent definition and a framework for a business model for the Internet based business is still non-existent. This paper is an effort to fill in this gap.

We propose a three dimensional framework for defining a business model and apply it to the emerging market structure. Furthermore, we also identify certain factors that would guide organizations in their choice of an appropriate business model. We also identify possibilities for further theory building in this area.

Business Models for Internet based E-Commerce: An Anatomy

The growth of Internet based businesses, popularly known as dot coms is anything but meteoric. It has dwarfed the historical growth patterns of other sectors of the industry. Over years, several organizations doing business through the Internet have come out with their own set of unique propositions to succeed in the business. For instance demonstrated how it is possible to "dis-intermediate" the supply chain and create new value out of it. Companies such as Hotmail, and Netscape made business sense out of providing free products and services. On the other hand companies such as AOL and Yahoo identified new revenue streams for their businesses. It is increasingly becoming clearer that the propositions that these organizations employed in their business could collectively form the building blocks of a business model for an Internet based business1. Several variations of these early initiatives as well as some new ones being innovated by recent Internet ventures have underscored the need for some theory building in this area.

A good theory is a statement of relations among concepts with in a set of assumptions and constraints. The purpose of theory is two fold2: to organize (parsimoniously) and to communicate (clearly). Wallace3 outlined a systematic approach to theory building, which broadly consists of observation, induction and deduction. Theory building in a new area often begins with individual observations that are highly specific and essentially unique items of information. By careful measurement, sample summarization and parameter estimation, it is possible to synthesize empirical generalizations. The next stage in theory building involves concept formation, proposition formation and proposition arrangement. Using sampling the hypothesis


that occasioned the construction of the proposition could be tested. Eventually, the results of hypothesis testing enables confirmation, modification or rejection of the theory. building. In this paper we focus on observation and induction aspects of theory

Another key aspect of theory building is the use of alternative classification schemes often employing typologies and taxonomies4. Typological classification has a twofold function: codification and prediction. A typology creates order out of the potential chaos of discrete and heterogeneous observations. But in so codifying the phenomena, it also permits the observer to seek and predict relationship between phenomena that do not seem to be connected in any obvious way. This is because a good typology is not a collection of undifferentiated entities but is composed of a cluster of traits, which in reality hang together. Indeed systematic classification and the explication of rationale for classification are tantamount to the codification of the existing state of knowledge in a discipline5....
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