Business Models for Internet based E-Commerce

Business Models for Internet based E-Commerce

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.

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 business 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 fold: to organize (parsimoniously) and to communicate (clearly). Wallace

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 hypothesis2
that occasioned the construction of the proposition could be tested. Eventually, the
results of hypothesis testing enables confirmation, modification or rejection of the
theory. 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 taxonomies

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 discipline

This paper is an effort on the theory building process that incorporates several of the
above features such as observation, induction and classification. We particularly
identify and focus on two broad issues concerning organization engaging in Internet
based business: Is there a basis on which one can classify these new propositions? and
are there any factors that could potentially influence an organization in identifying an
appropriate sub-set of these propositions for its business? We propose to address these
issues in this paper.
proposed a four-layer framework for measuring the size of the Internet
economy as a whole. The Internet infrastructure layer addresses the issue of
backbone infrastructure required for conducting business via the net. Expectedly, it is3
largely made up of telecommunication companies and other hardware manufacturers
such as computer and networking equipment. The Internet applications layer provides
support systems for the Internet economy through a variety of software applications
that enable organizations to commercially exploit the backbone infrastructure. Over
years, several applications addressing a range of issues from web page design to
providing security and trust in conducting various business transactions over the net
have been developed. The Internet intermediary layer includes a host of companies
that participate in the market making process in several ways. Finally, the Internet
commerce layer covers companies that conduct business in an over all ambience
provided by the other three layers. We refer to their paper for more details on the four
layers and the type of organizations included in the four layers.
The Internet infrastructure layer and the applications layer play a crucial role in
moderating and trend setting the growth of Internet economy. However, in this paper,
we draw our attention to the notion of a business model as applicable to the last two
layers. The focus on the last two layers stems from several reasons:
(a) The growth of the intermediary and the commerce layer is significantly higher
than that of the other two layers. reported a 127% growth in
the commerce layer during the first quarter of 1999 over the corresponding period
in 1998. Furthermore, one in three of 3400 companies that they studied did not
even exist before 1996. They also reported that 2000 new secure sites are added to
the web every month indicating the creation of new companies and migration of
existing brick and mortar busines

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