E-Commerce Business Models as a Strategy Basis

Introduction

Each year e-Commerce occupies a more significant share of the market, increasing both the volume and scope of application. E-Commerce is an entrepreneurial activity that involves the distribution, advertising, promotion, and sale of services or goods over the Internet. This sphere was born in the United States, then developed in Europe, and, in the late 90s of the last century, began to develop actively in the East. The first e-Commerce systems and methods were born due to the emergence of sales automation technologies and the introduction of automated corporate resource management systems. E-Commerce combines such global categories as online sales, online banking, ticket and hotel reservations, transactions in payment systems, online marketing, and advertising. It is evident that all Internet users face this field of economic activity on a daily basis. The Internet provides unique communication opportunities, and the online trading platforms’ pathbreakers were the first ones who took advantage of it. Today, absolutely all firms can do the same, whether it is a small private store, large financial organization, or chain company. This paper will focus on the different types of e-Commerce business models currently used, as any company’s strategy is based on the chosen business model.

The Importance of E-Commerce Investigation

Online markets allow conducting all the same usual business activities: search for suppliers and buyers, pay bills, draw up contracts, but do all this within the framework of the worldwide Internet. The main idea is that e-Commerce systems are available to everyone and everywhere, which is actively used by entrepreneurs. As mentioned in the eMarketer report of 2017, e-Commerce made up 10.2% of total retail sales worldwide in 2017, up from 8.6% a year prior. M-Commerce (mobile commerce) sales worldwide reached an estimated $1.357 trillion in 2017, or 58.9% of e-Commerce spending overall (McNair, 2019). As the prognosis promises, by 2021, m-Commerce will account for 72.9% of the e-Commerce market (McNair, 2018). The presented data confirm the fact that the industry develops rapidly and represents the future of business.

The further narrative will relate exceptionally to business models. The purpose of any model is to identify and apply the main indicators that will lead to success in a particular activity. As far as any business requires planning and systematization, e-Commerce also uses several business models to implement these tasks. Most of these models are used ubiquitously, but it is important that e-Commerce changes and modifies each model to suit its specific characteristics.

Major E-Commerce Business Models Classifications

Developing a clear business scheme is the initial objective of any entrepreneur. For this purpose, the Business Model Canvas by Osterwald and Pigneur was created (Chaffey el al., 2019). This framework can be instrumental in business planning as it reflects the basic structure of the business. The listed criteria will help to understand each business model discussed further within the e-Commerce segment. The main sections are the following (Chaffey el al., 2019):

1. Value proposition. This is what a business offers to the customer.
2. Customer segments. Different target audiences to whom the value proposition will appeal.
3. Customer relationships. The types of relationships that will be formed. For example, self-service, automated services, or personal assistance.
4. Channels. The methods by which the company’s services will reach the audience.
5. Key partners. Forming partnerships allow expanding the reach and taking advantage of an existing organization that has already built an audience.
6. Activities. These are the main activities that need to be performed to deliver the value proposition.
7. Resources. These are different types of processes and people to complete the activities.
8. Cost structure. These are different cost elements that should be checked against activities and resources.
9. Revenue stream. This is the method by which a business derives income.

Electronic commerce covers all online marketplaces that connect buyers and sellers (DeMatas, 2020). The Internet, in this case, is used to process all electronic transactions. The first issue to think about when using a particular business model is the type of business transaction (DeMatas, 2020). The three most frequent participants in e-Commerce are businesses, administrations, and consumers (Khurana, 2019). Depending on the order of their interactions, there are six primary e-Commerce types (Khurana, 2019):

1. Business-to-Business (B2B). This model focuses on providing products from one business to another (DeMatas, 2020). It can result in a high-volume and high-value relationship. In most cases, auctions, burses, and online catalogs are used for making transactions. The choice of a particular site depends on the specifics of the company. There are also more complex schemes like B2B2C or B2B2B, in which the product goes through more stages of purchase, sale, and even processing on its way to the final consumer.
2. Business-to-Consumer (B2C). It is the most known type and the most in-depth market, as many of the names here are known quantities offline (DeMatas, 2020). B2C sales are the traditional retail model, where a business sells to individuals, but business is conducted online as opposed to in a physical store (DeMatas, 2020). It is possible to implement almost anything in this way: equipment, software, books, food, clothing, and services. Such a purchase of goods is not suitable for every customer because it does not allow getting enough information, touch and inspect the purchased item. However, it guarantees a reduced price because a business does not have to spend money on renting a sales area, the employees’ salary, and much more.
3. Consumer-to-Business (C2B). C2B is another model that is growing in prevalence, but it is the least developed compared to the others (DeMatas, 2020). This online commerce business is when the consumer sells goods or services to businesses and is roughly equivalent to a sole proprietorship serving a more significant business (Khurana, 2019). An example is the job platform, where consumers submit their project requirements, and several companies claim to win the project. The C2B platform acts as an intermediary broker in an attempt to find a seller for the price formed by the offers.
4. Consumer-to-Consumer (C2C). The C2C system is a transaction between two people who are not related to business activities. Created by the rise of the e-Commerce sector and growing consumer confidence in online business, these sites allow customers to trade, buy, and sell items in exchange for a small commission paid to the site (DeMatas, 2020). The most well-known example is eBay, the platform for enabling consumers to sell to other consumers (Khurana, 2019). Since eBay is a business, this form of e-commerce could also be called C2B2C – consumer-to-business-to-consumer e-Commerce (Khurana, 2019). The main disadvantage is the high risk for one of the transaction participants. The level of fraud in C2C trading is much higher than in any other area, and it is much more difficult to ensure the security of the transaction, even for leading trading platforms.
5. Business-to-Administration (B2A). The B2A model covers Internet transactions between businesses and government (administration) services. These include fiscal transactions, social security, and the transfer of legal and tax documents. Often, the company develops software that is used for government work. Long-term payment for work made is one of the most frequent phenomena in the B2G sector.
6. Consumer-to-Administration (C2A). Such kind of interaction involves transactions not in the classical sense of trade, but between an individual and one of the administration services. These may include filing tax returns, transmitting payments, or paying for medical services. Currently, many state Internet resources are being created to make the above-mentioned payments. This way of interacting with government agencies is efficient, convenient, and does not require spending much time.

There is much value in clearly understanding the different types of business models in e-Commerce. It allows clear comparisons across companies and helps any business owner make correct decisions about what market they wish to serve, and how (Khurana, 2019). Careful planning of the model provides a significant increase in the efficiency of further work. However, it is worth remembering that it is impossible to develop and implement a business model in an enterprise once. The model should be inevitably changed as the external conditions modify. Such work always requires time and effort, but it always brings results.

Summary

The emergence and development of the Internet, improvement of information technologies, systems, and standards of their interaction led to the creation of a new direction of the business. Online trading is a modern, convenient way to make transactions between parties concerned. Its participants can be any organization and all people who have stable access to the Internet. Despite security concerns, growing competition, and consumer distrust, e-Commerce develops actively and will grow at a rapid pace in the coming years. New tools, new approaches, and new solutions for e-Commerce are being developed every year, which guarantees a higher level of work in the sphere. With all these instruments, a thought-out approach allows reaching a new level of business management and a significant increase in profit. Understanding the overall composition and creating an individual business model for a specific idea is fundamental for further work. However, each type of e-Commerce business model has its particular characteristics. Knowledge of the determining factors and business model structure is crucial for creating and thriving successful business.

References

Chaffey, D., Hemphill, T., & Edmundson-Bird, D. (2019). Digital business and e-commerce management. Pearson UK.

DeMatas, D. (2020) 5 Types of e-Commerce businesses that work right now. eCommerceCEO.

Khurana, A. (2019) Defining the different types of e-Commerce businesses. The Balance Small Business.

McNair, C. (2018) Worldwide retail and e-Commerce sales: eMarketer’s updated forecast and new m-Commerce estimates for 2016—2021. eMarketer.