Critical Evaluation of E-Business Applications

A business model can be defined as “a high-level description of an application type which contains all the common features which can be found in specific examples of the model.” (Ince, D, 2004). In short a business model could be thought of as the architecture or layout the e-business site will take to provide a mechanism for people to interact and obtain goods or services.

Providing an all-inclusive listing of electronic commerce business models is a never ending task-new business models emerge rapidly. I will focus my review of a selection of e-business models on the models Paul Timmers has identified. Timmers identified 11 models however I have just focused on the most common of these.

E-Procurement – This is the electronic tendering of goods and services. It is mainly used by large organisations hoping to reduce costs by having a wider choice of suppliers. E-procurement works by the business announcing the fact it wants to acquire goods and possible suppliers can then bid for the contract.

E-Auction - This model describes sites which electronically simulate the bidding process from a traditional physical auction. Revenues are raised by this form of site by charging for a transaction and for advertising. A very successful example of an e-auction is eBay.

E-Shop – This is the web marketing of a company to promote the company and its goods or services, e-shops also inevitably also contain facilities for ordering and paying for products. The sophistication of these sites range from the simple presentation of a static catalogue of items to the presentation of an interactive catalogue e.g. sound clips for cd’s.

E-Mall - An e-mall is a collection of e-shops which are often devoted to a specific service or product. Usually e-malls are organised by a company which charges the e-shops for their administering their presence. The e-mall operator gains revenue for charging the e-shops.

Third Party Marketplace – This is where companies delegate the marketing and sales of their products to whoever administers the online marketplace.

Virtual Community – In virtual communities value comes from the members (customers or partners) who add their information onto a basic environment provided by the virtual community. This could be in the form of message boards, mailing lists etc. They are popular because they can offer unbiased advice on products.

Value Chain Service Provider – These specialise on a specific function in the value chain, such as electronic payments, with the intention to make that into a distinct competitive advantage.

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Value Chain Service Provider – These specialise on a specific function in the value chain, such as electronic payments, with the intention to make that into a distinct competitive advantage.

The e-business I have decided to focus my attention on is the e-shop Amazon.co.uk. I have decided to base my evaluation of an e-business model on an e-shop such as amazon.co.uk because I am a regular user of the site. I find the shop useful for finding information on particular products through the reviews fellow customers post on particular products and furthermore, I am attracted to the reduced prices on offer by Amazon compared to its high street competitors. Therefore as a regular user of the site conducting an analysis and evaluation of the e-shop would be of interest to me and I will be curious as to what I find. Furthermore, I have decided to evaluate an e-shop because it will help me with my second assignment in which I will have to design a prototype e-shop.

Just as with high street stores, the aim of e-shops is to entice the customer to browse and ultimately buy. The fundamental prerequisite for presenting products and services online in the e-shop is the catalogue. These are the electronic equivalent of a shop’s shelves, goods, special offers and departments. Customers search and browse the catalogue for their desired products and add them to a virtual basket or trolley. When finished browsing the customer then proceeds to the checkout which is usually a secure area. Payment can be verified and funds transferred, while the customer is online. One of the most widely recognized leaders in the e-shop industry is Amazon.com.

The following is a diagram that illustrates the processes in common e-shops; this could be applied to Amazon.com.

(Model taken from www.dcs.bbk.ac.uk/~gr/ecommerce_ism/infomodels.pdf)

(Thickest arrow to the right

Represents a secure process.)

Amazon doesn’t have a high street presence; it focuses all its attention on online selling, which makes it a “click” business. The Amazon group also has online stores in the United States, Germany, France, Japan and Canada.

Amazon operates mainly on a business to consumer basis but it also has a small consumer to consumer area where buyers can sell products they are finished with to other consumers for a cut price. The area which allows individuals to list their products and sell them to other Amazon customers is an example of a small scale third party marketplace and e auction. Furthermore, Amazon has built up affiliations with other online businesses to help boost business. Therefore, the company also operates in a business to business way. The companies who Amazon have an affiliation with will include links to the shop and then for each customer Amazon gains as a result of that link they will pay a finder fee to whatever site the customer came from. These sorts of features are common across a lot of the major e-shops.

Amazon has exploited a lot of the benefits of conducting business via an e-shop. Advancing technologies have allowed e-businesses to offer facilities that greatly enhance the customer service made available.

For example it is possible to send registered customers reviews of newly published titles, to send suggestions of titles based on historic data from previous orders. This will make the customers feel the business is taking note of their purchases to have an idea what they are interested in. This is a great advantage of e-business because customers will be happy they are being kept up to date with new releases etc. while the business is happy as they are automatically promoting new products to customers they already know have an interest in the particular genre. An obvious benefit of e-shops for the customer is that they are in a better position to offer reduced prices than their high street counterparts. This is mainly due to the fact that e-business can operate with reduced overheads and lower labour costs. Also, the fact that trading can be carried out 24 hours a day is a positive aspect of online retailing as it means that the customer can browse and purchase goods whenever they want from the comfort of their own home, therefore e-shopping can be perceived as a convenient method of shopping where the consumer can shop whenever it suits them and without the "hussle and bussle" of the high street. In addition, e-shops such as Amazon offer home delivery of products; this is usually charged but sometimes if a customer has spent over a certain amount of money, delivery may be free of charge. A factor which may encourage businesses to open an e-shop may be that it is a relatively straight forward way to take the product to a global audience. Ince (1998) writes that the e-shop model is a cost effective method of placing cheap products in front of a global audience. This not only increases the business’s possible customers but may also help give a business a high-tech image. From my research of the Amazon example of e-shop business models I have learned that when successful e-shops can open doors to other online business opportunities. For example partnerships, associates, marketplace.

On the other hand, however, there are several factors that may put customers and businesses alike off using e-shops. Although e-shopping has become safer in recent times, many consumers are still wary of privacy and security issues associated with purchasing goods via e-shops. Some fear that hackers may be able to view bank or credit card details while they are purchasing goods, whilst others sometimes question the legitimacy of the business e.g. the e-shop may be a con in that they take peoples money and don’t send out the products and then go offline never to be heard of again.

A factor that may be viewed as a disadvantage to e-shops is the fact that no social interaction takes place between the customer and the business. High street shopping allows the customer to approach a sales assistant for advice on products etc.

Furthermore, whilst purchasing products via the net the customers can’t physically touch and inspect a product to ensure it meets their criteria. Therefore, this may limit e-shops to a particular type of product i.e. clothes may not be a good seller via e-business as the consumer may wish to try them on to ensure they are the right size. This doesn’t really affect companies such as Amazon who specialise in books, video games etc. In addition to this the process of returning goods is more inconvenient where e-shops are concerned. When returning a product the customer will have to send the product back to the company and pay for postage etc. this process can be costly and may take weeks to complete, whereas for high street shops the customer can just go back to the shop and explain the problem there and then with a member of staff. The e-shop industry is arguably more competitive than normal high street shops because of the increased choice at the disposal of consumers because of the internets global presence. There is a wider choice for consumers on the internet than there is with high street shopping, therefore e-shops are under more pressure to keep prices as low as possible in order to be competitive.

In conclusion my analysis of the e-shop business model has helped me understand the processes and functions these models take. I have learned that e-shops have become a large part of the general business world because many exist for “pure play” companies and many are increasingly being used as an extra dimension for high street businesses to help increase growth and profitability. E-shops are run along the same principles as regular physical shops in that customers can specifically search for a particular product or simply browse the online catalogue of available products. Once finished, the customer proceeds with their “virtual trolley” to the checkout where payment takes place. My evaluation has showed me that there are several negative aspects of running e-shops, the most obvious being that despite recent advancements in online payment options many are still wary of conducting business via the internet. However, I feel that the advantages outweigh the disadvantages, and as my example from Amazon shows e-shops carry a lot of potential for opportunities either to “pure play” businesses starting out or to high street shops who wish to extend into e-business.

Bibliography

Books

Ince, D. (2004). Developing Distributed and E-Commerce Applications. Second Edition. USA. Addison-Wesley

Kalakota, R. , Robinson, M. (1999). E-Business Roadmap for Success. USA. Addison-Wesley

Norris, M. , West, S. (2001). eBusiness Essentials. England. Wiley

Turban, E. King, D. , Lee, J. ,Viehland, D. (2004). Electronic Commerce – A Managerial Perspective. USA. Prentice Hall

Van Slyke, C. , Belanger, F. (2003). E-Business Technologies. USA. Wiley

Journal

Timmers, P. (1998) “Business Models for Electronic Markets”. Electronic Markets, Vol. 8, No. 2.

Viehland, D.

Websites