(Yip, 2004)
A good illustration of the key components of an e business model was given by Yip (Yip, 2004), using the example of Easy Jet: Easy Jet has a clear value proposition. The “easy” concept is to bring cheap and efficient services to the mass market. It also has very simple inputs; it operates only one type of aircraft (Boeing 737); it also has a common, pervasive technology, the Internet; additionally it has Simple outputs, all EasyGroup companies offer no-frills stripped-down services; they also have a geographic scope they beat many established players with overpriced operations around the world; they have a common type of customer; most EasyGroup customers are young, urban and hip. Having a clear e business model is beneficial to companies like EasyJet because it is then easy to identify areas of weakness and improve upon them in future decision making. Using the key components described by Chesbrough and Rosenbloom (Rosenbloom) helps a company produce focused and succinct e business models.
The above does give us an overview of the key components of an e business model; however it should only be taken lightly as a method of analysis. First of all not all companies consider all those components when defining their business model. Twitter for example started off as a non-profit making model and has gradually evolved over the years so it never had a need to identify a market segment before. The key components presented before ignore how diverse the market is and how some companies may develop their models as they go along rather than having a clear and defined model from the start.
The key components of an e-Business strategy are more difficult to quantify, however writers on general strategy such as Michael Porter have provided some explanations that are applicable to e-Business strategy as Magretta states, the key to strategy is having a competitive advantage. Porter’s five competitive forces therefore provide a good illustration of the key components of e-Business strategy (Porter, 1987).
(wikipedia, 2011)
There are many examples of good e-Business strategies moves in action but perhaps the most prominent example is that of iTunes. It’s a simple model ‘buy music and upload your music’ but the strategic moves behind it have meant that it is one of the leaders in music retail. It competes on price by selling individual songs for as little as 99p; people do not feel the need to buy music albums anymore. The fact that they were one of the first to come up with the idea means that they have a significant chunk of market share which equals loyal customers and thus creates a significant barrier to entry for any new entrants or substitutes. Already we see 3 of Porters’ forces in action; evidence that much thought was put into developing their strategy, evidence of Apple doing things differently in order to be better than their competitors. Evidently, if a company uses Porters ideas in developing their e-Business strategy then they are likely to be profitable.
However, once again, it is important to point out that Porters forces may not always be applicable to e-Business strategy, especially since it is now so easy to create websites and therefore start e businesses with the advancement of technology. There is a lot of competition out there and e-Businesses need to think beyond the 5 forces if they want to be ‘Better’ as Magretta put it.
Conclusion.
To conclude therefore, there are significant differences between the concept of an e business strategy and that of an e-Business model, but the two will function hand in hand in making an e-Business successful. There is much literature on the key components of business strategy and models but such literature should only be used as a guideline. Instead a company must draw from different sources and come up with its own unique way of developing an e-Business model and implementing e-Business strategy.
Question 2
What are the components of the e-Business model and e-Business strategy adopted by Twitter?
Introduction
An e-Business model is a method or plan of how a company generates revenue, by looking at who their customer is and what exactly they want and value, in order to work out how to make money for that. The e-Business strategy, however, relates more to enhancing the companies’ performance, giving them direction and most importantly building a stronger competitive position against their rival companies. This essay aims to evaluate a range of theories, sources and studies relating to the social networking website Twitter, to answer the questions raised. Twitter was created and launched in 2006 and quickly became popular worldwide with over 200million users by 2011 (Pear Analytics, 2009).
This essay will focus on what the main components of Twitter’s e-Business model and e-Business Strategy is and how these components have led to its rapid growth and success. We will also ask the question what are the problems or any issues facing Twitter, and to what extent is their e-Business model and strategy effective?
Twitter’s e-Business model
Initially, Twitter was not a profit orientated company, however over recent years the owners realised that there were potentially a number of profit making opportunities which could turn their large growth into considerable revenue. Twitter’s e-Business model is now made up of two parts, the advertising through promoted tweets and through commercial accounts (Pear Analytics, 2009). For promoted tweets, businesses and companies pay Twitter for their message to appear at the top of the search results. Most of Twitter’s social networking rivals such as Facebook and MySpace gain a large proportion of their revenue through advertisements featured on the sides of the page, however the intentions of the founders of Twitter was to be different and avoid doing this so instead of companies paying for advertising space they can purchase a tweet to either engage with their followers or to connect with a wider group of users who may be interested. Rather than being a general advertisement at the side of the page, a promoted tweet can be more sympathetic, relevant and engaging to other users and they are more likely to take more notice (Costolo, 2010). Twitter’s Chief Operating Officer, Dick Costolo said, “The idea behind Promoted Tweets is that we want to enhance the communications that companies are already having with customers on Twitter,” (Costolo, 2010) If we apply Chesbrough and Rosenblooms(Rosenbloom) ideas to this we see that Twitter has ‘Articulated their value proposition’, by creating a different way to advertise this is also an example of them ‘formulating a competitive strategy’ in order to be different to rivals such as Facebook and Myspace. They have also ‘identified their market segment’ as being other businesses, for example Google has been paying Twitter to be able to display Twitter related answers in search results, which made them at least
Twitter’s e-Business strategy
Twitter needs a well-balanced e-Business strategy in order to compete with its major competitors and rivals in the world of social networking including Facebook, MySpace and LinkedIn. Twitter has eliminated the threat of new entrants (Porter, 1987) by creating a more globally open platform with instant access to other people’s opinions as well as access to breaking news minutes, even seconds, after it happens. An example of this was when Michael Jackson died and within minutes so many users worldwide had gone online to tweet that Twitter had a temporary shutdown as it couldn’t cope with the capacity. Twitter has also been used for socio-political motivation; during the London Riots in August 2011 Twitter was used for instant updates as to what was happening minute by minute. A site called @riotcleanup had attracted over 70000 followers within a short period of time (Curran, 2011). Because of the scope of twitter and the amount of users it has and the obvious power it has, twitter has bargaining power (Porter, 1987) with its customers, it can afford to charge its customers a higher price for advertising than rivals such as MySpace or Facebook. For example twitter charges $120,000 per day for its promoted tweets and despite the high cost Twitter has attracted many companies such as Toyota and HBO just to name a few (Chereder, 2011). This is possible because unlike search engine marketing, those who advertise their message with Twitter have a better chance of creating a long-term relationship with consumers. Twitter promotions are also more widely viewed across its entire network, making it highly effective for clients that want to reach as many people as possible
Businesses can use Twitter to post quick short messages about themselves, new products and services or offers and it allows people to comment and share attitudes and opinions about the company brands and products. This is a good way for companies to gain customer feedback and ideas (Curran, 2011). These are examples of how Twitter has stood out amongst its social networking rivals and perhaps built a stronger competitive position as it has gained more users and as a result eliminated the threat of substitutes(Porter,1987) as they have created a unique and differentiated strategy for the model of social networking.
How effective is the e-Business model and e-Business strategy of Twitter?
Twitter’s e-Business model and e-Business strategy makes it stand out from other similar social networking sites as its aim is different – to allow users to communicate with each other instantly and globally. Twitter has embraced the idea that to be better means being different, ‘a competitive strategy explains how you will do better than your rivals, doing better means being different’ (Magretta, 2002). Rather than overloading the user with advertisements all over the page that they aren’t really interested in, Twitter has taken a different approach to advertising and promoting through promoted tweets, as Dick Costolo said “we only want to show tweets that help the user experience… the new ad platform is different because promoted posts also exist in the organic Twitter stream. The ability of companies to engage with customers around this interest graph is more compelling than trying to wedge yourself into these social interactions” (Costolo, 2010)
However, there are a few weaknesses in terms of Twitter as an e-Business, Twitter is still a long way away from competitors such as Facebook(see diagram below). There are improvements which could have perhaps been made in order to have a more successful profitable e-Business model and strategy. For instance, it is only recently that Twitter has been attempting to set up a profitable e-Business model to take advantage of its exponential growth in order to bring in additional revenue, in the past companies have been using Twitter to engage with their customers and users for no cost. Julia Boorstin highlighted this, “As we await Twitter's business model, other companies take advantage of the fact that Twitter allows them to communicate directly with consumers in an unprecedented way” (Boorstin, 2010). This article was written in April 2010, 4 years after Twitter was created and time which Twitter missed out on gaining potentially higher revenue.
(Google, 2011)
MySpace Twitter Facebook
Conclusion
Twitter has become a very successful, global social networking site and the components of its recently adopted e-Business model and strategy have helped Twitter stand out from its rivals through its differentiation from other social networking sites. It has increased its revenue through the use of promoted tweets and provided businesses with the opportunity to engage with their customers. However Twitter still needs to come up with new-business strategies in order to become as popular as Facebook and MySpace.
References for question 1 and 2
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