B2B Business Models
Information technology is not only revolutionizing the way that enterprises do business with consumers, but also the way that they do business with each other. In addition, many experts predict that business-to-business transactions will exceed those of business-to-consumer e-commerce. However, just as there are different business models for non-electronic businesses, there are also more than one model for business-to-business e-commerce. Two revolutionary new business models that have come out of this movement are the business-to-business e-commerce models of Dell and Cisco. However, these models are not appropriate for every organization. In addition to these new paradigms for individual firms, other changes in business-to-business e-commerce are occurring that are revolutionizing the traditional paradigms.
Traditionally, when one thinks of business paradigms, one of the first things that springs to mind is the concept of companies selling to consumers. The department chain store or the big box store down the street are prime examples of this business model. Historically, this meant that the business had a brick-and-mortar location where it employed its own personnel. Even with the advent of the Information Age, this model changed only slightly, with information technology being used to support the way that business is done by making standard operations more efficient. For example, manual cash registers have been replaced in most modern businesses by high-tech models that keep track of various aspects of transactions including tender type (i.e., whether the transaction was cash, check, charge, etc.) and amount paid as well as inventory control information or other administrative data. Such automated information collection makes closing the store at night and balancing the books a much easier task and can also help store and chain managers make decisions about the type of inventory to carry, new services that could be offered to customers, and demographics that can be used in marketing efforts.
However, information technology not only allows organizations to perform various business processes more efficiently, in many cases it also allows them to reengineer organizational processes by improving the effectiveness and efficiency of the various processes within an organization. With advances in information systems, however, this model can be taken a step further. Electronic business-to-consumer paradigms allow a business to market and sell directly to consumers. Examples of this business model include Amazon.com (online purveyor of books and a wide variety of other items) and Travelocity (online travel agency), businesses that sell electronically directly to consumers.
However, not all businesses sell directly to consumers, nor should they. Automobile parts manufacturers frequently sell to the automotive industry rather than to the car owner. Precious stones' miners sell to the gem industry where the stones are cut and sold, in turn, to jewelers and suppliers who, in turn, sell to suppliers. Pharmaceutical companies sell directly or indirectly to pharmacies and hospitals who sell the products to customers. As with business-to-consumer (B2C) paradigms, the model of business-to-business (B2B) commerce has been revolutionized by advances in information technology and systems.
Despite the increasing popularity of business-to-consumer e-commerce with its ease of ordering and comparing items online, many experts have predicted that business-to-business transactions will exceed those of business-to-consumer e-commerce. This makes sense. For example, although a consumer may order a book over the Internet, the business from whom the book is purchased not only has to interact with the purchaser but also with the publisher who printed the book. The publisher, in turn, needs to interact with the paper and ink suppliers, the maintenance firm that keeps the printing presses running, the authors who submit their manuscripts online, and so forth.
Business Models for Conducting B2B E-Commerce
Just as there are different business models for non-electronic businesses, there is also more than one model for business-to-business e-commerce. In general, a business model is an organization's approach to doing business. Although there are many different business models available, most business models have several core concepts in common.
- At the level of the most basic business model, an organization must have something of value to offer to the marketplace, whether it be goods, products, or services. A bookstore, for example, may offer books and magazines as well as various services such as special ordering. To be successful, the thing the organization offers its customers needs to be of value -- something that the customer either wants or needs (or both).
- Another part of the business model is the customer -- the target market to whom the organization is trying to sell its offering. The business model needs to articulate how the business will gain, maintain, and foster relationships with customers.
- In order to get the product into the hands of the customer, the organization also needs an infrastructure in place. The infrastructure includes such things as having the right mix of people and skills necessary to produce the product as well as to run the business. This may include not only the people working directly for the organization, but partners as well who provide skills or services that the business does not provide for itself but that are necessary to get the product into the hands of the customer. This may include companies that provide complementary skills necessary to make the product (e.g., suppliers) as well as supply chain partners that provide raw materials, supplies, or components or that distribute, warehouse, or sell finished products.
- The business model also needs to include consideration of the company's income and cash flow as well as its cost structure.
Electronic Data Interchange
One of the outgrowths of information technology that has enabled the development of business-to-business e-commerce models is electronic data interchange, a standard format used in exchanging business data such as price or product identification number. Electronic data interchange technology is particularly important for international commerce, in which paperwork required for international trade creates costs that can be up to seven percent of the value of the items being traded. With electronic data interchange technology, on the other hand, shippers, carriers, customs agents, and customers all can send and receive documents electronically, thereby saving both time and money for international transactions.
Advantages of E-Commerce for B2B Businesses
As shown in Figure 1, the traditional business model for business-to-business operations involves a procurement staff that negotiates with various suppliers. For example, a bookstore may procure books from several distributors and office supplies from one or more other suppliers. In the e-commerce business model, a...
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