E-Business

Timmers classification of electronic business models

 

Introduction

Electronic business can be defined as the application of information and communication technologies in support of the activities of a business process. There is a degree of confusion among researchers and layman about the definition of e-business and e-commerce and from several knowledgeable sources it has been found that e-commerce is a subset of e-business which is a strategic approach which emphasise on functions that are occurring with the use of electronic capabilities. With the accessibility of Internet to a large section of the population mainly in developed countries have opened up new avenue of businesses through Internet and several researchers have developed business models based on electronic transactions. One of the relevant business models which applies to the e-business framework in the one developed by Timmers (1998) based on Porter’s value chain model. The value chain model can be described as the collection of activities of the business mainly which are generating value and Porter (1985) Classified them as primary activities and support activities. The primary activities of the business or which enhances the value chain are the inbound Logistics, operations, outbound logistics, marketing and sales and service and the support activities which are required by an organisation is the infrastructure, human resources management, technology and procurement. Timmers used the value chain model developed by Porter in order to evaluate the different types of e-business operations and classified them into 11 different business models. In order to evaluate the differentiation in business models proposed by Timmers it is necessary to understand the concept of business model and according to Li, (2007) and business model can be described as the rationale for the organisational existence which is the creation, delivery and capture of value which could be economic or social. Accordingly a business model can have its existence based on developing economic value which is the fundamental concept behind profit-making organisations and the social value generators are those organisations in the non-profit sector. In the words of Canzer, (2004) the model upon which a business is functioning describes the architecture within reach the company creates value to the customer and markets itself based on consumer’s needs and requirements. Hence it may be said that the business model describes the architecture and functioning of the organisation, the value creation approach and the market it caters to.

The present report is an evaluation mainly critical in nature of Timmers classification of electronic business models and whether these models are relevant after a century of its development. Several other researchers have developed e-business models, but a simple glance of them reveals that many of them are either a subset or a superset of Timmers classification. Casually it may be said that Timmers classification is still relevant from a distant or an overall perspective but the development of some of the activities over the Internet can be used to classify the business models adopted by companies in much simpler fashion as done by some other researchers. Hence the present report will also evaluate some of the other frameworks of business models of e-business operations and will attempt to develop a general classification of the present business models which is relevant to the present situation.

Timmer’s classification of e-business models

A business model as mentioned before consists of the concept of the business, the value proposition, revenue source and the activities resources and capabilities required to function (Garbade, 2011). In this day and e-business model also requires the following propositions and Timmers has classified the various business models adopted based on this value generation approach which was fundamentally developed by Porter.

E-business model
E-business concept
Value proposition
Sources of revenue
Activities resources and capabilities

Table 1 – components of the e-business model (adopted from Timmers, (1998)

Timmers classification e-business models has been based on the value chain deconstruction and reconstruction or in other words evaluating the different functions performed by an organisation or the value chains, categorizing the means with which an assimilation and division of information along the different nodes of the value chain and in the integration of information processing along the different nodes. As the basis for consideration of the various business models is the taking of the entire value chain process, Timmers business models can be considered comprehensive in nature. Some of the other models proposed only consider the revenue generation or the technology involved in the process (Canzer, 2004).

 

Figure 1 – Timmer’s classification of e-business models

From the above graph it can be seen that Timmers has classified the various e-business operations according to the degree of innovation and functional integration. That degree of innovation refers to the extent of novelty of the business model and the functional integration is the extent of incorporation of information and functions along the value chain.

According to Obaidat and Filipe, (2011) E-shop is the marketing of the organisation through online channels and has the lowest level of innovation and functionality. The e- shop concept involves the selling of products and services which are conducted through the Internet similar to that of the traditional marketing channels. Almost all the organisations mainly in the retail sector in the developed countries have created their e- shops. But there are also organisations which have created their own websites as a marketing channel or in order to provide information about the products and services but the actual transactions takes place through the traditional channels. This information only website can be considered as the lowest level of innovation and functionality as such organisations have adopted the Internet for marketing their products and services, but this is not captured in Timmer’s classification of e-business models. In fact information providing websites are the first mode of entry into the online business model for any kind of organisation. Even though it can be said that there is no fan of reality or valuation provided by his information only website, they are an important tool in developing the market and the Internet is performing the function of providing information to a large segment of the population who are looking specifically for products and services over the Internet. Moreover according to Li, (2007) it has been found that many consumers in fact conduct their window shopping or comparison of products and services and their evaluation of online channels and the actual transactions happen over the traditional channels. The e-business models developed by Osterwalder, (2002) based on the revenue generation of the business model also does not consider these information only website as a business model. Even though it cannot be considered as a business model it is extremely relevant to the present situation as many organisations in the developing countries are taking their first steps in entering the online world to this information providing websites. Hence this channel in fact can be considered from a strategic perspective and the business model of the organisation as it is performing a marketing function which is a value adding process for the organisation.

E procurement and e-auction business models in fact are considered as having the same level of functional integration but varying degrees of innovation as per Timmer’s classification of the e-business models. But when analysing the various E procurement and e- auction websites or businesses, it can be seen that their degree of innovation is very similar which is in fact based on the traditional channels of procurement and auction but suitably adapted to the online channels. In fact e-procurement can be considered to have a higher degree of innovation and e- auction as in the present situation many business organisations are adopting electronic procurement to reduce their cost of sourcing of products from different suppliers. Electronic bidding has not developed to such an extent similar to that of the development of electronic procurement over online channels in the past one decade. E-malls or the collection of e- shops under a common brand has also not developed and has several drawbacks mainly because of the nature of Internet, where in the individuals are able to look for products and services at their own convenience. The concept of e-malls was based on the assumption that “there is an added benefit to the customer with additional convenience of easy access to other e- shops and ease of use through common user interface” (Perronne and Renna, 2005). But apart from the benefits to be business organisations such as the reduction of cost in developing their online presence which is held by the sophisticated hosting facilities and payment systems developed by the e-mall, there is no significant added convenience to the customer. According to Osterwalder, (2002) the common user interface is not providing any additional convenience and access ability to the consumer and some differentiation by the business organisations over the online channels which is similar to that of the traditional channel is a source of competitive advantage over the Internet. Many electronic shops are designing their websites in order to differentiate themselves from their competition and to provide consumers with a feel of actual shopping, which cannot be done through using a common interface under the e- mall concept.

Business model where in third parties how we come to the front end in processing the transactions for similar but multiple businesses has developed rapidly in the last few years over the Internet. www.comparemarket.com is such a third-party websites providing comparisons and transaction facilities to the consumers for different types of businesses from insurance to home loans. There are many such third-party websites which pool the information of different organisations under one source which provides consumers with added advantage in convenience and ease of use. In fact the benefits proposed by Timmers for e-malls are actually the main benefits for the third-party service providers. According to Garbade, (2011) the third-party sources for the products and services of different business organisations are not replacing or substituting the online presence of the other business models but the benefits to the consumer in terms of comparing and evaluating different products and services of similar but different organisations is immense. When considering from the perspective of functional integration and degree of innovation the third-party model of business is providing the maximum level of innovativeness and integration to the common consumer from a business to consumer angle.

The next type of business model which have seen enormous growth in the last decade is the virtual communities which focus on an added value of communication between the members. The virtual communities are the social networking channels which are developed not as a revenue generating model at least in the eyes of the consumers. But the virtual communities are now being exploited by the other models of businesses, for example many organisations create their own Facebook pages in order to provide information and connectivity between the individuals who are accessing the services of the organisation. The social networking channels are also getting developed as a marketing channel due to the enormous potential in developing Word of mouth marketing about the products and services (Currie, 2004). But according to Timmer’s classification of the e-business model of virtual communities whose source of revenue is the membership fees and advertising is virtually non-existent in the present situation. Not many social networking channels have membership fees and much of their revenue generation is only through advertising. The importance of social networking channels mainly comes from the facility of advertising about products and services to specific target markets, mainly because members of such mutual communities form groups and interacts with one another and their interaction is with members with similar backgrounds and perceptions which make them belong to specific target markets. One of the other developments in the last decade is the creation of blogs and consumer reviews over e-shops through which the consumers are able to interact with one another and form virtual communities, to which the business Organisation is able to target products and services.

Another business model considered by Timmers is that of the value chain service providers which support part of the value chain process of an organisation such as that of the logistics and payment and an example is the career and parcel services of FedEx or UPS in terms of logistics and Nochex and PayPal in terms of payments. When considering from the value chain model, Timmer’s classification can be said to be relevant as they are providing large-scale services to business organisations and a part of the value chain of such organisation is conducted by these value chain service providers. But the formation of these value chain service providers is outside the purview of an electronic business model as they are in fact providing these singular value adding services even without the online channels. Moreover it is not only for the business organisations that these companies are providing their services but also for the consumers. Hence these value chain service providers can also be considered in the same level as that of an E shop where in the transactions of products and services of an organisation is done through the Internet. The only advantage or the evaluation developed by his value chain service providers are that they are able to utilise the new opportunities using Internet with the development of new approaches.

When considering the value adding processes of a business organisation, it may be said that if there is an organisation which creates value to multiple functions within an organisation through a specific channel or platform they can be considered as value chain integrators. According to Timmer’s classification of e-business models the development of value chain integrators or the organisations or the business models which add value by integrating multiple steps of the value chain has the highest degree of innovation and functional integration. It can be said that functional integration is much more for these value chain integrators asked they are able to integrate the different functions of the organisation as a separate channel. The example provided his that of ESPIRIT project which is in fact a tracking and tracing of vehicles and freight moments using GPS-based system. But one of the finest examples of these value chain integrator model is in the services provided by logistics organisations which control the internal as well as external logistics and there are cases now where in the procurement of supplies are also conducted by some organisations. Hence the outlier functions of an organisation such as that of the procurement of raw materials and products, the inbound Logistics and also the outbound logistics are handled by one organisation which is integrated with the value chain process of the business. Although examples of such business models and organisations are very fine, according to Currie, (2004) these value chain integrator business model does have enormous potential in the future. In fact in the present situation Porter’s value chain model is getting watered down there and many of the value adding functions are outsourced by organisations in order to concentrate or provide focus to specific activities which create magnified value to the organisation. In many cases this change in the value chain model begins with the outsourcing of logistics functions and move on to the procurement areas. Taking an example that Nike in fact it is only in the marketing and branding of the products and almost all of the production, logistics and sourcing is conducted by third parties. An organisation with a business model of integrating such value adding activities will have enormous scope and potential in the future, but the development of such type of organisations requires traditional as well as electronic business models.

New model for e-business

When considering a model for e-business, several factors needs to be analysed such as the revenue generation, the value addition and the customers served to. According to the traditional concept of a business model these are the three main parameters which need to be evaluated. Timmer’s e-business model had adopted the value chain function in the organisation in order to classify the various types of business models. But one of the main considerations which need to be evaluated in the day is the customer segment which the business model is serving. In fact it is the customer segment which determines the value addition as well as the revenue generation. Accordingly the author has developed a business model based on the customer segment which the businesses catering to and mainly can be divided into the business to customers and business to business (B2C and B2B).

 

B2B

Value chain integrators

Third party services

E-Procurement

Collaboration platform

E-Mall E Auction

Trust services

E-Shop

B2C

 

Figure 2 – New model for e-business

The above model for e-business is developed on the concept that different types of models had to be adopted for the business to customers and business to business. The value addition functions in a business to customer and business to business functions are different and more so in the case of revenue generation. Accordingly the above model device or distributes that different business models according to the type of customers they serve to. Mainly the E shop caters to consumers directly and some models are generated to cater to the business segment as well. The main function of the E-mall is in integrating different e- shops and they are serving to the consumers but they have an important function to perform in conducting the various businesses to the customers and hence their own customers can be said to be businesses as well as the general customers. E-procurement is generally associated with business to business relationship and E auction has a more general customer oriented approach. Third-party services in fact connect the businesses to the customers which are very similar to that of e-malls, but they are performing a value addition to the customers as they are able to compare and contrast the different products and services of different businesses under a single channel. In this way the third-party services are serving the businesses as well as the customers. The topmost type of business model which can connect the customers and businesses are being model based on value chain integrators. Although the specific examples of such value chain integrators are very less in the present situation, the potential of such a business model is very high.

Conclusions

an evaluation of Timmer’s e-business models have provided that they are having much relevance even in the present situation even though some of the models which were considered as having high potential by Timmers has not been able to attract much interest. The many among them are the E auction business models although eBay has generated massive interest and there are similar websites, but their potential for growth is limited in the sense that they are not easily repeatable. The most replicable or repeatable type of business model is the e-shop, through which all types of retail organisations can establish their online presence in order to serve to the consumers. One of the several business models which have hypertension in his is the third party service providers which connect the front products and services of different businesses which are competing in the traditional market space under a common platform. The third-party service providers have developed information systems which can compare and contrast the different products and services which is in fact a value adding feature to the consumer. Ultimately the value chain integrators have to develop a traditional business model and transform it into the online environment in order to be successful.

References

  1. Burk, J. E., (2011), The e-business model, Prudens information resources for the Internet, available online at www.prudens.com/patens/ebusiness/busmodel.html
  2. Canzer, B., (2004), E-business and e-commerce; strategic thinking and practice, Dreamtech press
  3. Currie, W., (2004), Value creation from e-business models, Butterworth Heinemann publications Ltd
  4. Garbade, M. J., (2011), Differences in venture capital financing of US UK German and French information technology start-ups, GRIN Verlag publications Ltd
  5. Li, F., (2007), What is e-business? How the Internet transforms organisations, Wiley Blackwell publications Ltd
  6. Obaidat, M. S. and Filipe, J., (2011), E-business and telecommunications, Springer publications Ltd
  7. Osterwalder, A., (2002), An e-business model ontology for modelling e-business, University of Lausanne.
  8. Perronne, G. and Renna, B. P., (2005), Designing and evaluating value-added services in manufacturing, Springer publications Ltd
  9. Timmers, P., (1998), Business models for electronic markets, International Journal of electric markets, Volume 8, Issue 2, pages 3 to 8.

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