E-commerce 2013 9e Kenneth Laudon Carol Guercio Test bank
Instructor’s Manual: Chapter 2
E-commerce Business Models and Concepts
Teaching Objectives
- Identify the key components of e-commerce business models.
- Describe the major B2C business models.
- Describe the major B2B business models.
- Explain the key business concepts and strategies applicable to e-commerce.
Key Terms
business model, p. 65
business plan, p. 65
e-commerce business model, p. 65
value proposition, p. 66
revenue model, p. 66
advertising revenue model, p. 67
subscription revenue model, p. 67
transaction fee revenue model, p. 67
sales revenue model, p. 67
affiliate revenue model, p. 67
market opportunity, p. 68
marketspace, p. 68
competitive environment, p. 72
competitive advantage, p. 72
asymmetry, p. 72
first-mover advantage, p. 73
complementary resources, p. 73
unfair competitive advantage, p. 73
perfect market, p. 73
leverage, p. 73
market strategy, p. 74
organizational development, p. 74
management team, p. 74
e-tailer, p. 78
barriers to entry, p. 78
community provider, p. 80
intellectual property, p. 81
content provider, p. 81
portal, p. 84
transaction broker, p. 85
market creator, p. 86
service provider, p. 86
e-distributor, p. 88
e-procurement firm, p. 88
B2B service provider, p. 89
application service provider (ASP), p. 89
scale economies, p. 89
exchange, p. 89
industry consortia, p. 90
private industrial networks, p. 90
industry structure, p. 93
industry structural analysis, p. 94
value chain, p. 96
firm value chain, p. 97
value web, p. 98
business strategy, p. 99
profit, p. 99
differentiation, p. 99
commoditization, p. 99
Brief Chapter Outline
Tweet Tweet: What’s Your Business Model?
2.1 E-commerce Business Models
Introduction
Eight Key Elements of a Business Model
Insight on Society: Foursquare Checks Out a Revenue Model
Categorizing E-commerce Business Models: Some Difficulties
Insight on Business: Is Groupon’s Business Model Sustainable?
2.2 Major Business-to-Consumer (B2C) Business Models
E-tailer
Community Provider
Content Provider
Insight on Technology: Battle of the Titans: Music in the Cloud
Portal
Transaction Broker
Market Creator
Service Provider
2.3 Major Business-to-Business (B2B) Business Models
E-distributor
E-procurement
Exchanges
Industry Consortia
Private Industrial Networks
2.4 E-commerce Enablers: The Gold Rush Model
2.5 How the Internet and the Web Change Business: Strategy, Structure, and Process
Industry Structure
Industry Value Chains
Firm Value Chains
Firm Value Webs
Business Strategy
2.6 Case Study: Pandora and the Freemium Business Model
2.7 Review
Key Concepts
Questions
Projects
Figures
Figure 2.1 Ancestry.com Subscription Services, p. 68
Figure 2.2 Marketspace and Market Opportunity in the Software Training Market, p. 71
Figure 2.3 How the Internet Influences Industry Structure, p. 94
Figure 2.4 E-commerce and Industry Value Chains, p. 96
Figure 2.5 E-commerce and Firm Value Chains, p. 97
Figure 2.6 Internet-enabled Value Web, p. 98
Tables
Table 2.1 Key Elements of a Business Model, p. 66
Table 2.2 Five Primary Revenue Models, p. 71
Table 2.3 B2C Business Models, p. 79
Table 2.4 B2B Business Models, p. 89
Table 2.5 E-commerce Enablers, p. 92
Table 2.7 Eight Unique Features of E-commerce Technology, p. 93
Teaching Suggestions
This chapter attempts to briefly summarize the variety of ways that the Internet and the Web are used to build new business firms—firms that generate revenue and hopefully a profit. The challenge in this chapter is to focus on some simple, unchanging realities of the business world that have nothing to do with the Internet, and then to understand how the Internet can be used within this framework to develop new businesses. What pundits now say about the Internet is, “The Internet changed everything, except the rules of business.”
The chapter starts out with the tale of Twitter and its search for a business model in the opening case, Tweet Tweet: What’s Your Business Model? Twitter has amassed some very significant online assets in the form of a large audience, and behavioral data on this audience. Twitter has begun the process of monetizing these assets, by selling online advertising space in the form of Promoted Tweets, Trends, and Accounts. Twitter also has the possibility of greatly increasing its revenues from localized advertising. It is not at all clear yet how Twitter will become profitable, and the end of the story is not written. Class discussion questions for this case might include the following:
- What characteristics or benchmarks can be used to assess the business value of a company such as Twitter?
- Have you used Twitter to communicate with friends or family? What are your thoughts on this service?
- What are Twitter’s most important assets?
- Which of the various methods described for monetizing Twitter’s assets do you feel might be most successful?
Key Points
Business Models. One of the most abused phrases in the e-commerce lexicon is “business model.” Put simply, a business model is a plan for making money. Like all models, a business model has several components. We have described eight components: customer value proposition, revenue model, market opportunity, competitive environment, competitive advantage, market strategy, organizational development, and management team. Students need to have a good understanding of each of these elements.
E-commerce Business Models. With several million commercial Web sites to consider, there are a great variety of e-commerce business models. Many firms pursue multiple business models at once. Nevertheless, there clearly are dominant patterns to all this variety on the Web. We describe seven different and typical e-commerce B2C business models in Table 2.3: E-tailers, Community Providers (including social network sites), Content Providers, Portals, Transaction Brokers, Market Creators, and Service Providers.
Students should be able to describe how each of these models typically expects to generate revenue and earn profit.
We discuss both business and social issues in the Insight on Society case, Foursquare Checks Out a Revenue Model, which focuses on Foursquare’s search for a revenue model for its location-based services business. Location-based services, which involve the merger of geo-positioning technology (GPS) and the Internet, promise to deliver advertising and useful content to users based on their location. However, this same technology results in the ability for a company to track a user’s whereabouts. While encouraging users to engage with their friends by posting their locations, these services pose significant privacy issues that users should to consider. Class discussion questions include the following:
- What revenue model does Foursquare use? What other revenue models might be appropriate?
- Are privacy concerns the only shortcoming of location-based mobile services?
- Should business firms be allowed to call cell phones with advertising messages based on location?
The Insight on Business case, Is Groupon’s Business Model Sustainable? focuses on questions that have arisen surrounding the business model of Groupon, which went public last year in a very high profile IPO. Some of the class discussion questions you might want to pose to your students include the following:
- What is the value of Groupon to merchants? What types of merchants benefit the most?
- What is the value of Groupon to investors? Is Groupon overvalued?
- What obstacles does Groupon face?
- Does Google Offers present a threat to Groupon’s business model?
The Insight on Technology case, Battle of the Titans: Music in the Cloud examines how changes in Internet technology, such as the development of cloud computing, are driving the emergence of new business models in the online music business. Some questions that might help drive class discussion of this case include the following:
- Have you purchased music online or subscribed to a music service? What was your experience?
- What revenue models do cloud music services use?
- Do cloud music services provide a clear advantage over download and subscription services?
- Of the cloud services from Google, Amazon, and Apple, which would you prefer to use and why?
B2B Models. While B2C e-commerce is measured in hundreds of millions of dollars, B2B e-commerce is measured in trillions of dollars. B2B e-commerce is several orders of magnitude larger than B2C e-commerce. We describe the major generic types of B2B e-commerce in Table 2.4: Net marketplaces such as e-distributors, e-procurement companies, exchanges and industry consortia, and private industrial networks. Each of these models has a distinct revenue model.
E-commerce Enablers: The Gold Rush Model. Companies whose business model is focused on providing the infrastructure necessary for e-commerce have been instrumental in the development of e-commerce. Table 2.5 provides a list of the major players
How the Internet Changes Business. The Internet has the potential for changing business in three major areas:
- Industry Structure
- Industry Value Chain
- Firm Value Chain
The Internet can change industry structure by introducing substitute products, increasing the bargaining power of suppliers or of consumers and buyers, and by changing existing barriers to entry. The Internet can change industry value chains insofar as suppliers, manufacturers, distributors, retailers, and customers can interact in new and different ways. Firm value chains can be directly affected by e-commerce through its potential impact on how the business performs various business processes such as warehousing, manufacturing, sales and customer support. For instance, Amazon uses the Internet to provide consumers with access to a much larger inventory of books than traditional retailers and to accomplish order entry, provide post-sales support, and offer ordering from its suppliers.
Finally, e-commerce and the Internet can change business strategies by allowing the firm to develop new ways of differentiating its products in the marketplace, lowering costs, or changing the scope of its operations. For instance, Dell uses e-commerce as a way of achieving lower costs in the PC business and has created an entirely new way of organizing large-scale production—build to order.
Case Study Questions
1. Compare Pandora’s original business model with its current business model. What’s the difference between “free” and “freemium” revenue models?
In its first business model Pandora provided very little access (10 hours), and few incentives to upgrade to premium. The service was free but limited in access. In the current model, it provides much greater access (40 hours) and uses ads to pay for servicing the non-payers. This is also “free” but ad supported. Pandora was not giving away enough “free” service in the first model to convince people to pay. By providing 40 hours of free service the most enthusiastic users could be attracted to the service and converted to paying. Freemium revenue models offer customers a superior service in return for paying subscription fees, while “free” revenue models are typically based on advertising support.
2. What is the customer value proposition that Pandora offers?
Users can create multiple personal radio stations that play musical genres they like without paying a cent (or for subscribers, $36 a year). This service introduces users to musicians who are similar to the artists users enjoy.
3. Why did MailChimp ultimately succeed with a freemium model, but Ning did not?
Ning failed because the costs of providing the infrastructure for free users far exceeded its revenues. The cost of adding additional users was not zero, or close to it. MailChimp could scale much more easily without adding a lot of capacity and infrastructure given the simplicity of its service when compared to social networking.
4. What’s the most important consideration when considering a freemium revenue model?
The most important consideration is that the marginal cost of servicing an additional free user must be close to zero. Other considerations to take into account include that other revenue streams such advertising will be needed to cover costs and a solid customer value proposition is required to attract initial users (even when the service is offered for free) and ultimately, subscribers willing to pay a subscription fee.
End-of-Chapter Questions
1. What is a business model? How does it differ from a business plan?
A business model is a set of planned activities (business processes) that are designed to result in a profit in the marketplace. A business plan on the other hand, is a document that outlines the details of a business model.
2. What are the eight key components of an effective business model?
The eight key components of an effective business model are:
· Value proposition
· Revenue model
· Market opportunity for the firm (the marketspace and how big it is)
· Competitive environment for the firm (who the competitors are in the marketspace)
· Competitive advantage the firm brings to the marketspace (the unique qualities that set the firm apart from others in the marketspace)
· Market strategy the firm will use to promote its products and services
· Organizational development of the firm that will enable it to carry out its business plan
· Capabilities of the management team to guide the firm in its endeavors
3. What are Amazon’s primary customer value propositions?
Amazon’s primary customer value propositions are unparalleled selection and convenience.
4. Describe the five primary revenue models used by e-commerce firms.
The five primary revenue models used by e-commerce firms are:
- The advertising revenue model
- The subscription revenue model
- The transaction fee revenue model
- The sale revenue model
- The affiliate revenue model
The advertising model derives its profit by displaying paid advertisements on a Web site. The goal is to convince advertisers that the site has the ability to attract a sizeable viewership, or a viewership that meets a marketing niche sought by the advertiser. Firms that use the subscription model offer users access to some or all of their content or services for a subscription fee. Firms that use the transaction fee model derive profit from enabling or executing transaction. For instance, transaction fees are paid to eBay when a seller is successful in auctioning off a product, and E*Trade receives a transaction fee when it executes a stock transaction for a customer. In the sales revenue model, companies draw profit directly from the sale of goods, information, or services to consumers. In the affiliate model, sites receive referral fees or a percentage of the revenue from any sales that result from steering business to the affiliate.
5. Why is targeting a market niche generally smarter for a community provider than targeting a large market segment?
Targeting a market niche is generally a smarter strategy for a community provider than targeting a large market segment because targeting large market segments will only pit a company against bigger and more established competitors. Small sub-segments of larger markets have a greater potential for growth without the intense competitive pressure. Communities that place a strong emphasis on the advertising revenue model will find marketers more interested in placing ads on a site that targets a specific niche.
6. Besides music, what other forms of information could be shared via peer-to-peer sites? Are there legitimate commercial uses for P2P commerce?
Some other forms of information that could be shared through peer-to-peer sites using shareware are organizational materials and digital video. You can use P2P software to efficiently distribute massive amounts of information across an organization, and also make it searchable. P2P software can be used to transmit movies over the Internet as encrypted files. Furthermore, it can be used to search other computers for the sorts of information found on Web sites. For example, it can establish a direct peer-to-peer exchange where buyers can gather information, check out suppliers, and collect prices not from a centralized server hub, but directly from each of the supplier’s client server computers.
7. Would you say that Amazon and eBay are direct or indirect competitors? (You may have to visit the Web sites to answer.)
Amazon and eBay are direct competitors because they sell products and services that are very similar, and they sell to the same market segment. They both sell books, music, computers and software, games and toys, electronics, tools, movies and DVDs, and camping equipment. However, eBay has a consumer-to-consumer business model while Amazon has a business-to-consumer business model. Even though eBay sells new, overstocked, remaindered, and used products at discounted prices, the two compete for essentially the same market segment of consumers. eBay may attract the bargain hunter variety of shopper who would not stop at Amazon first, but it is still essentially the same market segment.
8. What are some of the specific ways that a company can obtain a competitive advantage?
Some specific ways a company can obtain a competitive advantage are by developing a global market while its competitors only have a national or regional market; by obtaining favorable terms from shippers, suppliers, or labor sources that its competitors do not have; by developing a more experienced, knowledgeable, and loyal employee base than its competitors; by obtaining a patent on a product that its competitors will not be able to imitate; by having an inside track to investors willing to put up capital; by establishing a powerful brand name or a popular image that it will be difficult for competitors to duplicate; and by any type of asymmetry that will give it more resources than its competitors in any area such as financial backing, knowledge, information, and/or power.
9. Besides advertising and product sampling, what are some other market strategies a company might pursue?
One market strategy is to form strategic alliances with business partners who will help you to attract new customers and extend your market reach. Another market strategy is to use product name, packaging, and advertising to create a distinct mood or feeling about each of your product lines, and carefully target each line to a specific audience. Some firms may choose to pursue a marketing strategy that positions them as a “one-stop shop,” which carries a broad based line of products, saving the customer search time. Others may choose to position themselves as category experts who have an in-depth and “personal” knowledge of their customers. Such firms will offer extensive customer support networks to assist their customers in their purchasing decisions and will advertise themselves accordingly. One critical factor is that a company needs to find a way to differentiate itself from the competition.
10. What elements of Groupon’s business model may be faulty?
One of the main issues with Groupon’s business model is that its customer acquisition costs have been extremely high. It markets its services through local sales reps, which is expensive. Merchants end up receiving only 25% of the revenue from sales made with Groupon, and it is not clear how long merchants will agree to take a 75% cut in revenues in order to participate. In addition, many merchants report that Groupon deals do not create a larger group of repeat customers, and as a result, many have said they will not run a Groupon promotion again.
11. Why is it difficult to categorize e-commerce business models?
It is difficult to categorize e-commerce business models because the number of models is limited only by the human imagination, and new business models are being invented daily. Even within the broad-based generic types, there are overlaps, and fundamentally similar business models may appear in more than one. The type of
e-commerce technology used can also affect the classification of a business model. Also, some companies may employ multiple business models. For example, e-Bay is essentially a C2C marketplace, but also functions as a B2C market maker, and in addition, has an m-commerce business model.
12. Besides the examples given in the chapter, what are some other examples of vertical and horizontal portals in existence today?
Some other examples of vertical portals (vortals) include ESPN.com (sports), iVillage.com (women’s issues), Bloomberg.com (business), NFL.com (sports), WebMD.com (medical issues), Gamers.com (games), Away.com (travel), and Sina.com (China and Chinese communities). Some other examples of horizontal or
E-commerce 2013, 9e (Laudon/Traver)
Chapter 2 E-commerce Business Models and Concepts
1) A value proposition defines how a company's product or service fulfills the needs of a customer.
Answer: TRUE
Diff: 1 Page Ref: 66
AACSB: Reflective Thinking
2) The terms revenue model and financial model can be used interchangeably.
Answer: TRUE
Diff: 2 Page Ref: 66
AACSB: Reflective Thinking
3) In order to be considered successful, a firm must produce returns greater than alternative investments.
Answer: TRUE
Diff: 1 Page Ref: 67
AACSB: Reflective Thinking
4) An asymmetry exists whenever one participant in a market has more resources than other participants.
Answer: TRUE
Diff: 2 Page Ref: 72
AACSB: Analytic Skills
5) Most first movers have the complementary resources needed to sustain their advantage.
Answer: FALSE
Diff: 2 Page Ref: 73
AACSB: Reflective Thinking
6) All firms need an organization to efficiently implement their business plans and strategies.
Answer: TRUE
Diff: 1 Page Ref: 74
AACSB: Reflective Thinking
7) Visitors to specialized niche vortals tend to spend less money than the average visitor to a horizontal portal.
Answer: FALSE
Diff: 3 Page Ref: 85
AACSB: Reflective Thinking
8) Barriers to entry into the e-tail marketplace are high.
Answer: FALSE
Diff: 2 Page Ref: 78
AACSB: Reflective Thinking
9) Differentiation refers to situations in which there is little difference between products and the only basis of choosing a product is price.
Answer: FALSE
Diff: 1 Page Ref: 99
AACSB: Reflective Thinking
10) Scale economies are efficiencies that result from flattening the hierarchy of an organization.
Answer: FALSE
Diff: 2 Page Ref: 89
AACSB: Reflective Thinking
11) Real markets are perfect markets.
Answer: FALSE
Diff: 1 Page Ref: 73
AACSB: Reflective Thinking
12) The Internet's universal standards decrease the cost of industry and firm operations.
Answer: TRUE
Diff: 3 Page Ref: 96-97
AACSB: Analytic Skills
13) Interactivity that enables product customization alters industry structure by reducing the threat of substitutes.
Answer: TRUE
Diff: 3 Page Ref: 93
AACSB: Analytic Skills
14) Interfirm rivalry is one area of the business environment where e-commerce technologies have had an impact on most industries.
Answer: TRUE
Diff: 3 Page Ref: 95
AACSB: Reflective Thinking
15) Social technologies change industry structure by shifting programming and editorial decisions to consumers.
Answer: TRUE
Diff: 1 Page Ref: 93
AACSB: Reflective Thinking
16) ________ and ________ are typically the most easily identifiable aspects of a company's business model.
A) Market strategy; market opportunity
B) Value proposition; revenue model
C) Value proposition; competitive environment
D) Revenue model; market strategy
Answer: B
Diff: 2 Page Ref: 65
AACSB: Analytic Skills
17) All of the following are key elements of a business model except:
A) competitive environment.
B) organizational development.
C) information technology strategy.
D) market strategy.
Answer: C
Diff: 2 Page Ref: 66
AACSB: Analytic Skills
18) Which element of the business model addresses the question of why a customer should buy from the firm?
A) revenue model
B) competitive advantage
C) market strategy
D) value proposition
Answer: D
Diff: 2 Page Ref: 66
AACSB: Reflective Thinking
19) Which element of the business model examines who else occupies the firm's intended marketspace?
A) value proposition
B) competitive environment
C) competitive advantage
D) market strategy
Answer: B
Diff: 2 Page Ref: 72
AACSB: Reflective Thinking
20) Which of the following are Amazon's primary value propositions?
A) personalization and customization
B) selection and convenience
C) reduction of price discovery cost
D) management of product delivery
Answer: B
Diff: 2 Page Ref: 72
AACSB: Analytic Skills
21) Your solar-panel manufacturing firm has developed a unique and patented process for creating high-efficiency solar panels at a fraction of current costs. This will enable your firm to adopt a strategy of:
A) cost competition.
B) scope.
C) scale.
D) focus.
Answer: A
Diff: 2 Page Ref: 100
AACSB: Analytic Skills
22) A firm's ________ describes how a firm will produce a superior return on invested capital.
A) value proposition
B) revenue model
C) market strategy
D) competitive advantage
Answer: B
Diff: 2 Page Ref: 66
AACSB: Reflective Thinking
23) Which of the following is an example of the subscription revenue model?
A) Ancestry.com
B) eBay
C) Amazon
D) Twitter
Answer: A
Diff: 2 Page Ref: 67
AACSB: Analytic Skills
24) Stickiness is an important attribute for which revenue model?
A) advertising revenue model
B) subscription revenue model
C) transaction fee revenue model
D) sales revenue model
Answer: A
Diff: 2 Page Ref: 67
AACSB: Reflective Thinking
25) Which of the following companies utilizes a transaction fee revenue model?
A) WSJ.com
B) E*Trade
C) Twitter
D) Sears.com
Answer: B
Diff: 2 Page Ref: 67
AACSB: Analytic Skills
26) Which of the following is an example of the affiliate revenue model?
A) Yahoo
B) eBay
C) Gap.com
D) MyPoints
Answer: D
Diff: 2 Page Ref: 67
AACSB: Analytic Skills
27) Assume you are analyzing the market opportunity of a distance learning company, Learnmore.com, that creates education courses delivered over the Internet for the Fortune 1000 corporate market. Assume that the overall size of the distance learning market is $25 billion. The overall market can be broken down into three major market segments: Corporate, College, and Elementary/High School, each of which accounts for a third of the market. Within the Corporate market, there are two market niches: Fortune 1000, which accounts for 60% of the market, and all others, which together account for 40% of the market. What is Learnmore.com's realistic market opportunity, approximately?
A) $5 billion
B) $6.6 billion
C) $165 billion
D) $25 billion
Answer: A
Diff: 3 Page Ref: 68
AACSB: Analytic Skills
28) Which of the following factors is not a significant influence on a company's competitive environment?
A) how many competitors are active
B) what the market share of each competitor is
C) the availability of supportive organizational structures
D) how competitors price their products
Answer: C
Diff: 2 Page Ref: 72
AACSB: Reflective Thinking
29) Which of the following would be considered an indirect competitor of American Airlines?
A) JetBlue
B) Zipcar
C) Orbitz
D) British Airways
Answer: B
Diff: 2 Page Ref: 72
AACSB: Analytic Skills
30) The existence of a large number of competitors in any one market segment may indicate:
A) an untapped market niche.
B) the market is saturated.
C) no one firm has differentiated itself within that market.
D) a market that has already been tried without success.
Answer: B
Diff: 3 Page Ref: 72
AACSB: Analytic Skills
31) All of the following can be considered a direct or indirect competitor of Amazon.com except:
A) eBay.
B) Apple's iTunes Store.
C) Barnesandnoble.com.
D) Starbucks.
Answer: D
Diff: 2 Page Ref: 72
AACSB: Analytic Skills
32) A perfect market is one in which:
A) there are no competitive advantages or asymmetries because all firms have equal access to all the factors to production.
B) one firm develops an advantage based on a factor of production that other firms cannot purchase.
C) one participant in the market has more resources than the others.
D) competition is at a minimum, as each niche market within an industry is served by the company with the greatest competitive advantage.
Answer: A
Diff: 2 Page Ref: 73
AACSB: Analytic Skills
33) The business model of e-distributors is quite similar to that of:
A) e-tailers.
B) transaction brokers.
C) exchanges.
D) service providers.
Answer: A
Diff: 2 Page Ref: 78, 88
AACSB: Analytic Skills
34) All of the following use an advertising revenue model except:
A) Facebook.
B) Yahoo.
C) Google.
D) Amazon.
Answer: D
Diff: 2 Page Ref: 79
AACSB: Analytic Skills
35) All of the following statements about Groupon are true except:
A) Groupon has yet to show a profit.
B) Groupon combines two major trends in e-commerce: localization and social networks.
C) It is unclear if Groupon's business model is sustainable.
D) Groupon believes it must scale up fast in a winner-take-all market.
Answer: A
Diff: 2 Page Ref: 76-77
AACSB: Reflective Thinking
36) Which of the following is not considered a portal?
A) Yahoo
B) MSN
C) WSJ.com
D) AOL
Answer: C
Diff: 1 Page Ref: 79
AACSB: Analytic Skills
37) Horizontal or general portals primarily generate revenue in all of the following ways except:
A) charging advertisers for ad placement.
B) collecting transaction fees.
C) sales of goods.
D) charging subscription fees.
Answer: C
Diff: 2 Page Ref: 79
AACSB: Reflective Thinking
38) A business document that specifically details how you plan on selling your product and find new customers is called a:
A) sales analysis.
B) business plan.
C) competitive strategy.
D) market strategy.
Answer: D
Diff: 1 Page Ref: 74
AACSB: Reflective Thinking
39) Which of the following is not a community provider?
A) LinkedIn
B) Facebook
C) Priceline
D) Pinterest
Answer: C
Diff: 1 Page Ref: 79
AACSB: Reflective Thinking
40) Which of the following is not a variation of the e-tailer business model?
A) bricks-and-clicks
B) virtual merchant
C) market creator
D) manufacturer-direct
Answer: C
Diff: 2 Page Ref: 78
AACSB: Reflective Thinking
41) An example of a company using the content provider model is:
A) Priceline.
B) Rhapsody.com.
C) Dell.
D) eBay.
Answer: B
Diff: 2 Page Ref: 79
AACSB: Reflective Thinking
42) Which of the following is not an example of the bricks-and-clicks e-tailing business model?
A) Walmart.com
B) JCPenney.com
C) Dell.com
D) Staples.com
Answer: C
Diff: 1 Page Ref: 79
AACSB: Reflective Thinking
43) The overall retail market in the United States in 2012 was estimated at about:
A) $37 trillion.
B) $3.7 trillion.
C) $370 billion.
D) $37 billion.
Answer: B
Diff: 2 Page Ref: 78
AACSB: Reflective Thinking
44) In general, the key to becoming a successful content provider is to:
A) own the content being provided.
B) own the technology by which content is created, presented, and distributed.
C) provide online content for free.
D) provide other services as well as online content.
Answer: A
Diff: 2 Page Ref: 81
AACSB: Reflective Thinking
45) Expedia is an example of a:
A) community provider.
B) transaction broker.
C) market creator.
D) service provider.
Answer: B
Diff: 2 Page Ref: 79
AACSB: Reflective Thinking
46) All of the following may lead to a competitive advantage except:
A) less expensive suppliers.
B) better employees.
C) fewer products.
D) superior products.
Answer: C
Diff: 2 Page Ref: 72
AACSB: Reflective Thinking
47) The basic value proposition of community providers is:
A) they offer a fast, convenient one-stop site where users can focus on their most important concerns and interests.
B) they offer consumers valuable, convenient, time-saving, and low cost alternatives to traditional service providers.
C) they create a digital electronic environment for buyers and sellers to meet, agree on a price and transact.
D) they increase customers' productivity by helping them get things done faster and more cheaply.
Answer: A
Diff: 2 Page Ref: 80
AACSB: Reflective Thinking
48) All of the following are examples of Business-to-Business (B2B) business models except:
A) e-distributors.
B) e-procurement.
C) private industrial networks.
D) e-tailers.
Answer: D
Diff: 1 Page Ref: 88-89
AACSB: Reflective Thinking
49) What is the primary revenue model for an e-distributor?
A) sales
B) transaction fee
C) advertising
D) subscription
Answer: A
Diff: 2 Page Ref: 89
AACSB: Reflective Thinking
50) Grainger.com is an example of which of the following business models?
A) B2B service provider
B) exchange
C) e-distributor
D) industry consortia
Answer: C
Diff: 2 Page Ref: 89
AACSB: Analytic Skills
51) ________ create and sell access to digital electronic markets.
A) E-distributors
B) Portals
C) E-procurement firms
D) Market creators
Answer: C
Diff: 2 Page Ref: 88
AACSB: Reflective Thinking
52) One of the competitive advantages of a B2B service provider is that it can spread the cost of an expensive software system over many users, achieving efficiencies referred to as:
A) application efficiencies.
B) network efficiencies.
C) scale economies.
D) network externalities.
Answer: C
Diff: 2 Page Ref: 89
AACSB: Reflective Thinking
53) Over the past decade:
A) the number of exchanges greatly increased.
B) the number of exchanges diminished sharply.
C) the number of exchanges stayed about the same.
D) exchanges have totally disappeared.
Answer: B
Diff: 2 Page Ref: 90
AACSB: Reflective Thinking
54) Exostar is an example of a(n):
A) private industrial network.
B) exchange.
C) industry consortium.
D) e-distributor.
Answer: C
Diff: 1 Page Ref: 90
AACSB: Reflective Thinking
55) Which of the following is an unfair competitive advantage?
A) brand name
B) access to global markets
C) lower product prices
D) superior technology
Answer: A
Diff: 2 Page Ref: 73
AACSB: Analytic Skills
56) The element of a business model that is responsible for making the model work is:
A) the management team.
B) the organizational structure.
C) the firm's key competitive advantage.
D) the market strategy.
Answer: A
Diff: 2 Page Ref: 74
AACSB: Reflective Thinking
57) eBay uses all of the following business models except:
A) B2C market creator.
B) C2C market creator.
C) content provider.
D) e-commerce infrastructure provider.
Answer: C
Diff: 2 Page Ref: 75, 78
AACSB: Analytic Skills
58) Your startup firm has developed Web-based note-taking software that allows participants to create and share virtual notes attached to existing Web pages. You anticipate marketing your online application to Web development and design companies. Which of the following revenue models is the most appropriate for your new company?
A) advertising
B) transaction fee
C) affiliate
D) subscription
Answer: D
Diff: 2 Page Ref: 67
AACSB: Analytic Skills
59) Which of the following community providers is focused on financial advice, news, and opinions?
A) The Well (Well.com)
B) The Motley Fool (Fool.com)
C) RightStart
D) iVillage
Answer: B
Diff: 2 Page Ref: 80
AACSB: Reflective Thinking
60) Which of the following features of e-commerce technology changes industry structure by lowering barriers to entry but greatly expands the market at the same time?
A) global reach
B) richness
C) interactivity
D) personalization
Answer: A
Diff: 2 Page Ref: 93
AACSB: Use of IT
61) All of the following are business models employed by the music industry except:
A) subscription.
B) peer-to-peer streaming.
C) download-and-own.
D) cloud streaming.
Answer: B
Diff: 2 Page Ref: 82
AACSB: Use of IT
62) Which of the following is not a primary activity in a firm value chain?
A) inbound logistics
B) finance/accounting
C) operations
D) sales and marketing
Answer: B
Diff: 2 Page Ref: 97
AACSB: Reflective Thinking
63) A ________ coordinates a firm's suppliers, distributors, and delivery firms with its own production needs using an Internet-based supply chain management system.
A) value chain
B) value system
C) value web
D) business strategy
Answer: C
Diff: 2 Page Ref: 98
AACSB: Use of IT
64) If you wished to leverage the ubiquitous nature of the Web to differentiate your product, you would:
A) enable individual customization of the product by consumers.
B) implement a strategy of commoditization.
C) adopt a strategy of cost competition.
D) develop a scope strategy to compete within a narrower market segment.
Answer: A
Diff: 2 Page Ref: 100
AACSB: Use of IT
65) A strategy designed to compete within a narrow market or product segment is called a ________ strategy.
A) scope
B) differentiation
C) cost
D) focus
Answer: D
Diff: 2 Page Ref: 101
AACSB: Reflective Thinking
66) A(n) ________ is a set of planned activities designed to result in a profit in marketplace.
Answer: business model
Diff: 2 Page Ref: 65
AACSB: Reflective Thinking
67) In the ________ revenue model, a Web site that offers users content or services charges a fee for access to some or all of its offerings.
Answer: subscription
Diff: 2 Page Ref: 67
AACSB: Reflective Thinking
68) A firm's ________ refers to the other companies operating in the same marketspace selling similar products.
Answer: competitive environment
Diff: 2 Page Ref: 72
AACSB: Reflective Thinking
69) A(n) ________ is a company that sells products and services that are very similar and into the same market segment.
Answer: direct competitor
Diff: 2 Page Ref: 72
AACSB: Reflective Thinking
70) The use by a company of its competitive advantage to achieve more advantage in surrounding markets is known as ________.
Answer: leverage
Diff: 2 Page Ref: 73
AACSB: Reflective Thinking
71) Carbonite is a company that uses a(n) ________ business model.
Answer: service provider
Diff: 2 Page Ref: 79
AACSB: Reflective Thinking
72) The financial services, travel services, and job placement services industries use the ________ business model.
Answer: transaction broker
Diff: 1 Page Ref: 85
AACSB: Reflective Thinking
73) In the ________ business model, a Web-based business builds a digital environment in which buyers and sellers can meet, display products, search for products, and establish prices.
Answer: market creator
Diff: 2 Page Ref: 86
AACSB: Reflective Thinking
74) A(n) ________ is a company that collects information from a wide variety of sources and then adds value to that information.
Answer: Web aggregator
Diff: 1 Page Ref: 79
AACSB: Reflective Thinking
75) A(n) ________ marketplace supplies products and services of interest to particular industries.
Answer: vertical
Diff: 2 Page Ref: 90
AACSB: Reflective Thinking
76) ________ is a social network based on 140-character messages.
Answer: Twitter
Diff: 2 Page Ref: 61
AACSB: Reflective Thinking
77) An industry ________ is an effort to understand and describe the nature of competition in an industry, the nature of substitute products, the barriers to entry, and the relative strength of consumers and suppliers.
Answer: structural analysis
Diff: 2 Page Ref: 94
AACSB: Reflective Thinking
78) A(n) ________ is the set of activities performed in an industry or in a firm that transforms raw inputs into final products and services.
Answer: value chain
Diff: 2 Page Ref: 96
AACSB: Reflective Thinking
79) ________ occurs when there are no differences among products or services and the only basis for choosing is a particular product or service is price.
Answer: Commoditization
Diff: 2 Page Ref: 99
AACSB: Reflective Thinking
80) A(n) ________ strategy is a strategy to compete in all markets around the globe rather than merely in local, regional, or national markets.
Answer: scope
Diff: 2 Page Ref: 101
AACSB: Reflective Thinking
81) Define and describe the transaction broker business model and discuss the eight components of the business model for this type of B2C firm.
Answer: The transaction broker business model is most commonly found in the financial services, travel services, and job placement services industries. The eight elements of a business model are value proposition, revenue model, market opportunity, competitive environment, competitive advantage, market strategy, organizational development, and management team.
The primary value proposition for a transaction broker is the saving of time and money. These sites also often provide timely information and opinion. They offer the consumer the opportunity to increase their individual productivity by helping them to get things done faster and more cheaply.
The revenue model for these firms is based upon receiving commissions or transaction fees when a successful business deal is completed. Online stock trading firms receive either a flat fee for each transaction or a fee based on a sliding scale according to the size of the transaction. Job sites charge the employers a listing fee up front, rather than when the position is filled as traditional "head hunter" firms have done.
The market opportunity for transaction brokers in financial services appears to be large due to the rising interest in receiving financial planning advice and conducting stock transactions online. Demand is also increasing for job placement help that is national and even global in nature and for purchasing travel services quickly and easily online. However, there is some market resistance due to consumer's fear of loss of privacy and loss of control over their personal financial information.
The competitive environment for financial services has become fierce as new entrants, including the traditional brokerage firms that have now entered the online marketspace, have flooded the market. In order to compete effectively, online traders must convince consumers that they have superior security and privacy procedures. The number of job placement sites has also multiplied, and the largest sites such as Monster.com, which have the greatest number of job listings, are the most likely to survive. Consolidation in all of the transaction broker markets is presently occurring, making the market opportunity and competitive environment for new firms looking to enter the marketspace bleak.
The market strategies for such firms typically include expensive marketing campaigns to convince consumers to switch from their current provider or to choose their company over other more well-established competitors, also a daunting task in the present economic environment.
Achieving a competitive advantage is crucial to firms trying to enter these industries. Possible strategies are to lure well-known names in the industry away from their present positions to head a new endeavor, giving the firm instant credibility in the market. Experienced, knowledgeable and well-known employees may be able to give a new firm a competitive edge.
New companies may have to start out recruiting a specialized highly skilled staff, with an organizational development plan that is far more advanced than the typical startup. A strong management team will attract investors and convince investors and consumers alike that a new firm has plenty of market-specific knowledge and the experience necessary to implement the business plan.
Diff: 3 Page Ref: 65-75, 85
AACSB: Analytic Skills
82) Define organizational development and describe its importance in relation to the implementation of a business plan and strategy.
Answer: Organizational development is a plan that describes how the company will organize the work that needs to be accomplished in the business plan or strategy. Typically, work is divided into functional departments, such as production, shipping, marketing, customer support, and finance. Jobs within these functional areas are defined, and then recruitment begins for specific job titles and responsibilities. Typically, in the beginning, generalists who can perform multiple tasks are hired. As the company grows, recruiting becomes more specialized. For instance, at the outset, a business may have one marketing manager. But after two or three years of steady growth, that one marketing position may be broken down into seven separate jobs done by seven individuals.
All firms—new ones in particular—need an organization to efficiently implement their business plans and strategies. Many e-commerce firms and many traditional firms that attempt an e-commerce strategy have failed because they lacked the organizational structures and supportive cultural values required to support new forms of commerce.
Diff: 2 Page Ref: 74
AACSB: Analytic Skills
83) Define the term industry structure and discuss the ways the Internet and e-commerce have changed the five forces that characterize industry structure.
Answer: The term industry structure refers to the general business environment in an industry. It is defined by the nature of the players in the industry and their relative bargaining power. It is characterized by five forces: the rivalry among existing competitors, the threat of substitute products, the barriers to entry into the industry, the bargaining power of the suppliers, and the bargaining power of the buyers.
The competitive consequences of technological developments often change the market share positions among the players. New forms of distribution created by new market entrants can completely change the competitive forces in an industry. The Internet, the Web, and e-commerce have affected the structure of different industries in varying, yet often profound ways. In fact, the explosive emergence of the Internet as a major worldwide distribution channel for goods, services, and even for employment is powerfully changing economies, markets, and industry structures. The universal standards of the Internet have lowered the barrier to entry for many industries, bringing a flood of new entrants. Interfirm rivalry is one area where e-commerce technology has had an impact on most industries.
The major consequence is that every business must become globally competitive, even if it manufactures or sells only within a local or regional market. The Internet has changed the scope of competition from local and regional to national and global, pitting firms that had previously been in separate geographic markets against one another. Consumers of all types of goods have access to global price information, putting pressure on many producers and suppliers in some industries to decrease their prices. On the other hand, it has also presented new opportunities for firms to differentiate their products or services from their competitors, driving prices and profits for those firms up.
The overall positive or negative effect of e-commerce technologies on firm profitability depends on the industry involved. In some industries, particularly those involved with information distribution such as newspapers, magazines, software distributors, music and publishing companies, e-commerce has completely changed the ways of doing business. New online challengers have intensified competition and increased the availability of substitute products.
In general, the bargaining power of consumers has grown relative to the providers, driving prices down and challenging the overall profitability of these industries. In other industries, particularly manufacturing, e-commerce has not greatly changed relationships with consumers but relationships with suppliers have been impacted by the aggregation of markets such those created by B2B hubs. Increasingly, manufacturing firms in entire industries have banded together to aggregate purchases, create industrial digital exchanges or marketplaces, and outsource industrial processes in order to obtain better prices from suppliers.
Diff: 3 Page Ref: 93-96
AACSB: Analytic Skills
84) Briefly explain three B2B Net marketplace business models besides the exchange business model.
Answer: Three other B2B Net marketplace business models are e-distributor, e-procurement, and industry consortium. E-distributors supply products and services directly to individual businesses. The e-distributor operates much like its B2C counterparts, placing its catalog online and giving purchasing agents access to its product lines in a searchable format. An e-distributor is simply one company seeking to serve many customers. For an e-distributor critical mass involves having enough products and services to attract a large enough customer base.
B2B e-procurement firms create and sell access to digital electronic marketplaces. One type of B2B e-procurement firm is a B2B service provider, which sells business services to other firms. Some common B2B business services are accounting, financial services, human resources management, and printing.
Industry consortia are typically industry-owned vertical marketplaces that serve a specific industry. Industry consortia are usually funded by industry members, who pay for the creation of the site and contribute the initial operating capital. Then they typically charge firms that participate in the consortia transaction and subscription fees.
Diff: 2 Page Ref: 88-90
AACSB: Reflective Thinking
85) Discuss the implications of each of the unique features of e-commerce technology for the overall business environment.
Answer: The ubiquity of e-commerce creates new marketing channels and expands the size of the overall market. It also creates new efficiencies in industry operations and lowers the costs to firms of sales operations. By reducing the cost of information, the Internet provides each of the key players in the value chain for an industry with new opportunities to maximize their positions by lowering costs and/or raising prices. Manufacturers can develop direct relationships with their customers through their own Web sites and bypass the costs of distributors and retailers. Distributors can develop highly efficient inventory management systems to reduce their costs, and retailers can develop efficient customer relations management systems to strengthen their service to customers. Customers can use the Web to search for the best quality, prices and delivery methods thus reducing their transaction costs and the prices they pay for goods.
The global reach of e-commerce lowers barriers to entry and expands the market at the same time. This lowers the costs of both industry and firm operations through production and sales efficiencies. When the operational efficiency of an entire industry increases, it helps the industry to compete with alternative industries and lowers prices and adds value to consumers.
The universal standards of e-commerce lower barriers to entry while at the same time intensifying competition within an industry. Universal standards also reduce the costs for communications and computing enabling firms to engage in broad-scope strategies. Communications efficiencies can also enable firms to outsource some primary and secondary activities to specialized, more efficient providers without affecting the consumer. The Internet can also be used to precisely coordinate the steps in the value chain for a firm, thus reducing overall costs.
The richness of e-commerce reduces the strength of powerful distribution channels. It also allows firms to reduce their reliance on traditional sales forces and can enhance post-sales support services.
The interactivity of e-commerce reduces the threat of substitutes through the enhanced use of customization. It also reduces industry and firm costs by enabling differentiation strategies. In their totality, the differentiation features of a product constitute the customer value proposition for a firm. The ability of the Web to personalize the shopping experience and to customize a product to the particular demands of each consumer are the most significant ways in which the interactivity of the Web can be used to differentiate products.
The use of Internet technology to personalize and customize a customer's experience or product reduces threats of substitutions, raises barriers to entry, reduces value chain costs by lessening reliance on sales forces, and enables personalized marketing strategies.
The information density on the Web weakens powerful sales channels thus shifting bargaining power to the consumer, while also lowering the costs of obtaining, processing, and distributing information about suppliers and consumers.
The use of social technologies shifts programming and editorial decisions to consumers; creates substitute entertainment products; and energizes a large group of new suppliers.
E-commerce firms can also leverage the ubiquitous nature, the global reach, the interactivity, and the information density of the Web to differentiate products and services. Firms can make it possible for consumers to purchase a product from home, work, or on the road, anywhere in the world. They can create Web-based experiences with unique interactive content and store and process product information, warranties, and helpful hints to differentiate their product and their firm from the competition.
Diff: 3 Page Ref: 92-93
AACSB: Analytic Skills
86) Define value chain and explain the difference between a firm value chain, an industry value chain, and a value web.
Answer: A value chain is the set of activities performed that transforms raw inputs into final products and services. A firm value chain is the set of activities a firm engages in to create final products from raw inputs. The key steps and support activities in a firm's value chain are inbound logistics, operations, outbound logistics, sales and marketing, and after sales service. With an industry value chain, the chain broadens to include six generic players: suppliers, manufacturers, transporters, distributors, retailers, and customers. A value web coordinates a firm's suppliers with its own production needs using an Internet-based supply chain management system. It is a networked transbusiness system that coordinates the value chains of several firms.
Diff: 2 Page Ref: 96-99
AACSB: Analytic Skills
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