Online Business Models

ONLINE BUSINESS MODELS 25

OnlineBusiness Models

Abusiness model describes a method that can be used in doing business.It is a business model that sustains an entity that is, a businessmodel helps an organization in generating revenue. In simple terms, abusiness model determines how an organization makes money throughspecifying where it is positioned in terms of the value chain(Currie,2004). Some business models are very simple while others areintricately woven. Online business models are continuing to evolve,which is an indication that they are likely to vary in the future.Business models usually include different levels within value chainsor supply chains it is these value chains that entities review andanalyze regularly so as to remain efficient. The heart of a businessmodel is crystallizing customer needs and capacity to pay, defininghow a business responds and delivers value to different customers,and converts payment from customers into profits. The aim of thispaper is to discuss the various online business models with the aimof explaining them to a practitioner.

BackgroundInformation

Thefast growth and adoption of new technologies have been in a positionto facilitate transformations in organizations. Advancements ininformation technologies and communication like the fast expansion ofthe internet, has created new ways of developing and delivering valueto customers. This has developed exchange mechanisms and newtransaction architectures. The advancements in technology has led tothe designing of online business models that help firms in changingthe manner in which they organize and engage in the economicexchanges within firms and across industry (Hoque,2000). The internet has emerged as a chief driver in the developmentof interest for business models. Online business models are on theincrease and have been of immense importance because they helporganizations in having revenue streams. It is through the revenuestreams that organizations are in a position to continue theiroperations as going concerns. Through the value attached to them,business models are therefore inevitable. Any business operator needsto have an understanding of business models in order to be in aposition to help his/her business entity grow in terms of operationsand profits however, without practitioners understanding thedifferent aspects of business models, it would be exceedingly hard torealize the goals of a business (Osterwalder&ampPigneur,2013). In the current age of technological growth, online businessmodels emerge as the most used models because most businesses haveadopted the advances in technology and moved from traditionalbusiness models to online business models. This is an indication thatit would be critical for practitioners to learn the aspects of onlinebusiness models because most businesses have identified with themodels. It would be remarkably difficult to deal with suppliers andbusinesses that have already switched to the use of the onlinebusiness models in case a business still uses traditional model.Therefore, online business models are critical in adapting to thecurrent business models for any practitioner.

Thereare different kinds of online business models that a business canemploy. Online business models usually depend on the author (s) thefollowing online business models include online business modelsaccording to Rappa (2001).

  1. Brokerage Model

Brokersare seen as market makers that is, they bring sellers and buyerstogether and help in facilitating transactions. Brokers are criticalin playing a frequent function in business to consumers, business tobusiness, or consumer to consumer markets. A broker usually charges afee or commission for every transaction that he engages in. theformula for charging fees may vary. A business to business modelusually includes electronic transactions for purchasing, ordering andother administrative tasks amid houses the model involves tradingcommodities like business subscriptions, wholesale dealings, andprofessional services. A practitioner is likely to benefit frombusiness to business model since it has the capacity of efficientlymaintaining the movement of supply chain and procuring andmanufacturing processes. Besides, it has the capacity of automatingcorporate processes in delivering the appropriate commodities andservices rapidly and cost-effectively. On the other hand, business toconsumer model deals with transactions amid business entities andconsumers. The model can apply to any business organization, whichsells its services or commodities to consumers via the internet.Alternatively, a consumer to consumer model entails transactions amidconsumers. In this case, consumer engages in selling directly toanother consumer.

Brokeragemodels may include the following marketplace exchange, buy/sellfulfillment, demand collection system, auction broker, transactionbroker, search agent, distributor, and virtual marketplace.Marketplace exchange provides a full range of services including thetransaction process. Exchanges usually operate independently or canbe backed by an industry grouping. Buy/sell fulfillment takes ordersof customers to sell or buy a service or a product, including termssuch as delivery and price. In demand collection system, prospectivebuyer engages in making a bid for a given commodity or service whilethe broker arranges for fulfillment. For an auction broker, a brokercarries out auctions for sellers. A broker charges sellers acommission and a listing fee that is usually scaled with value oftransaction. In most cases, auctions differ in terms of bidding andoffering rules. Transaction broker offers a third party paymentsystem for sellers and buyers in settling a transaction. A searchagent entails a software agent used in searching out the price andavailability for a commodity or service that is specified by buyer.On the other hand, virtual marketplace entails a hosting service foronline business, which charges monthly listing, set-up, andtransaction fees, while distributor is a catalogue operation, whichconnects a vast number of product manufacturers with retail andvolume buyers.

  1. Advertising Model

Thismodel is an extension of traditional media broadcasting model. Inthis model, the broadcaster offers content and services combined withadvertising messages in the form of banner ads. These banner ads maybe the source of revenue for the broadcaster. In most cases, thebroadcaster is a content creator or distributor of content developedelsewhere (Hoque,2000). This model works best when the viewers’ traffic is highlyspecialized or large enough. Advertising model includes thefollowing

  1. Portal – this is a search engine, which may include different services or content. A large volume of user traffic helps in making advertising profitable and allows further diversification of site services. Personalized portals permits customization of interface and contents to users. On the other hand, a niche portal facilitates a distinct user demographic.

  2. Classifieds – this lists items wanted for sale or purchase. Listing fees are usually common and there may be membership fees at times.

  3. User Registration – these are content based sites, which are free to access however, they require users to register and offer demographic information. Registration helps in inter-session tracking of user surfing behavior and thereby provides information of potential value in projected advertising campaigns.

  4. Ultramercials – these are interactive online ads, which require the user to respond occasionally so as to wade through any message prior to reaching the intended content.

  5. Intromercials – these are animated full-screen ads, which are placed at the entry of a given site prior to user reaching to the required content.

  6. Content-targeted Advertising – this became started by Google it expands the accuracy of search advertising to other areas of the web. Google automatically offers relevant ads when a user visits the page.

  7. Behavioral Marketing – this entails freeware developers that bundle adware together with their products behavioral marketers may sell targeted advertising on the basis of a person’s user’s surfing activities.

  8. Query-based Paid Placement – this sells constructive link positioning or advertising that keyed to certain search terms in a user query.

  1. Infomediary model

Inthis model, some firms act as infomediaries and help buyers orsellers in understanding a certain market. Information concerningconsumers as well as their consumption behaviors is provided byinformation intermediaries. Besides, information concerning producersand the products that they sell is also provided by theinfomediaries. It is this information that is used in understanding acertain market. Infomediary model includes the following

  1. Advertising Networks – these feed banner adverts to a certain network, which enable advertisers in deploying vast marketing campaigns. These networks collect information concerning web users that can be utilized in analyzing marketing effectiveness.

  2. Audience Measurement Services – these are online audience market research firms.

  3. Metamediary – these facilitate transactions amid sellers and buyers through offering comprehensive data and ancillary services without engaging in the actual exchange of commodities or services amid parties involved.

  4. Incentive Marketing – this entails customer loyalty program, which offers incentive to customers like coupons or redeemable points for making purchases from retailers.

  1. Merchant Model

Thismodel involves establishing an electronic storefront on a web,information technology infrastructure that has the capacity ofobtaining and processing orders, correct security measures thatensure safety, and secrecy of transaction data, and a way ofprocuring payments. In this model, retailers and wholesalers ofcommodities and services may make sales on the basis of price list orthrough auction. In order to implement a successful merchantstrategy, it is critical to draw visitors to a company’s website.It is these visitors that would become regular customers. Anorganization may contract with associate Web sites in order to placeadverts on affiliate pages. The advertisements are clickable graphicsthat have the capacity of directing users to the site of themerchant. In maintaining users and turning them into contentshoppers, merchants require giving immense consideration to thedesigning of the Web sites. They need to strike the right balanceamid user-friendliness, aesthetic attractiveness, and simplicity.Merchant model includes the following as indicated in the tablebelow

Virtual Merchant

This describes a retail merchant, who tends to operate exclusively on the web.

Click and Mortar

Just as the name suggests, this is a brick and mortar retail establishment having a web storefront.

Catalog Merchant

This entails a mail order business having a web-based catalog. It usually combines telephone, mail, and online ordering

Bit Vendor

This is a merchant, who deals firmly in digital commodities and services. This merchant carries out both distribution and sales over the web.

  1. Manufacturer / Direct Model

Forthis model, reliance is on the power of the web to permit amanufacturer to reach buyers in a direct manner thereby compressingthe distribution channel. A practitioner can choose this model incase he/she has a better understanding of preferences of customers. Abenefit that a practitioner of this model is likely to obtain isenhanced customer service and immense efficiency. Manufacturer modelincludes the following

Lease

This is the case where a buyer receives a right of using a product after exchange for a rental fee as agreed in terms of use. The commodity becomes returned to the seller after the expiration of the lease agreement or through default.

Purchase

This is a situation, where the right of ownership of a product becomes transferred to the buyer after the buyer pays a given price to the seller.

Brand Integrated Content

This is a situation, where brand-integrated content becomes developed by the manufacturer itself with the sole purpose of product placement.

License

In this case, sale of a commodity only involves the transfer of usage right on the side of the buyer. In this case, the rights of ownership remains with a manufacturer for example, software licensing.

  1. Community Model

Thismodel focuses on the basis of user loyalty. In this model, usersusually have a high investment in emotion and time. Obtaining ofrevenue can be on the basis of sale of ancillary commodities andservices or can be obtained through voluntary contributions. Besides,revenue can be tied to subscriptions for premium services orcontextual advertising. The internet is essentially suited to thecommunity model and it is one of the fertile fields of development.Community model includes the following

Open Content

This entails openly reachable content, which is developed jointly by an international community of contributors that work voluntarily.

Open Source

This involves software developed collectively by a universal community of programmers that share code openly. Rather than licensing code for a fee, open source depends on revenue obtained from associated services such as systems integration, tutorials, user documentation, and product support.

Public Broadcasting

This is a user-supported model utilized by non-profit television and radio broadcasting broadened to the web. Through voluntary donations, a group of users offer support to the site.

Social Networking Services

In this case, sites that offer people with the capacity of connecting to other persons along a defined common interest are involved. Social networking services may offer opportunities for contextual advertising and premium service subscriptions.

  1. Affiliate Model

Thismodel offers purchase opportunities wherever individuals may besurfing. The model does this through providing financial incentivesto associated partner sites the incentives are in form of revenuepercentage. The affiliates offer purchase-point click up to themerchant. In case an affiliate does not make sales, the affiliatesites represent no expense to the merchant. The following programssupports thee affiliate model

Pay-per-click

In this case, a site pays affiliate parties for a user click-through

Banner Exchange

This entails placement of trades banner amid a network of associated sites

Revenue Sharing

This entails offering a percentage of sale commission on the ground of a user click-through where a user consequently buys a product

  1. Utility Model

Thismodel is also referred to as on-demand model. The utility model isusually based on metering usage approach. Metered services are on thebasis of actual usage rates rather than subscriber services. Meteringhas been utilized for essential services such as telephone servicesthat are for long distances and electricity. In some parts of theglobe, internet service providers (ISPs) tend to operate asutilities these usually charge customers for connection time. Theutility model includes metered usage and metered subscriptions.Metered usage tends to measure and bill users on the ground of actualusage of a certain service. On the other hand, metered subscriptionspermits subscribers to buy access to content in metered portions forinstance, number of pages that are viewed.

  1. Subscription Model

Forthis model users are usually charged a certain fee for a givenperiod. For example, fee charged may be on a monthly, daily or evenannual basis. The periodic fee paid is perceived as a subscriptionfee for a service. In this model, the subscription fees paid areincurred regardless of actual usage rates. In most cases, advertisingand subscription models are combined. The subscription model includescontent services, trust services, internet services providers, andperson to person networking services. Content services offer video,audio and text content to users that subscribe for a fee in gainingaccess to the service, while trust services appear in the form ofmembership associations, which stick to an explicit code of conductand members have to pay a subscription fee. Internet servicesproviders provide network connectivity and associated services basedon a monthly subscription. On the other hand, person to personnetworking services describe agents for distribution ofuser-submitted data like persons searching for schoolmates.

Accordingto Tapscott, Lowy &amp Ticoll (2000), there are five online businessmodels which include agora, aggregation, value chain, alliance, anddistributive network. Agora business model tends to apply to markets,which sellers and buyers assemble to negotiate and assign value tocommodities freely. An Agora assists exchange amid sellers and buyersthat together discover a price. It is worth for a practitioner tonote that value integration in this business model is low sincesellers may tend to offer a broad and unpredictable quantity ofcommodities. When it comes to aggregation business model, there is ahead that has the responsibility of selecting commodities andservices, setting prices, offering targets to market segments, andguaranteeing fulfillment. The leader essentially sets prices earlyenough and provides a diverse variety of commodities and servicesthat have limited or zero value integration. According to Tapscott etal (2000), in a value chain, a seller has the final declaration inpricing. In this situation, a context provider is the one thatstructures and directs a business web network in producing a valueproposition that is highly integrated. On the other hand, in alliancemodel, an alliance tends to strive for high value integration with nohierarchical control. Participants in the model design commodities orservices and develop shared experiences. Usually, alliances rely onguidelines and standards which govern interaction, acceptable conductof participants, and establishment of value. Alternatively,distributive networks entail business webs, which keep the economybeing mobile and alive (Verstraete&ampJouison-Laffitte,2011). They usually play a critical role in making sure that there ishealthy balance of systems which they support. The distributivenetwork services other types of business webs through ensuring thatit allocates and delivers commodities to other business webs.

According to Applegate (2001), there are five online business modelsthat include portals, focused distributors, infrastructuredistributors, infrastructure portals, and infrastructure producers.The following table discusses these models

Model

Description

Portals

This includes affinity, vertical and horizontal portals. Their differentiation is usually based on the affinity group focus, gateway access, cost structure, and revenues source.

Focused Distributors

These offer commodities and services within certain industry or market niche. Focused distributors business fall into five types, which include marketplaces, exchanges, infomediaries, aggregators and retailers.

Infrastructure Portals

These aid businesses and consumers in accessing online services and data. They are classified as horizontal and vertical infrastructure portals. Horizontal infrastructure portals include web hosting, network service providers, and internet service providers. On the other hand, vertical infrastructure portals include distributor and producers application service providers.

Infrastructure Producers

These build, design, sell, and market technology hardware, solutions, software, and services. There are four types of infrastructure producers, including software firms, infrastructure service firms, equipment component manufacturers, and customer software and integration.

Infrastructure Distributors

These aid technology sellers and buyers in performing business transactions. Focused distributors are categorized as infrastructure marketplace, infrastructure retailers, and infrastructure exchange. These categories can be differentiated based on control inventory, revenue sources, online pricing, and online selling presence.

On the other hand, Weill &amp Vitale (2001) identify different typesof online business models, which are discussed in the table thatfollows.

Model

Description

Direct to Customer

This offers commodities and services directly to customers and usually bypass traditional channel members.

Content Providers

These engage in offering content such as services, digital products, and information through intermediaries.

Intermediary

This links sellers and buyers through information concentration.

Full-Service Provider

This offers a complete range of services in a single domain directly through allies, in an attempt to own the primary consumer association.

Shared Infrastructure

This brings together different competitors to have cooperation through sharing an IT infrastructure.

Whole of Enterprise/Government

This tends to offer a firm-broad one point of contact and consolidates all services offered by a vast multi-unit organization.

Value Net Integrators

These synchronize activities transversely the value net through assembling, producing, and distributing data.

Despitedifferent authors categorizing online business models differently, itis critical for a practitioner to understand different onlinebusiness models because new online business models are emerging.Understanding different online business models is critical since apractitioner may have an option of choosing from a variety of models,depending on the business or market that one may desire to operatein. When a practitioner desires to apply a certain online businessmodel or models, it is critical to understand and stick with thebusiness or operation that one desires to build. One principal reasonwhy most inexperienced online business owners are prone to failing inchoosing and applying a certain online business model is because theydo not focus in a given area, when they want to build their business.Therefore, it is important for online business owners to focus on onespecific area that they want to build because this can avoid apractitioner from killing his or her business from the beginning.

Ofimportance that practitioners need to understand that online businessmodel must comprise of different components, which perform variousfunctions. These functions are crucial to practitioners because theycan help them in understanding the working of the business models.One of the functions of online business model is that it articulatesvalue proposition that is, the value generated for users by theoffering (Chesbrough,2006). Another critical function that can be associated with onlinebusiness model entails defining the structure of the value chainneeded by a firm in creating and distributing the offering, andestablishing the complementary assets required in supporting a firm’sposition in a chain. Another critical role that is associated with anonline business model is specifying the revenue generation mechanismsfor a firm, and estimating the cost structure and profit potential ofproducing an offering, given that value proposition and value chainstructure are chosen. Besides, another important function that theonline business model is linked with is describing the position of afirm within a value chain network, linking suppliers and customers,as well as identifying potential complementors (Chesbrough,2006). In addition, an online business model has the capacity offormulating a competitive strategy through which an innovating firmwould gain and retain an advantage over rivals.

Inorder to ensure that a practitioner sustains a successful venture, itis exceedingly crucial to have a viable business model. A workableonline business model must address different issues. For example, itis critical for a workable online business model to address the valuethat should be offered to customers. This is a critical element inthe creation of value proposition and building of strategic goals.Another critical element for a workable online business model is thatit has to identify customers that a practitioner desires to offer thevalue to without first of all identifying customers that apractitioner wants to deal with, it would be exceedingly difficult toidentify the online business model that a practitioner would chooseor identify with the needs of customers. Besides, pricing is alsoanother critical aspect that a practitioner needs to identify inorder to have a viable online business model (Lytraset al, 2009). In pricing, it is critical to identify how one wouldprice services or products in order to generate a stream of revenue.Pricing is a critical aspect in having a workable online businessmodel because pricing may determine the type of model that apractitioner may choose or adopt. In addition, it is also crucial tohave a strategy of building a sustainable online business model afterselecting a business model that is favorable to a certain business.Having a model building strategy would help a practitioner to be in aposition to know, when and why to change or use a given businessmodel with another.

Understandingof online business models is of immense importance to a practitionersince it can help a practitioner in comprehending how a businessventure would earn revenues. Therefore, it is vital to make apractitioner understand an online business model through discussingthe different building blocks of an online business model. Thefollowing paragraphs describe the various building blocks of abusiness model.

CustomerSegments

Oneof the building blocks of a business model is customer segments.Customer segments describe the various groups of individuals ororganizations, which a certain enterprise projects to serve andreach. Customers are central to any business model as a matter offact, without customers, no business can be in a position to survivefor a long time. In an attempt to maintain customers and keep themsatisfied, it is crucial to put them into different segments thatwould put them into groups containing customers having commonbehaviors, common needs, and other common attributes. A certainbusiness model can define several or a single small or vast customersegments. For any practitioner, it is critical to make cognizantdecision concerning the segments to put into considerations and theones to ignore. When this decision is well made, it is possible for apractitioner to carefully design a business model along understandingof certain customer needs. A practitioner may choose from a varietyof customer segments, which may include mass market, diversified,niche market, or even segmented.

ValuePropositions

Valuepropositions describe a bundle of commodities and services, whichgenerate value for a certain value of a certain customer segment. Itis because of value proposition that customers can turn to a givenpractitioner over another this is because value proposition tends tosolve a customer problem or can satisfy the need of a customer. Everyvalue proposition comprises of a selected package of commoditiesor/and services, which caters to the needs of certain customersegment (Currie,2004). Because of this, value proposition is a package of benefits,which an entity or practitioner offers customers. Value propositionscan be innovative and signify a fresh or disruptive offer, whileothers can have similarity to the existing market offers, but havingadditional features and attributes. In order to create value tocustomers different elements can be used for example, enhancing theperformance of a service or commodity may tend to create value to agiven customer segment. Besides, value may created through startingsomething new or even through customization. Pricing and designingmay also help in generating value to customers.

Channels

Channelsare another building block of online business models. Channelsdescribe how an entity communicates and reaches the differentcustomer segments in delivering a value proposition. Distribution,communication and sales channels are central to an entity becausethey constitute an entity’s interface with customers. Channels areusually perceived as customer touch points, which play a vital rolein customer experience. Channels usually serve different functionssuch as helping customers in evaluating an entity’s valueproposition and offering post-purchase customer support. Besides,channels serve the function of raising awareness amid customersconcerning an entity’s commodities and services and delivering avalue proposition to the customers. There are five channel phases,which include awareness, evaluation, purchase, delivery, and aftersales. On the other hand, channels can be direct or indirect.Searching the appropriate mix of channels in satisfying needs ofcustomers is critical in ensuring a value proposition to a market. Apractitioner may choose to reach customers through own channels,partner channels or even through a combination of both.

CustomerRelationships

Customerrelationships describe types of associations that an entityestablishes with certain customer segments. An entity needs toclarify types of relationships it desires to establish with everycustomer segment. Associations may extend from individual toautomated relationships. In most cases, customer relationships can bedriven by motivations such as customer retention, customeracquisition, and boosting sales. For instance, during the early days,customer relationships of mobile network operator were usually driventhrough aggressive acquisition strategies that involved free mobilephones. The moment market became saturated network operatorsswitched and started to focus on customer retention. Customerrelationships may co-exist in an organization through differentcategories of customer relationships such as automated services,co-creation, personal assistance, or dedicated personal assistance.

RevenueStreams

Revenuestreams as a building block of business model describe the monetaryvalue that an entity generates from every customer segment it isworth noting that costs should be deducted from revenues in order togenerate earnings. A practitioner needs to ask himself/herself aboutthe value that every customer segment is willing to pay. Through theguidance of such a question, it is feasible to help a practitioner togenerate revenue streams from every customer segment. It is probablethat every customer segment may have varying pricing mechanisms thatmay be critical in adding to the revenues that may stream from everycustomer segment. For a business model, there may be two types ofrevenue streams, which are recurring revenues and transactionrevenues. Recurring revenues result from ongoing payments in eitherdelivering a value proposition to the customers or providingpost-purchase customer support. Conversely, transaction revenuesresult from one-time customer payments. There are different ways ofgenerating revenue streams these may include sale of asset,leasing/lending/renting, subscription fees, and licensing among otherways.

KeyResources

Keyresources as building blocks describe the most key assets required inmaking a business model work. Key resources are required by eachbusiness model these resources permit an entity to develop and offera value proposition, maintain relationships with customers, reachmarkets, and earn revenues. Various key resources are requireddepending on the type of business model. While some business modelsneed capital intensive facilities, others require human resourcesmore compared to others. Key resources may be intellectual,financial, physical, or human. Physical assets include assets such asmachines, vehicles, buildings, and distribution networks, whilefinancial resources include cash, stock, and credit among otheritems. On the other hand, intellectual resources include such itemsas partnerships, copyrights, patents, and proprietary knowledge.Human resources are required in every entity. Besides, key resourcesmay be owned or leased by a company or acquired from principalpartners.

KeyActivities

Keyactivities as building blocks of business model entails the mostsignificant things that an entity must engage in so as to make thebusiness model it uses work. Each business model should call forseveral key activities. These describe the most critical actions thatan organization should consider taking in order to operatesuccessfully. Just like key resources, they are needed in creatingand offering a value proposition, maintaining customer relationships,earning revenues, and reaching markets. Besides, just like keyresources, the key activities tend to differ on the basis of thebusiness model type. Key activities can be categorized in differentgroups such as production, platform/network, and problem solving.Production key activities relate to making, designing and deliveringof a commodity in substantial quantities and superior quality.Problem solving activities relate to finding new solutions tocustomer problems. Alternatively, business models that are designedhaving a platform as a key resource are usually dominated bynetwork/platform associated key activities.

KeyPartnerships

Asbuilding blocks, key partnerships describe a network of suppliers andpartners making a business model work. There is a likelihood oforganizations forging partnerships due to some critical reasons. Thepartnerships are now becoming a chief building block of differentbusiness models. Organizations that form alliances do so because ithelps them in optimizing their business models, acquire resources,and mitigate risks. Key partnerships can be formed on the ground offorming strategic alliances, competition, forming joint ventures, orenhancing reliable supplies. There are three motivations to theformation of partnerships, which include optimization and economiesof scale, acquisition of certain resources and activities, and riskand uncertainty mitigation.

CostStructure

Thisdescribes all expenses incurred in operating a business model. Onlyimportant costs are included, when it comes to a certain businessmodel. Issues that may lead to incurring of costs, when operating abusiness model may include maintaining customer relationships,creating and delivering value, and generating revenue (Hoque,2000). These costs are easy to calculate after one has defined keyresources, key partnerships, and key activities. Cost structures maybe value-driven or cost-driven.

Withthese key building blocks of business models, it would be possiblefor practitioners to identify with online business models andunderstand how to apply them. For example, when a practitionerunderstands that customer segments are a critical building block ofany business model, the practitioner would not hesitate to ensurethat he/she applies customer segmentation in his/her online businessmodel. This applies to the different building blocks of a businessmodel. This makes understanding of the building blocks critical to apractitioner.

Conclusion

Practitionersmay have a desire of entering any business however, the knowledge ofbusiness models especially online business models is critical. Thisis because it is through the understanding of the online businessmodels that a practitioner would be in a position to fathom and dealwith current business entities. A business model describes a methodthat can be used in doing business. It is a business model thatsustains an entity since it helps an organization in generatingrevenue. The knowledge of business models is of immense importance toa practitioner because business models tend to serve differentfunctions. One of the functions of online business model is that itarticulates value proposition that is, the value generated for usersby the offering. Another critical function that can be associatedwith online business model entails defining the structure of thevalue chain needed by a firm in creating and distributing theoffering, and establishing the complementary assets required insupporting a firm’s position in a chain. Also, another criticalrole that is associated with an online business model is specifyingthe revenue generation mechanisms for a firm, and estimating the coststructure and profit potential of producing an offering, given thatvalue proposition and value chain structure are chosen. Therefore, abusiness model emerges as an important aspect that practitioners needto identify with as their understanding helps in choosing thebusiness model that is fit for a given market as well as in dealingwith certain customers.

References

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