competitive advantage. That is, they create for putting buyers and sellers together, eBay advantages by making the value-creation earns a commission Reverse auctions run b process even stronger. Or, if they are companies such as FreeMarket. com have handled poorly, they diminish perfor also gained importance by generating sub mance. Quality content that is strategically stantial savings in procurement costs for deployed provides companies with a way to business-to-business users effectively differentiate their product or ser- Advertising-based models are used by vice offerings. This can be especially impor- companies that provide content and/or ser- tant in an on-line environment where the vices to visitors and sell advertising to busi- opportunities to differentiate may be con- nesses that want to reach those visitors. It is strained compared with the opportunities similar to the broadcast television model in to compete on the basis of low costs which viewers watch shows produced with Next, we turn to the topic of Internet advertising dollars. A key difference is that business models. How the Internet creates on-line visitors can interact with both the ads value depends to a great extent on how a and the content. Large portals such as yahoo value proposition is enacted. Business mod com are in this category as well as specialty els provide a guide to the effectiveness of the portals such as iNest. com, a portal that pro- value-adding process vides services for buyers of newly constructed homes. ePinions. com, a recommender system, is just one example of the many types of INTERNET BUSINESS MODELS content that are often available Markup-based models are used by busi The Internet provides a unique platform or nesses that add value in marketing and sales staging area for business activity which has (rather than production)by acquiring pro- become, in some ways, like a new market- ducts, marking up the price, and reselling place. How do firms conduct business in this hem at a profit. also known as the merchant new arena? One way of addressing this ques model, it applies to both wholesalers and tion is by describing Internet busi- retailers. Amazon. com is the most well- ness models. a business model is a method nown example in this category. It also and a set of assumptions that explains how a includes bricks and mortar companies such business creates value and earns profits in a as Wal-Mart Stores, which has a very suc competitive environment. Some of these cessful on-line operation, and vendors whose models are quite simple and traditional even products are purely digital, such as fonts when applied in an Internet context. Others com, which sells downloadable fonts and have features that are unique to the digitally photographs. networked, on-line environment. In this sec- Production-based models are used by tion we discuss seven internet business companies that add value in the production models that account for the vast majority process by converting raw materials into of business conducted on-line value-added products. Thus, it is als Commission-based models are used by referred to as the manufacturing model businesses that provide services for a fee. The The Internet adds value to this model in business is usually a third-party intermedi- two key ways: first, it lowers marketing costs ary and the commission charged is often by enabling direct contact with end users based on the size of the transaction There Second, such direct contact facilitates custo- are many different types of commission- mization and problem-solving. Dells on-line based businesses The most common g system is supported by a state-of- is a brokera ge service such as a stockbroker the-art customized manufacturing process (e. g, ameritrade. com) or real estate broker Travelocity uses its rich database of travel (e.g, remax. com). This category also includes options and customer profiles to ident ies such as eBay. In exchange produce, and deliver unique solutionscompetitive advantage. That is, they create advantages by making the value-creation process even stronger. Or, if they are handled poorly, they diminish perfor￾mance. Quality content that is strategically deployed provides companies with a way to effectively differentiate their product or ser￾vice offerings. This can be especially impor￾tant in an on-line environment where the opportunities to differentiate may be con￾strained compared with the opportunities to compete on the basis of low costs. Next, we turn to the topic of Internet business models. How the Internet creates value depends to a great extent on how a value proposition is enacted. Business mod￾els provide a guide to the effectiveness of the value-adding process. INTERNET BUSINESS MODELS The Internet provides a unique platform or staging area for business activity which has become, in some ways, like a new market￾place. How do firms conduct business in this new arena? One way of addressing this ques￾tion is by describing various Internet busi￾ness models. A business model is a method and a set of assumptions that explains how a business creates value and earns profits in a competitive environment. Some of these models are quite simple and traditional even when applied in an Internet context. Others have features that are unique to the digitally networked, on-line environment. In this sec￾tion, we discuss seven Internet business models that account for the vast majority of business conducted on-line.
Commission-based models are used by businesses that provide services for a fee. The business is usually a third-party intermedi￾ary and the commission charged is often based on the size of the transaction. There are many different types of commission￾based businesses. The most common type is a brokerage service such as a stockbroker (e.g., ameritrade.com) or real estate broker (e.g., remax.com). This category also includes auction companies such as eBay. In exchange for putting buyers and sellers together, eBay earns a commission. Reverse auctions run by companies such as FreeMarket.com have also gained importance by generating sub￾stantial savings in procurement costs for business-to-business users.
Advertising-based models are used by companies that provide content and/or ser￾vices to visitors and sell advertising to busi￾nesses that want to reach those visitors. It is similar to the broadcast television model in which viewers watch shows produced with advertising dollars. A key difference is that on-line visitors can interact with both the ads and the content. Large portals such as yahoo.- com are in this category as well as specialty portals such as iNest.com, a portal that pro￾vides services for buyers of newly constructed homes. ePinions.com, a recommender system, is just one example of the many types of content that are often available.
Markup-based models are used by busi￾nesses that add value in marketing and sales (rather than production) by acquiring pro￾ducts, marking up the price, and reselling them at a profit. Also known as the merchant model, it applies to both wholesalers and retailers. Amazon.com is the most well￾known example in this category. It also includes bricks and mortar companies such as Wal-Mart Stores, which has a very suc￾cessful on-line operation, and vendors whose products are purely digital, such as fonts.- com, which sells downloadable fonts and photographs.
Production-based models are used by companies that add value in the production process by converting raw materials into value-added products. Thus, it is also referred to as the manufacturing model. The Internet adds value to this model in two key ways: first, it lowers marketing costs by enabling direct contact with end users. Second, such direct contact facilitates custo￾mization and problem-solving. Dell’s on-line ordering system is supported by a state-of￾the-art customized manufacturing process. Travelocity uses its rich database of travel options and customer profiles to identify, produce, and deliver unique solutions. 167