THINKING ABOUT E-COM - II

Business models really are important

Business models are the sort of thing that academics worry about. Real people, in real businesses, get on with the job of making the business work, ... and leave models to people in ivory towers. That was a reasonable position when the world of business was stable. The world has changed - business models are too important to ignore.

In today's e-business world, the old models are being overturned. The automobile companies are talking directly to individual buyers. Dealers still have a role, but it's being redefined. An increasing number of stock purchases are placed directly, with a greatly changed role for the broker.

On every hand, the models that explain how business works are being transformed by the forces of e-commerce. Market boundaries are being redefined, often in radical ways. All traditional intermediaries are under threat. Knowledge, geography, and real estate will continue to be important, but are being used in new ways.

We're moving into uncharted waters. I can't tell you which business models will be successful. What I have is a suggestive breakdown into 36 different kinds of businesses. Use this as a checklist, asking which of the 36 possible models shows promise in your market. The number 36 is not magic. It's the product of three Alignment, four Scope, and three Control options.

Alignment
Traditionally, channels have alignment themselves with the seller. There are new opportunities for channels to align themselves with the buyers, e.g. priceline.com which supports the buyer in making an offer. Lastly, the business might provide neutral ground where buyers and sellers meet.

Scope
The big box stores redefined retail - they offered more products to a larger audience. In e-commerce, that can dramatically expand to many, many items offered to many, many participants. We label this the many/many option. There are also possible options of many/few, few/many, and few/few.

Control
Finally, there is a question of how much the firm attempts to control its own business events. It was common for a business to reserve a high degree of control for itself. New firms like ebay.com exercise relatively low control. There is also the possibility of exercising a variable, or adaptive, degree of control.

The traditional business aligned itself with the seller, wanted to have as many items and as many participants as possible, and attempted to exercie high control. That can still be the basis for valid business models, but its no longer the only choice.

For example, selling many different kinds of wine to many different people, may not be the most profitable wine e-business. It might be more profitable to sell a limited range of wines to the widest possible range of customers. The simpler offer will make sense to more people and the logistics will be much simpler, and much less costly.

The academic debate about business models will continue long into the night. The real business challenge is to find the most promising areas in the space that can be defined by Alignment, Scope, and Control. This 36 item checklist is one way to organize the search.

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