Business Models

1. Introduction

Information technology has not only transformed the way enterprises conduct business with their customers, but also the way enterprises conduct business with each other. Experts indicate that business-to-business (B2B) dealings will surpass business-to-customer (B2C) transactions in e-commerce. Similar to the presence of diverse business models for businesses that are not run electronically, there exist also different business models for B2B electronic business. However, not all B2B business models fit every firm. The paradigm to be adopted by individual organizations depends on the changes needed for transforming their traditional business models. Historically, businesses had static locations with employed personnel who conducted transactions. However, as information age entered, this method changed gradually with information technology supporting active business transactions and making them more economical and efficient (Wienclaw, 2008).

As a result, the importance of e-business has been growing and the number of firms carrying out their business transactions in electronic environment has increased drastically. The adoption of e-business has majorly been noticeable in B2B markets to a scale such that transactions worth billions of money are generated globally every year. However, surfacing of e-commerce necessitate changes to the traditional business models to catch-up with the transforming new business environment. Organizations on the other hand are faced with numerous e-business models, majority of which potential users do not understand well.

Businesses worldwide have progressively engaged in B2B e-business and have capitalized numerous benefits of this business to enhance marketing of their products and services. Additionally, they have reengineered their business processes making them effective and efficient. This paper addresses B2B business models, indicating importance of carrying out business transactions on internet and the commonly used B2B models and techniques.

2. Statement of Problem

Emergence of e-commerce brought about the need for changing already in-place business models in many organizations to reflect the transforming new business environment. In addition, many organizations are encountered with a wide variety of e-commerce models particularly B2B models. Majority of these models are not understood fully and clearly by potential users for them to determine which model will better fit their business transactions. Further, as these B2B e-business models emerge, they lack empirical studies addressing available types of these models and how they are employed in conducting transactions electronically.

3. Goals

To address the above problem, the study aims at highlighting the importance of doing business on the internet by clarifying B2B business, models and techniques commonly used. Also, the study aims at providing benefits offered by applying such techniques as well as highlighting the challenges that might be faced and new innovations in B2B context.

4. Literature Review

A business model refers to a collection of common methods and characteristics of carrying out business to generate revenues and cut on expenses (Pride, Hughes & Kapoor, 2010 pg.483). An e-business model on the other hand refers to composition of methods that increase value to customers and provide direction for organizations to perform business activities on a sustainable basis in the newly transformed e-business environment. Study on B2B business models began recently and, therefore, the current available literature focuses mainly on development and details but does not sufficiently address majority of complexities that modern businesses are facing.

Although B2B e-business model research has attempted to examine various categories with the objective of tackling consistent difficulty of classifying e-business model, there is not yet a unique system developed for classifying B2B e-commerce model types. However, by considering different functional models in the literature, different B2B e-business models can be categorized into four different types, namely; manufacturer models, brokerage models, merchant models, and buy-side models (Eric, 2008 pg.4). What differentiates these four generic types are functional properties that each model demonstrates. Businesses may opt to build and execute these models for particular purposes or suitable environment in respect to their requirements and aims since functionalities and roles of these models vary widely.

The manufacturer models enable manufacturers to contact purchasers directly via the internet. This eliminates middlemen and, thus, shortens the channel of distribution. As a result, efficiency is enhanced, customer services are offered better, customer preferences are understood better, and larger customer number is reached. Since these models are supplier centric, they entail major suppliers providing products and services through internet to potential customers. However, these models present the possibility of generating conflicts in manufacturer supply chain as buyers can sidestep middlemen and perform business transactions with manufacturers directly, thus, causing disintermediation in situations where support and service of middlemen is not needed.

Brokerage models act as central base that bring transaction sellers and buyers together where each participant is charged a certain amount of fee for every transaction executed (Eric, 2008 pg.4). They are comprised of other sub-models in B2B that include e-speculator, procurement portal, distributor, sell-side exchange, specialist originator, solution provider, and mega-exchange models. E-speculator, specialist originator and procurement portal models are buyer centric. E-speculators allow firms to attain real-time information transferrable into competitive advantage across large sets of buyers. They capitalize on large market information allowing firms to acquire timely and important information than rivals. However, a firm must have extensive risk and financial management capabilities and relationship maintenance skills with mega-exchanges. Procurement portal seeks to bring few potential buyers together who buy products and services collectively from a group of major suppliers through internet. They enable firms to acquire economic benefits like bulk discounts. Specialist originators enable exchange execution of collective orders of complex products. To implement these models, firms must understand issues that relate to customer decision and be committed to offering online buyers with real-time support (Eric, 2008 pg.6). Distributor and sell-side exchange models are supplier centric. Distributor model collect few potential suppliers who sell products collectively to a group of buyers through internet. They enable firms to reduce cost of sales significantly and allow buyers to purchase from a set of suppliers who offer variety of related products and services. Sell-side exchange enables trading, reselling and swapping of orders across a set of suppliers. It requires a firm to initiate and maintain a firm relationship with suppliers as it relies on swapping and reselling capabilities with suppliers. Mega-exchange and solution providers have neutral bias amongst sellers and buyers. The first model acts like a central hub, facilitating transactions amongst suppliers and buyers. However, it is operated by a third-party in the market, gathering suppliers and buyers to allow efficient transactions. The latter embeds specific and helpful services to sales of products. Firms with the help of these models leverage distinctive skills in distinct areas and acquire niche markets with value added services.

Merchant models enable customary wholesalers to perform business activities based on auctions or list prices via internet. They allow provision of real-time information, prompt immediate transactions and offer customer support including marketing with reduced costs.

Lastly, the buy-side models involve potential purchaser seeking transactions with major supplier. They allow buyers to minimize costs, major suppliers to develop relationship with potential buyers and enhance customer relationships via immediate responses from sellers (Eric, 2008 pg.5).

Depending on the solutions provided by the model, another classification of B2B models arises that include procurement oriented and supply chain oriented. Procurement oriented support transactions in procurement. Supply chain oriented support collaboration in supply chain and execution of whole cycle of procurement (Perrone, Bruccoleri & Renna, 2005 pg.10).

It is evident that there are numerous B2B models that firms can use to perform e-business. However, due to their diversity, close scrutiny of each model’s functionalities and each firm’s unique requirements are necessary for informed choice.

5. Methodology

To conduct this research, a multi-step process was followed. Firstly, principal academic and management journals and articles published during the period 2000 to 2012 were searched, focusing on those articles and journals that contain ‘Business-to-Business model’ and ‘business model’ as the key terms. This was performed mainly using databases that provide extensive information, relying mainly on major search engines like EBSCO Business Source and Google. As a result of this step, 207 articles were found.

Brief analysis of these articles was done by reading introductions and abstracts. To choose the appropriate articles, those that dealt with business model concepts in depth were selected. Then those that referred to a business model as a construct centered on firms were selected. Lastly, articles that were ranked as academic journals were selected, leaving 17 articles that were deemed relevant for this study. These articles were used to confirm or disconfirm the B2B models identified.

6. Results

Based on the articles used in this study, it was found that the number of organizations doing the B2B business is too big to an extent of hardly tracking all of them. However, given the absolute magnitude of the statistical number of the companies, 178 organizations, both public and private, operating in 78 different markets and targeting different markets have been profiled. Depending on the business models’ functionalities and the direction they demonstrate in the business activities in each organization, 8 business models were identified. They include collaboration tools models, fulfillment models, buying and selling market communities models, multi-sector internet models, network services models, process management models, selling from websites models, and building marketplaces models. Selling and buying market communities models showed to be the models implemented by majority of organizations.

Further, the study also identified top 10 organizations applying B2B e-business models based on suitability to the organization’s requirements and capability to acquire competitive advantage. These organizations are; Amazon.com, eBay, Yahoo, Microsoft, Tele Tech, Cisco, Digital Insight, LoopNet, Dell Inc., and Entrust.

7. Discussion

Depending on the characteristics demonstrated by each of the 8 identified B2B e-business model types, they belong to one or more of the four generic types identified in the literature. For instance, selling and buying market communities models offer functionalities that suitably categorize them as manufacturer and brokerage models identified before. Collaboration and fulfillment tools model fits in merchant, buy-side and brokerage models.

The large number of organizations applying B2B business models indicates that these models provide additional benefits than traditional models. For instance, Consisint.com is an international organization that uses brokerage, solution provider B2B business model to enable hundreds of insurance carriers across the globe to attain strategic outcomes via information technology. This model has enabled the organization to successfully develop and implement innovative solutions in the insurance industry and design and give solutions that enlarge its profitability, market share and visibility (Consis International, 2011).

Since the model requires regular re-evaluation, the company renovates hi-tech value to business value for its buyers.

8.  Conclusion

It is clear that the number of organizations implementing B2B e-business model is growing rapidly. As new organizations emerge as B2B players, so does B2B business models emerge. As a result, it becomes difficult to clearly categorize B2B business models. This is because B2B organizations are evolving, changing their offerings and strategies regularly, and re-evaluating their processes in order to keep up with changes in the business environment. In addition, majority of organizations present attributes and offerings of products in ways that pertain to more than one business model. This augments the complexity in categorizing B2B e-business models.

As uncovered in the study, B2B business models bring valuable benefits to organizations including reducing operational costs and placing them competitively in their respective industries. However, there are numerous B2B models available with specific advantages and challenges as shown in the study. Therefore, any organization should conduct a close examination of each model in relation to its requirements for it to make an informed choice given the available diversity of these models.

As indicated by Baltzan and Philips (2010), organizations must view business models as sources of innovation besides adopting them to facilitate technological management and innovation. They should, therefore, create processes through which they will make improvements and innovations for them to become business model innovators. However, they should be aware that rising costs of e-business models techniques and increasing short life cycles of products mean that great technologies cannot be relied on to provide satisfactory profit. A good model should beat a good technology.