E-Marketing Models in E-Business

According to Professor Michael Rappa, a business model can simply be defined as "the method of doing business by which a company can sustain itself" (Rappa, 2004). In other words, what does a business do in which it generates more income than expenses therefore being able to stay in business. Rappa has organized these business models into nine categories: brokerage, advertising, infomediary, merchant, manufacturer (or direct), affiliate, community, subscription, and utility. This paper will explore four of these models and analyze how they are implemented in an example business.

Brokerage

Brokers are in the business of bringing consumers and businesses together while helping the business transaction. Brokers usually make their money by charging a fee for this service that is paid by either the buyer or the seller based on the sales contract. Rappa has further organized the brokerage model into eight sub-categories. One of these sub-categories is a search agent. A search agent is software that is used to find the best prices and availability of products. An example of a search agent is www.pricewatch.com.

Pricewatch is a searchable listing of computer products in a variety of categories. Companies register with Pricewatch and list their best prices on products. Pricewatch then compiles all this information for consumers to compare prices and find the best deals. Pricewatch does not actually carry any products, but they are a searchable compilation of prices from member retailers. Per their website, they serve over 400 million web pages per month, so they have an established base of persons to advertise to. While not specifically stated on the general website, fees are paid by the companies placing the listings as per the brokerage model. (www.pricewatch.com).

Advertising Model

The advertising model is an extension of basic tv and/or radio advertising. You listen to free music or watch free shows, but there are commercials spread between songs and within the shows. In e-business, the "commercials" are usually banner ads and are displayed in a number of ways depending on how the site is set up. Rappa organized the Advertising Model into eight sub-categories including the Contextual advertising sub-category. An example of contextual advertising is an email package by Qualcomm.

Qualcomm provides an email package called Eudora in a couple different licensing models. A person can purchase a fully licensed copy, or they can download a free version that is supported by advertising. In the free version, Eudora reserves approximately 1/10^th of the screen for a rotating banner ad. The companies in this rotating banner ad are changed periodically and the information is downloaded in the background without the user being required to do anything. Through the fees that are charged to the advertisers, Qualcomm is able to provide Eudora to users without having to pay. For users that do not want the banner ads, Eudora requires the licensing fee. (www.eudora.com).

Subscription Model

In the subscription model, users are charged a subscription fee on a set schedule (daily, weekly, monthly, yearly, etc). These fees are set as a flat fee and are not based on actual usage of the service. Rappa was able to break the subscription model into four sub-categories: content services, person-to-person networking services, trust services, and Internet service providers. Content services are those that provide text, audio, or video content to subscribers of the service. An good example of content services is Walmart's DVD rental service.

Walmart's DVD rental service is similar to and in direct competition with NetFlix. For a set fee per month, subscribers are able to rent as many DVD's as the plan allows. You receive a certain number of videos at one time, then when you return all or some of the videos you can receive more. It is all done via the Internet and mail, so you do not have to actually visit any stores. The number of videos that you can have at any one time is set by your subscription level. Walmart has priced their subscriptions to directly compete with Netflix and take customers from them. (www.walmart.com).

Manufacturer Model

The manufacturer model can also be referred to as the direct model. This model describes when a manufacturer uses the Internet to directly sell its products to consumers without going through middlemen. By simplifying the distribution channel, the manufacturer is able to reduce the purchase price for the consumer while still maintaining a solid profit margin. Rappa is able to break the Manufacturer model into four sub-categories: purchase, lease, license, and brand integrated content. The license sub-category is common for computer software when rights of usage are transferred to the consumer, while the actual ownership of the software is not. One of the most common software vendors in the United States and abroad is Microsoft.

Microsoft has a wide range of computer software that extends from operating system software (Windows 2000, Windows XP, etc), to software development tools (Visual Studio, Front Page, etc), to games (Microsoft Flight Simulator, etc). Whenever someone purchases any of these software packages, they are purchasing the right to use the software in accordance with the End User License Agreement (EULA), but Microsoft retains the ownership of the compiled code. When purchasing software, it is important to read the EULA for any restrictions of use that might be contained in the often long and hard to understand EULA. An example of a restriction that is placed in a EULA by Microsoft is detailed here: http://slashdot.org/article.pl?sid=01/09/20/1443226&mode=thread. This thread outlines a clause in Microsoft Front Pages' EULA that prohibits users from using Front Page to create any websites that disparages any Microsoft product or division. While almost any software comes with some type of EULA, some companies like Microsoft are much more detailed then others. (www.microsoft.com).

Conclusion

As we can see from the examples, there are many different models that are in use on the Internet. The examples contained in this paper are a small sample of what exists and some web sites and companies could span either multiple categories or at least multiple sub-categories within a model. Rappa has provided significant descriptions in his papers and has more than adequately categorized the different ways that business is conducted on the Internet.

References:

www.eudora.com

www.microsoft.com

www.pricewatch.com

www.walmart.com

Rappa, Michael. Business Models on the Web. Retrieved August 23, 2004 from http://www.digitalenterprise.org/models/models.html.