doing so. Weill and Vitale (2002) identified eight atomic e-business model, each of which describes the essence of conducting business electronically: (1) direct to customer, (2) full-service provider, (3) whole of enterprise, (4) intermediary, (5) shared infrastructure, (6) virtual community, (7) value net integrator and (8) content provider.
In their discussion of IT infrastructure services needed for each e-business model, Weill and Vitale (2002) identified knowledge management system as the most critical service for content providers. A content provider is a firm that creates and provides content (information, products or services) in digital form to customers.
P3: Knowledge management systems are more important in content providers than in other atomic e-business models.
A business model details how a firm makes money now and how it plans to do so in the long run. The model is what enables a firm to have a sustainable competitive advantage, to perform better than its rivals in the long term. A business model can be conceptualized as a system that is made up of components, linkages between the components and dynamics.
Weill and Vitale (2001) define an e-business model as a description of the roles and relationships among a firm’s consumers, customers, allies and suppliers that iden- tifies the major flows of product, information, and money, and the major benefits to participants. There are many different ways to describe and classify e-business models. Weill and Vitale (2001) proposed that there are a finite number of atomic e-business models, each of which captures a different way to conduct e-business.
Firms can combine atomic e-business models as building blocks to create tailored e-business models and initiatives, using their competencies as their guide. Weill and Vitale (2001) identified the following eight atomic e-business models, each of which describes the essence of conducting business electronically:
1. Direct.to.customer: The distinguishing characteristic of this model is that buyer and seller communicate directly, rather than through an intermediary.
The seller may be a retailer, a wholesaler or a manufacturer. The customer may be an individual or a business. Examples of the direct-to-customer model are Dell Computer Corporation (www.dell.com) and Gap, Inc. (www.gap.com).
Infrastructure. The direct-to-customer model requires extensive electronic con- nection with the customer, including online payment systems. Many direct-to- customer implementations include an extranet to allow customized Web pages for major B2B customers. Operating a direct-to-customer e-business requires significant investment in the equivalent of the store: the Web site. Direct-to-
customer businesses spend millions of dollars developing easy-to-navigate and easy-to-use Web sites with the goal of improving the B2B or B2C shopping experience online. Lands’ End (www.landsend.com) has devised a feature by which women can build and store a three-dimensional model of themselves to
“try on” clothes electronically. In their field research, Weill and Vitale (2001) found that firms with e-business initiatives containing the direct-to-customer e-business model needed and were investing more heavily in three areas of infrastructure services: application infrastructure, communications and IT management.
Direct-to-customer firms particularly needed payment transaction processing to process online customer payments, enterprise-wide resource planning (ERP) to process customer transactions, workflow infrastructure to optimize business process performance, communication network services linking all points in the enterprise to each other and the outside world (often using TCP/IP protocol), the installation and maintenance of workstations and local area networks sup- porting the large number of people required to operate a direct-to-customer model and service-level agreements between the business and the IT group or outsourcer to ensure, monitor and improve the systems necessary for the model.
Sources of revenue. The main source of revenue in the direct-to-customer model is usually direct sales to customers. Supplemental revenues come from advertising, the sale of customer information and product placement fees.
Critical success factors. Critical success factors are the things a firm must do well to flourish. The following list shows the critical success factors for the direct-to-customer model: create and maintain customer awareness, in order to build a critical mass of users to cover the fixed cost of building an electronic presence; reduce customer acquisition costs; strive to own the customer rela- tionship and understand individual customer needs; increase repeat purchases and average transaction size; provide fast and efficient transaction processing, fulfillment and payment; ensure adequate security for the organization and its customers; and provide interfaces that combine ease of use with richness of experience, integrating multiple channels.
2. Full-service.provider: A firm using the full-service provider model provides total coverage of customer needs in a particular domain, consolidated via a single point of contact. The domain could be any major area of customer needs requiring multiple products and services, for example, financial services, health care or industrial chemicals. The full-service provider adds value by providing a full range of products, sourced both internally and externally, and consolidating them using the channel chosen by the customer. Examples of the full-service provider are the Prudential Advisor (www.prusec.com) and GE Supply Company (www.gesupply.com).
Infrastructure. Virtually all businesses aspire to getting 100% of their customers’
business, or at least to getting as much of that business as they can profitably handle. Yet the number of full-service providers remains small. Part of the reason for this is the required infrastructure. The missing piece of infrastruc- ture in many businesses is often a database containing information about the customer and the products that the customer owns. Without owning these data, a provider does not own the customer relationship, and therefore some of the customer’s transactions are likely to take place directly with other providers.
All of the important interactions with customers occurring across any channel or business unit must be recorded in the firmwide customer database.
Weill and Vitale (2001) identified in their field research databases and data warehouses as some of the most important infrastructure services associated with the full-service provider model. Other important infrastructure services included the following: the ability to evaluate proposals for new information systems initiatives to coordinate IT investments across a multi-business-unit firm with the goal of a single point of contact for the customer; centralized management of IT infrastructure capacity to integrate across multiple busi- ness units within the firm and third-party providers (the full-service provider model is not readily workable if each business unit optimizes its own IT needs); installation and maintenance of workstations and local area networks to operate the online business linking all the business units and third-party providers; electronic support for groups to coordinate the cross-functional teams required to implement this model; and the identification and testing of new technologies to find cost-effective ways to deliver this complex business model to the customer across multiple channels.
Sources of revenue. A full-service provider gains revenues from selling its own products and those of others, and possibly also from annual membership fees, management fees, transaction fees, commissions on third-party products, advertising or listing fees from third-party providers and fees for selling ag- gregated data about customers.
Critical success factors. One important critical success factor is the brand, credibility and trust necessary for a customer to look to the firm for its com- plete needs in an area. Another is owning the customer relationship in one domain and integrating and consolidating the offering of many third parties into a single channel or multiple channels. A third factor is owning more of the customer data in the relevant domain than any other player. A final factor is enforcement of policies to protect the interests of internal and external sup- pliers, as well as customers.
3. Whole.of.enterprise: The single point of contact for the e-business customer is the essence of the whole-of-enterprise atomic business model. Although many of this model’s breakthrough innovations have occurred in public-sec-
tor organizations, the model is applicable in both the for-profit and the public sectors. An example of this model is the Australian state of Victoria with its Business Channel (www.business.channel.vic.gov.au) and Health Channel (www.betterhealth.vic.gov.au).
Infrastructure. For the whole-of-enterprise model, infrastructure needs to link the different systems in the various business units and provide a firmwide perspective for management. The field research by Weill and Vitale (2001) revealed that the following infrastructure services are the most important for implementing this model: centralized management of infrastructure capacity to facilitate integration and capture economies of scale; identification and testing of new technologies to find new ways to integrate the often different systems in many business units into a single point of customer contact; management of key data independent of applications and the creation of a centralized repository for firmwide information; electronic means of summarizing data from different applications and platforms to manage the complexity arising from a single point of contact for multiple business units; development of an ERP service to process the transactions instigated by customers interacting with several different business units, often requiring consolidating or linking several ERPs in the firm; payment transaction processing, either on a firmwide basis or by linking several systems across the business units; large-scale data- processing facilities to process transactions from multiple business units, often centralized to achieve economies of scale; and integrated mobile computing applications, which provide another channel to the customer.
Sources of revenue. In the for-profit sector, revenues are generated by provi- sion of goods and services to the customer by the business units. There may also be the opportunity to charge an annual service or membership fee for this level of service. In the government sector, the motivation is usually twofold:
improved service and reduced cost. Service to the community is improved through continuous, round-the-clock operation and faster service times. Sharing more infrastructure and eliminating the need to perform the same transaction in multiple agencies can potentially reduce government costs.
Critical success factors. The following list details the critical success factors for the whole-of-enterprise model: changing customer behavior to make use of the new model, as opposed to the customer continuing to interact directly with individual units; reducing costs in the individual business units as the direct demands on them fall, and managing the transfer pricing issues that will inevitably arise; altering the perspective of the business units to take an enterprise-wide view, which includes broad product awareness, training, and cross-selling; in the integrated implementation, reengineering the business processes to link into life events at the front end and existing legacy processes and systems at the back end; and finding compelling and practical life events that customers can use as triggers to access the enterprise.
4. Intermediaries: These are.portals, agents, auctions, aggregators and other inter- mediaries. E-business is often promoted as an ideal way for sellers and buyers to interact directly, shortening old-economy value chains by disintermediating some of their members. Yet some of the most popular sites on the Internet, both for consumers and for business users, are in fact intermediaries — sites that stand between the buyer and the seller. The services of intermediaries include search (to locate providers of products and services), specification (to identify important product attributes), price (to establish the price, including optional extras such as warranties), sale (to complete the sales transaction, including payment and settlement), fulfillment (to fulfill the purchase by delivering the product or service), surveillance (to conduct surveillance of the activities of buyers and sellers in order to report aggregate activity and prices and to inform and regulate the market) and enforcement (to enforce proper conduct by buyers and sellers). Examples of intermediaries are electronic malls, shopping agents, specialty auctions, electronic markets, electronic auctions and portals.
Infrastructure. Intermediaries generate value by concentrating information and bringing together buyers and sellers, operating entirely in space and thus relying on IT as the primary infrastructure. Weill and Vitale (2001) found in their field interviews that the most important infrastructure services for firms pursuing the intermediary atomic business model are the following: knowledge management, including knowledge databases and contact databases that enable the codification and sharing of knowledge in this highly information-intensive business; enforcing Internet and e-mail policies to ensure proper and consistent use of electronic channels to buyers, sellers and intermediaries; workstation networks to support the products and services of this all-electronic business model; centralized management of e-business applications, ensuring consis- tency and integration across product offerings; information systems planning to identify the most effective uses of IT in the business; and information systems project management to ensure that business value is achieved from IT investments.
Sources of revenue. An intermediary may earn revenues from buyers, sellers or both. Sellers may pay a listing fee, a transaction fee, a sales commission or some combination. Similarly, buyers may pay a subscription fee, a success fee or a sales commission.
Critical success factors. The chief requirement for survival as an intermediary is sufficient volume of usage to cover the fixed costs of establishing the busi- ness and the required infrastructure. Attracting and retaining a critical mass of customers is therefore the primary critical success factor. Another important critical success factor is building up infrastructure just quickly enough to meet demand as it increases.
5.. Shared.infrastructure: The firm provides infrastructure shared by its owners.
Other suppliers, who are users of the shared infrastructure but not owners, can also be included. Customers who access the shared infrastructure directly are given a choice of suppliers and value propositions. The owner and the nonowner suppliers are generally represented objectively. In some situations, goods or services flow directly from the shared infrastructure to the customer.
In other situations, a message is sent by the shared infrastructure to the sup- plier, who then completes the transaction by providing the goods or services to the customer.
An example illustrating the features of the shared-infrastructure business model is the system from 2000 by America’s largest automakers, some of their dealers and IBM, Motorola and Intel. The initiative was named Covisint (collaboration vision integrity). General Motors, Ford and DaimlerChrysler see stronger potential benefits from cooperating on supply-chain logistics than from competing.
Infrastructure. The shared-infrastructure business model requires competitors to cooperate by sharing IT infrastructure and information. This level of coopera- tion requires agreement on high-level IT architectures as well as operational standards for applications, data communications and technology. Effective implementation of the shared-infrastructure model also requires enforcement of these standards, and most shared-infrastructure models have a joint com- mittee to set and enforce standards. Another role of these committees is to implement the policies of the shared infrastructure about what information, if any, is shared and what information is confidential to partner firms. Weill and Vitale (2001) found in their field research that the most important infrastruc- ture services required by firms implementing the shared-infrastructure atomic business model all concerned architectures and standards: specification and enforcement of high-level architectures for data, technology, applications, com- munications and work that are agreed to by alliance partners, and specification and enforcement of detailed standards for the high-level architectures.
Sources of revenue. Revenues can be generated both from membership fees and from transaction fees. The alliance may be run on a nonprofit basis or on a profit-making basis. Not-for-profit shared infrastructures are typically open to all eligible organizations and distribute any excess revenues back to their members. The for-profit models are typically owned by a subset of the firms in a given segment, which split up any profits among themselves.
Critical success factors. Critical success factors for the shared-infrastructure model include the following: no dominant partner that gains more than any other partner; an unbiased channel and objective presentation of product and service information; critical mass of both alliance partners and customers;
management of conflict among the ongoing e-business initiatives of the al- liance partners; compilation and delivery of accurate and timely statements of the services and benefits provided to each member of the alliance; and interoperability of systems.
6. Virtual.community: Virtual communities deserve our attention, and not only because they are the clearest, and perhaps the last, surviving embodiment of the original intent of the Internet. By using IT to leverage the fundamental human desire for communication with peers, virtual communities can create significant value for their owners as well as for their members. Once estab- lished, a virtual community is less susceptible to competition by imitation than any of the other atomic business models. In this business model, the firm of interest — the sponsor of the virtual community — sits in the center, positioned between members of the community and suppliers. Fundamental to the success of this model is that members are able, and in fact are encouraged, to communicate with one another directly. Communication between members may be via e-mail, bulletin boards, online chat, Web-based conferencing or other computer-based media, and it is the distinguishing feature of this model.
Examples of this model are Parent Soup (www.parentsoup.com), a virtual community for parents, and Motley Fool (www.motleyfool.com), a virtual community of investors.
Infrastructure. Virtual communities depend on IT to exist. In particular, the creation and continual enhancement of an Internet site is essential if a virtual community is to survive. Many virtual-community sites include not just static content and links, but also tools of interest to potential members. Weill and Vitale (2001) found in their field research that the infrastructure services most important for the virtual-community business model are the following:
training in the use of IT for members of the community; application service provision (ASP) to provide specialized systems virtual communities need such as bulletin boards, e-mail, and ISP access; IT research and development, including infrastructure services for identifying and testing new technologies and evaluating proposals for new information systems initiatives; information systems planning to identify and prioritize potential investments in IT in this completely online business; and installation and maintenance of workstations and local area networks to support the electronic world of the virtual com- munity.
Sources of revenue. A sponsoring firm can gain revenue from membership fees, direct sales of goods and services, advertising, click-throughs and sales commissions. A firm sponsoring a virtual community as an adjunct to its other activities may receive no direct revenue at all from the virtual community.
Rather, the firm receives less tangible benefits, such as customer loyalty and increased knowledge about its customer base.