Impact of Dynamic Business and Revenue Models on Traditional Business Model

Electronic commerce often abbreviated as e-Commerce has passed the test of time into becoming one of the best inventions in the business world. With the advancement of information technology as well as the electronic media, e-Commerce has managed to sprout as a strong industry which has the ability to support the buying and selling of goods and services through an electronic transfer system (Miller, 2012). The internet is a vital tool in enhancing these kinds of trade. Moreover it draws widely from several technological fields beginning with the mobile phones, automated supply chain management, electronic funds transfer, internet marketing, social networking, online transaction processing, inventory management, research and data collection systems as well as the electronic data exchange systems. All these technological advancement uses the internet to disseminate data, send messages, socialize and make telephone calls through VOIP. On the other hands, multinational businesses have benefited from teleconferencing and webinars which has greatly saved the firms a lot of money that could have otherwise been spend on travelling from one continent or country to the other.

Apparently, the scope of e-Commerce is far reaching, touching several aspects of employee and resource management among other management functions. As a result of the globalization effects caused by technological advancement in the commerce industry, there have been tremendous shifts from traditional business models to embrace dynamic revenue and business models. This revolution has been enabled through adjustments in various departments such as the sales and marketing department who can search for potential customers over the internet and deliver he ordered goods via freight shipments such as DHL or FedEx (Zott, Amit & Massa, 2010). This implies that the supply chain has been transformed to favor faster and easier access to goods and services a cheaper cost as compared to physical travels which are not only costly but also time consuming. Likewise companies can be paid or make payment transactions over the internet which further demands that dynamic revenue and business models be revolutionized to match the changing structure of corporates.

Today, e-Commerce has been integrated into digital contents to enable access by online consumers whereby the customers can order to goods and services at the comfort of their homes or offices. At an institutional equal, financial institutions are using the internet to increase the mobility of money as well as facilitate the exchange of data regarding financial records for both international and domestic firms. Despite these advantages, being that e-Commerce is a relatively new field of venture by many companies, it is faced by myriads of challenges among them being security breach and data integrity. Companies storing their data over cloud storage have in the past faced the risk of data mining or industrial espionage resulting from the vulnerable channels of communication and inadequate security policies to protect businesses from such vices (Osterwalder, Pigneur & Smith, 2009). There have been cases of massive financial losses especially to cybercrime and hackers who have exploited weaknesses and loopholes inherent in these new electronic systems to trap financial information as well as confidential information. Businesses have had to face risks associated with insecure communication channels and financial systems that put their value chains at risk of being intercepted by malicious people.

Apart from the security and communication breaches, the enactment of electronic commerce has forced organizations into incurring massive expenses aimed at keeping up with latest technologies and security features which have been expensive for companies that are not properly leveraged. Economic theorists have further cited an increase in globalization which essentially is beneficial to the customers who are exposed to a wider localized market though online media and companies. While customers benefit from competitive pricing which results into price wars, businesses face the heat of diminishing profits. Businesses that fail to enjoy economies of large scale production are thus put at the risk of being faced out of the market. Likewise e-Commerce has made some industries completely impenetrable because of the intense price competitions that are not favorable to startup business ventures. Reflecting on Porters strategic model, a firm needs to integrate porter’s generic strategies of competitive advantage in order to maximize profits in spite of the intense competition accrued from electronic commerce and technological advancements that have exposed businesses to intense competition (Osterwalder et al 2009).

A manager who intends to succeed in the e-Commerce industry needs to coordinate strategy capability together with dynamic revenue and business models so as to come up with a winning management strategy that matches a modernistic corporate structure. More so a manager needs to know who the customers are, what the consumers need and how the needs will be satisfied. Among the factors that add up to creating competitive advantage are cost leadership, differentiation and focusing. Cost leadership can be achieved by charging standard costs so as to attract more customers and in return gain more sales and profitability or alternatively the firm can decide to charge lower prices as a way of increasing its market share so that it makes reasonable profits. Differentiation happens when a firm strives to make products that are unique as compared to their competitors while focus strategy is determined by a company’s efforts to segment the market into niches in order to maximize on its value chain. Porter’s model therefore presents a model which is applicable to all industries and organizations of varied sizes. The three strategies are pertinent in defining a suitable market niche after which the focus can be further divided into cost focus and differentiation focus depending on the degree of effectiveness of the dynamic revenue and business models chosen by the manager (Muegge, Haw & Matthews, 2013).

Critically analyzing and discussing the probable impacts of dynamic revenue and business models with relation to traditional business models illustrates that each and every business implicitly or explicitly uses one or more business models. A business model represents a summarized design of business activities starting with value creating, to delivery systems and finally the capture mechanisms used by a firm. Business models are relevant to every business in the sense that they summarize the customers’ needs, the company’s revenues and ability to invest in the value chain process and further define mannerisms in which businesses respond to customers’ needs as well as enticing them into purchasing the products produced by a certain company. The company then converts these purchases into profits and further improvements upon the revenue and business models interchangeably has the ability of streamlining the value chain which translates to profit maximization (Nissanoff, 2006). Therefore a business model can simply be defined as a reflection of management theories or hypothesis emphasizing on the needs of the customers, how they want their needs fulfilled and what they are willing to part with to purchase these goods or services. It therefore becomes the responsibility of the company to employ various strategies so as to meet these varied customer needs.

From the definition, it is rife that business models play a pertinent role in shaping the operations of a business enterprise. This is because the models both traditional and dynamic impact on the need for an organization to design and institutionalize corporate change. Thus the model helps managers understand the social and organizational environment which in return adds up in influencing the market behavior of the customers, innovations, competition, competitive advantage as well as corporate and industrial strategies (Muegge et al 2013). This is because the business models as well as revenue models helps the customers to familiarize with the nature of the firm and their payment systems respectively. Managers ought to use such sensitive information to strike potential strategies that will enable a firm to enjoy competitive advantage despite the increasing price competition. Again, the manager must ensure that the model selected is logical enough to include the needs of the customers. Other features that will make a business and revenue model to stand out are its ability to be unique and free from imitations. This is coupled by the realization that at time, business rivals might want to imitate the models designed and used by a succeeding firm thus it becomes pertinent for a firm to guard its business and revenue models.

Where need arises, a manager might be forced to seek legal redress regarding the endorsement of a copyright or any other intellectual rights to protect the model from being replicated by competitors. As compared to the traditional business and revenue models, dynamic models have to go through a lot of assessments whereby the external and internal factors are analyzed in order to suit both the customers and the suppliers so as to establish good relationships as well as ensuring that the value chain is properly established. The history of traditional business models dates back to the tied products business model also the bait and hook model which was introduced in the 20^th century (Miller, 2012). The bait and hook models supports that businesses at times have to offer basic products or services at an extremely low price to capture or bait the customers while they shift the charges to recurring services so as to compensate for the loss. An instance is that case of mobile phone manufacturers who bait customers by selling phones at a cheaper price but sell to them essential software programs and other support services at a compensatory price. Another example is the printer and ink model whereby the printer is underpriced as a hook while the ink is overcharge in order to compensate the loss.

A variation of the hook and bait model was implemented by Adobe Corporation which is a software program developer that issues out its document reader software programs for free but charge a lot of cash for the people who used the document to write or encrypt their document or data (Nissanoff, 2006). In analyzing the tied products business model as it was used by many organizations in the past, it becomes rife that the model is applicable to some organizations but not all. This is because of the dynamics employed by the business and revenue models and the financial targets of these firms. First of all, using the tied products makes the whole revenue collection process unpredictable. Organizations using this model are often faced with uncertainty in projecting income because of presence of substitute products where a customer can buy a product from one company then use the other tied product manufactured by the rival company because it is cheaper.

In the year 1950, McDonald revolutionized the hospitality industry by inventing a new model which was rejoined by Toyota and in 1960 Wal-Mart chain of hypermarkets invented theirs. FedEx devised their model in 1970 while Blockbuster, Dell, Intel, and Home Depot developed theirs in 1980. The need for a business and revenue model was increasingly growing in the 1990 when Starbucks Amazon.com, eBay and South West Airlines invented their own specialized models (Laudon & Guercio, 2013). These are examples of companies that identified the significance of specialized business and dynamic models to the improvement of the supply chains. It is from these traditional models that dynamic models have been coined to suit the technological advancements marked by the introduction of electronic commerce. This is to mean that as organizations continued to become dependent on the internet and other technologies, they develop dynamic business and revenue models to make them suited to their new business environments. This might be attributed to the fact that the internet facilitates their control of the supply chain by enabling them to reach both customers and suppliers which in turn help minimize production costs.

Unlike traditional business models such as the bait and hook business models which were centered on revenue collection making them sidelined to only the financial side of business management, dynamic business models provide a holistic model that shapes the value chain of a company by giving it a complete reshuffle. The dynamic business model has led to the development of the brick and click model which has evidently had an impact on the traditional models. With the brick and click model, organizations use both offline and online strategies to reach out to customers (Zott et al 2010). The model is mainly used by chain stores so as to increase their product visibility and make their products accessible to international customers who get the opportunity to buy their goods online. The other dynamic business and revenue model is collective business model represents groups of companies that work together as an association by pooling together resources, information and professionalism so as to attain economies of large scale production. This is facilitated by attainment of a collective bargain and control of the suppliers and the market as a whole.

The cutting-out-the middleman dynamic business and revenue model aims at eliminating business intermediaries along the supply chain so as to lower the costs incurred along the value chain (Laudon & Guercio, 2013). This is because brokers along the value chain lead to inflation of prices as they may use various strategies such as hoarding or creation of artificial shortages to trigger impulsive demand. This model is opposed to the traditional models which encouraged on the use of brokers, agents, retailers, wholesalers and distributers making the distribution process expensive as each one of the middlemen shared in the profits. The costs incurred were so huge that they had to be passed on to the consumers as overpriced commodities. Dynamic models have changed this system because the internet has facilitated direct communication between the organization and the customers thus the role traditionally played by brokers is eliminated. This model therefore impacts not only the revenues but also other operations in the value chain making giving it a holistic approach.

The direct sales dynamic business and revenue model promotes direct marketing and selling of services and other products directly to the customers. This model is applicable to businesses that value creating a personal relationship with their customers. It is also applicable to organizations that produce goods that require demonstrations, personal presentation or personal contact between the customer and the sales personnel. As compared to traditional models, the application of this dynamic model has impacted businesses by promoting the soft selling marketing strategies where companies create personal and lasting relationships with their customers as a way of winning their trust and loyalty (Karl & Ralf, 2010). This strategy is used by the Rolls Royce Motor Company.

Value added reseller dynamic business and revenue model represents companies that manufacture incomplete products in areas that they are best suited so as to reduce the costs of production. They then sell the incomplete products to another company which then modifies the products or completes them for resale. This model has been facilitated through outsourcing the production of some parts of products that could otherwise have been done cheaply if contracted to specialists. The dynamic model has facilitated the cropping up of such business and revenue models because businesses have learnt to manage costs rather than produce goods that they are not suited at a high cost and lose sales. The model is currently used by Samsung where the manufacture of various phone components is outsourced while the main plant is used for assembling and branding. Technology has facilitated the creation of a communication network which has been essential in facilitating the success of the VAR model (Graham, 2008). Unlike traditional models which loaded one company with the responsibility of manufacturing components that they were not specialized in, VAR model has provided a collaborative framework which has reduced the product development life cycle.

Franchising is another dynamic business model that entails collaborations aimed at sharing in another firm’s reputation so as to attract sales. The symbiotic relationship between the two franchises is helpful because both companies benefit in return. At times some costs incurred along the value chain are shared which leads to increased revenues and higher efficiency. The last model is the freemium business model which is purely dependent on the internet (George & Bock, 2012). This is a model used by corporations specialized in web development and online advertising. This model allows users of a certain website access to basic information such as digital products for free. This models works by enticing customers into advancing their preferences and purchasing premium packages which gives them direct access to special product features.

In conclusion, electronic commerce has been essential in the development of businesses. Beginning with the improved communication system, electronic transactions and increased mobility of goods and services because technology has facilitated globalization. Additionally, businesses are more leveraged through the use of dynamic business and revenue models which have been a modification of the traditional business models which were only interested in increasing the revenue of a firm but disregarded other operations of the business. Therefore we can state that technology and specifically the electronic commerce has been helpful in not only transforming business and revenue models but the use of social media as a both a communication and tool for advertisements has been helpful in improving the image of companies and creating customer loyalty (Chaudhury & Jean-Pierre, 2010). On the flip side, technology has exposed businesses to new environments which increase management challenges especially those resulting from intense price wars as well as security challenges.

References

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