Internet commerce has changed traditional business
models and has given rise to new kinds of business models. However, there is no
commonly acceptable definition of the business model's concept. Business models
have been defined and categorized in many different ways.
The probably best known definition and classification of electronic models is the one of Timmers (1998). According to him, a business model is an architecture for the product, service and information flows, a description of the various business actors and of their roles, as well as a description of the potential benefits of these actors and finally a description of the sources of revenue. In addition, he acknowledges the necessity of providing a marketing strategy, in order to accomplish a business mission. Timmers classifies the eleven generic e-business models he outlines, according to their degree of innovation and their functional integration.
For Rappa (2001) a business model spells out how a company makes money by specifying where it is positioned in the value chain. His taxonomy consists of nine generic e-business models, which classify companies among the nature of their value proposition or their mode of generating revenues. A very interesting framework is described by Rayport & Jaworski (2001). They divide an e-business model into four main pillars, which are the value cluster, the marketspace offering, the resource system and the financial model.
Osterwalder & Pigneur (2002) approached a business model as the conceptual and architectural implementation of a business strategy and as the foundation for the implementation of business processes. Three elements make up a business model: Revenue and product aspects; business actor and network aspects; and marketing specific aspects.
Obviously, the e-business models are implemented in a variety of ways and continue to evolve. Moreover, a company may combine different models as part of its overall Internet business strategy.
It would seem that a framework is more useful than a definition in contributing to the analysis of a business model’s structure and in determining the critical success factors in e-commerce. Osterwalder & Pigneur (2002) formulated and proposed an e-business model ontology (e.g. rigorous framework) that highlights the relevant e-business issues and elements firms have to consider in order to operate successfully. This framework is founded on four main pillars, which are product innovation, customer relationship, infrastructure management and financial aspects, as presented briefly in Table 1. According to these authors, a business model is nothing else than the value a company offers to one or several segments of customers and the firm’s architecture and network of partners for creating, marketing and delivering this value and relationship capital, in order to generate sustainable revenue streams.
Table 1. The pillars of an e-business model
Pillars Content & Components
1. Product Innovation The products and services a firm offers, representing a substantial value to the customer and for which he is willing to pay.
The main elements are the value proposition a firm wants to offer to specific target customer segments and the capabilities that a firm has to obtain in order to deliver this value.
2. Infrastructure Management
This element describes the value system configuration that is necessary to deliver the value proposition. This comprises the activities to create and deliver value, the relationship between them, the in-house resources and the firm's partner network.
3. Customer Relationship
Through the use of ICT firms can redefine the notion of customer relationship. The relationship capital the firm creates and maintains with the customer, in order to satisfy him and generate sustainable revenue.
4. Financial Aspect It is transversal because all other pillars influence it. This element is composed of the revenue model and its cost structure. The revenue model determines the firm's profit model and therefore its ability to survive in competition.
Source: Adapted from Osterwalder & Pigneur, 2002
It is obvious that the four pillars are interrelated and mutually supported. As for the business strategy, it is worth stressing that e-commerce initiative is not an activity that might or should be developed and implemented independently and separately. It has been suggested (Porter, 2001; Strauss & Frost, 2002) that it is necessary to have a strategic approach to e-commerce as a medium to accomplish the business aims. Therefore, marketing in the electronic era requires innovative strategies.
E-MARKETING AND E-COMMERCE IN TOURISM
Developments in ICT influence all marketing functions and the electronic marketplace brings new ways of marketing. It is obvious that ICT slashes marketing cost, removes intermediaries, and redefines marketing relationships (Rayport & Jaworski, 2001). The potential benefits resulting from e-commerce can be grouped into two categories:
• Improved effectiveness of current activities
• Broaden opportunities and new activities.
E-commerce has been defined as being "every kind of commercial contact or transaction between two or more parties, being done with electronic means and network, and having as direct or indirect aim to sell products and services" (Demetriades & Baltas, 2003: 40). It seems that this definition encompasses all marketing activities.
Rayport & Jaworski (2001) suggest that in order to compete in the electronic era, businesses must be prepared to use technology-mediated channels, create internal and external value, formulate technology convergent strategies, and organise resources around knowledge and relationships. On the marketing side, communication and customisation are among the new demands of the knowledge economy, whereby mass markets are a phenomenon of the past and interactive markets are the future (Wind & Mahajan, 2001).
ICT INFLUENCES ON MARKETING MIX
Evidence shows that ICT influences nearly every aspect of services marketing and the main stages in the marketing mix (Middleton, 2001). Kotler has restated the “Ps” (Product, Price, Promotion and Place) as “Cs” to reflect the consumer orientation that is central to modern services marketing thinking in an era of growing competition (Kotler & Armstrong, 1999). Product means Customer value; Price means Cost to the consumer; Promotion means Communication; and Place means Distribution, access or Convenience.
Moreover, the original four variables have been expanded to encompass People, Process (of service delivery) and Physical Evidence or design. These new marketing orientations are particularly relevant in the tourism field (Law, 2002a).
ICT has various influences in the fields of tourism and marketing. The Internet constitutes a medium of interactive communication and offers multiple uses for marketing purposes. Technological developments enable customers and businesses alike to change the way that they conduct exchange transactions, which are the core of all marketing (Hanson, 2000; Middleton, 2001).
The main implications of ICT on the principal processes in marketing include:
• Market research and marketing information systems.
• Customer Relationship Marketing (CRM): The Internet has a catalyst role in CRM applications. The e-CRM tools contribute to the implementation of various marketing activities (Demetriades & Baltas, 2003; Vlachopoulou, 2003).
• Strategic Planning and Networking: Virtual marketing companies provide distribution and marketing services. They facilitate and provide a platform for the exchange of information and for e-commerce transactions for a wide range of products. The Internet also allows the creation of virtual enterprises in which ICT provides the linkages – especially networks for micro-businesses.
• Advertising and Public Relations: The Internet provides a completely new medium to communicate to targeted customer groups.
• Information materials: The commercial developments of Web sites made the Internet an excellent and relatively low-cost medium for creating customer awareness using multimedia methods.
• Sales Promotion and Pricing: The Internet is an ideal medium for communicating prices, special offers and late availability of product. Through connectivity between databases and yield management programmes, sales promotions can now be customized to individuals.
• Distribution and access: ICT has come to dominate the industry’s way of thinking regarding the role and costs of distributing travel products. As a new channel for direct marketing communications, the Internet is also reinventing distribution. Distribution channels are the new forums for product innovation and development; they establish the parameters for pricing against competitors and are becoming the most important tool for sales promotion and merchandising.
• Consumer behaviour: The Internet - as a communication and promotional tool - is important, not only because customers buy products and services via electronic channels, but also due to its extensive use as an information medium (Turban et al., 2000).
In the first decade of the twenty-first century, travel and tourism is one of the world’s largest and most refined information based industries (Middleton, 2001: 218-219). Access to the Internet as a marketing tool provides a completely new means of bringing the two dimensions together by integrating promotion and distribution. The power of Web sites is that they can simultaneously advertise, inform, display, promote special offers, make a sale and provide instant booking and confirmation in customers’ homes or offices.
E-TOURISM BUSINESS MODELS
Because tourism is an information-based industry it is one of the natural leading industries on the Internet (Anchi et al., 2003). It is anticipated that most, if not all, sectors in the travel and tourism industry throughout the world will have sites on the Internet; showing the suitable marriage of two of the world’s fastest growing industries: information technology and tourism. That is why e-travel is the leading and fastest growing category of e-commerce (Law & Leung, 2002; Demetriades & Baltas, 2003). In order to exploit these opportunities in the market environment, tourism businesses have developed and implemented several business models. Table 3 shows the most frequently used models in the tourism industry.
Table 3. Business models used in the tourism and travel industry
Type of Model Description and Forms
Brokerage
Brokers are market makers; they bring buyers and sellers together and facilitate transactions (Law & Huang, 2003). Brokerage models include the following forms:
Marketplace Exchange: offers a full range of services covering the transaction process, from market assessment to negotiation and fulfillment (example: Orbitz) (Law, 2002b).
Demand Collection System: it is the "name-your-price" model pioneered by Priceline.com. Prospective buyer makes a final (binding) bid for a specified good or service, and the broker arranges fulfillment.
Auction Broker: conducts auctions for sellers. Broker charges the seller a listing fee and commission scaled with the value of the transaction (examples: eBay and Skyauction.com)
Advertising
Model The web-advertising model is a Portal; usually a search engine that may include varied content or services. A high volume of user traffic makes advertising profitable and permits further diversification of site services. A personalized portal allows customization of the interface and content to the user. (examples: Yahoo.com; In.gr)
Infomediary Model
Firms function as infomediaries (information intermediaries) assisting buyers and/or sellers understand a given market.
Travel infomediaries are globally branded ‘virtual businesses’ on the Internet that collect and sell information about a specific sector of a market and create a convenient platform (Cyber marketplace) on which buyers and sellers can gain information and do business (examples: Expedia; Travelocity; BargainHolidays and Travelselect).
E-tailing Business operating exclusively in electronic retailing. This model might take three forms (Turban et al., 2000; Kleindl, 2001):
• E-store: a single tourism shop
• E-mail: consisting of many electronic stores
• E-broker: simply provides aid to customers searching for products and business. It gains a commission from the businesses (example: Travelforall.gr]
R. Law (2001) provides valuable insights into the Priceline.com model. It offers products for sale in two categories: a travel service that offers airline tickets, hotel rooms, rental cars, packaged vacations and cruises; and a personal finance service that offers home mortgages, refinancing and home equity loans through an independent licensee. Priceline.com has pioneered a unique new type of e-commerce known as a "demand collection system" that enables consumers to use the Internet to save money on a wide range of products and services while enabling sellers to generate incremental revenue. Priceline.com is the world's first buying service through which consumers name the price they are willing to pay. Priceline.com licenses its business model to independent licensees.
Orbitz.com has implemented the Marketplace Exchange model. It is a leading online travel company that enables travellers to search for and purchase a broad array of travel products, including airline tickets, accommodation, rental cars, cruises and vacation packages.
For Rappa (2001) a business model spells out how a company makes money by specifying where it is positioned in the value chain. His taxonomy consists of nine generic e-business models, which classify companies among the nature of their value proposition or their mode of generating revenues. A very interesting framework is described by Rayport & Jaworski (2001). They divide an e-business model into four main pillars, which are the value cluster, the marketspace offering, the resource system and the financial model.
Osterwalder & Pigneur (2002) approached a business model as the conceptual and architectural implementation of a business strategy and as the foundation for the implementation of business processes. Three elements make up a business model: Revenue and product aspects; business actor and network aspects; and marketing specific aspects.
Obviously, the e-business models are implemented in a variety of ways and continue to evolve. Moreover, a company may combine different models as part of its overall Internet business strategy.
It would seem that a framework is more useful than a definition in contributing to the analysis of a business model’s structure and in determining the critical success factors in e-commerce. Osterwalder & Pigneur (2002) formulated and proposed an e-business model ontology (e.g. rigorous framework) that highlights the relevant e-business issues and elements firms have to consider in order to operate successfully. This framework is founded on four main pillars, which are product innovation, customer relationship, infrastructure management and financial aspects, as presented briefly in Table 1. According to these authors, a business model is nothing else than the value a company offers to one or several segments of customers and the firm’s architecture and network of partners for creating, marketing and delivering this value and relationship capital, in order to generate sustainable revenue streams.
Table 1. The pillars of an e-business model
Pillars Content & Components
1. Product Innovation The products and services a firm offers, representing a substantial value to the customer and for which he is willing to pay.
The main elements are the value proposition a firm wants to offer to specific target customer segments and the capabilities that a firm has to obtain in order to deliver this value.
2. Infrastructure Management
This element describes the value system configuration that is necessary to deliver the value proposition. This comprises the activities to create and deliver value, the relationship between them, the in-house resources and the firm's partner network.
3. Customer Relationship
Through the use of ICT firms can redefine the notion of customer relationship. The relationship capital the firm creates and maintains with the customer, in order to satisfy him and generate sustainable revenue.
4. Financial Aspect It is transversal because all other pillars influence it. This element is composed of the revenue model and its cost structure. The revenue model determines the firm's profit model and therefore its ability to survive in competition.
Source: Adapted from Osterwalder & Pigneur, 2002
It is obvious that the four pillars are interrelated and mutually supported. As for the business strategy, it is worth stressing that e-commerce initiative is not an activity that might or should be developed and implemented independently and separately. It has been suggested (Porter, 2001; Strauss & Frost, 2002) that it is necessary to have a strategic approach to e-commerce as a medium to accomplish the business aims. Therefore, marketing in the electronic era requires innovative strategies.
E-MARKETING AND E-COMMERCE IN TOURISM
Developments in ICT influence all marketing functions and the electronic marketplace brings new ways of marketing. It is obvious that ICT slashes marketing cost, removes intermediaries, and redefines marketing relationships (Rayport & Jaworski, 2001). The potential benefits resulting from e-commerce can be grouped into two categories:
• Improved effectiveness of current activities
• Broaden opportunities and new activities.
E-commerce has been defined as being "every kind of commercial contact or transaction between two or more parties, being done with electronic means and network, and having as direct or indirect aim to sell products and services" (Demetriades & Baltas, 2003: 40). It seems that this definition encompasses all marketing activities.
Rayport & Jaworski (2001) suggest that in order to compete in the electronic era, businesses must be prepared to use technology-mediated channels, create internal and external value, formulate technology convergent strategies, and organise resources around knowledge and relationships. On the marketing side, communication and customisation are among the new demands of the knowledge economy, whereby mass markets are a phenomenon of the past and interactive markets are the future (Wind & Mahajan, 2001).
ICT INFLUENCES ON MARKETING MIX
Evidence shows that ICT influences nearly every aspect of services marketing and the main stages in the marketing mix (Middleton, 2001). Kotler has restated the “Ps” (Product, Price, Promotion and Place) as “Cs” to reflect the consumer orientation that is central to modern services marketing thinking in an era of growing competition (Kotler & Armstrong, 1999). Product means Customer value; Price means Cost to the consumer; Promotion means Communication; and Place means Distribution, access or Convenience.
Moreover, the original four variables have been expanded to encompass People, Process (of service delivery) and Physical Evidence or design. These new marketing orientations are particularly relevant in the tourism field (Law, 2002a).
ICT has various influences in the fields of tourism and marketing. The Internet constitutes a medium of interactive communication and offers multiple uses for marketing purposes. Technological developments enable customers and businesses alike to change the way that they conduct exchange transactions, which are the core of all marketing (Hanson, 2000; Middleton, 2001).
The main implications of ICT on the principal processes in marketing include:
• Market research and marketing information systems.
• Customer Relationship Marketing (CRM): The Internet has a catalyst role in CRM applications. The e-CRM tools contribute to the implementation of various marketing activities (Demetriades & Baltas, 2003; Vlachopoulou, 2003).
• Strategic Planning and Networking: Virtual marketing companies provide distribution and marketing services. They facilitate and provide a platform for the exchange of information and for e-commerce transactions for a wide range of products. The Internet also allows the creation of virtual enterprises in which ICT provides the linkages – especially networks for micro-businesses.
• Advertising and Public Relations: The Internet provides a completely new medium to communicate to targeted customer groups.
• Information materials: The commercial developments of Web sites made the Internet an excellent and relatively low-cost medium for creating customer awareness using multimedia methods.
• Sales Promotion and Pricing: The Internet is an ideal medium for communicating prices, special offers and late availability of product. Through connectivity between databases and yield management programmes, sales promotions can now be customized to individuals.
• Distribution and access: ICT has come to dominate the industry’s way of thinking regarding the role and costs of distributing travel products. As a new channel for direct marketing communications, the Internet is also reinventing distribution. Distribution channels are the new forums for product innovation and development; they establish the parameters for pricing against competitors and are becoming the most important tool for sales promotion and merchandising.
• Consumer behaviour: The Internet - as a communication and promotional tool - is important, not only because customers buy products and services via electronic channels, but also due to its extensive use as an information medium (Turban et al., 2000).
In the first decade of the twenty-first century, travel and tourism is one of the world’s largest and most refined information based industries (Middleton, 2001: 218-219). Access to the Internet as a marketing tool provides a completely new means of bringing the two dimensions together by integrating promotion and distribution. The power of Web sites is that they can simultaneously advertise, inform, display, promote special offers, make a sale and provide instant booking and confirmation in customers’ homes or offices.
E-TOURISM BUSINESS MODELS
Because tourism is an information-based industry it is one of the natural leading industries on the Internet (Anchi et al., 2003). It is anticipated that most, if not all, sectors in the travel and tourism industry throughout the world will have sites on the Internet; showing the suitable marriage of two of the world’s fastest growing industries: information technology and tourism. That is why e-travel is the leading and fastest growing category of e-commerce (Law & Leung, 2002; Demetriades & Baltas, 2003). In order to exploit these opportunities in the market environment, tourism businesses have developed and implemented several business models. Table 3 shows the most frequently used models in the tourism industry.
Table 3. Business models used in the tourism and travel industry
Type of Model Description and Forms
Brokerage
Brokers are market makers; they bring buyers and sellers together and facilitate transactions (Law & Huang, 2003). Brokerage models include the following forms:
Marketplace Exchange: offers a full range of services covering the transaction process, from market assessment to negotiation and fulfillment (example: Orbitz) (Law, 2002b).
Demand Collection System: it is the "name-your-price" model pioneered by Priceline.com. Prospective buyer makes a final (binding) bid for a specified good or service, and the broker arranges fulfillment.
Auction Broker: conducts auctions for sellers. Broker charges the seller a listing fee and commission scaled with the value of the transaction (examples: eBay and Skyauction.com)
Advertising
Model The web-advertising model is a Portal; usually a search engine that may include varied content or services. A high volume of user traffic makes advertising profitable and permits further diversification of site services. A personalized portal allows customization of the interface and content to the user. (examples: Yahoo.com; In.gr)
Infomediary Model
Firms function as infomediaries (information intermediaries) assisting buyers and/or sellers understand a given market.
Travel infomediaries are globally branded ‘virtual businesses’ on the Internet that collect and sell information about a specific sector of a market and create a convenient platform (Cyber marketplace) on which buyers and sellers can gain information and do business (examples: Expedia; Travelocity; BargainHolidays and Travelselect).
E-tailing Business operating exclusively in electronic retailing. This model might take three forms (Turban et al., 2000; Kleindl, 2001):
• E-store: a single tourism shop
• E-mail: consisting of many electronic stores
• E-broker: simply provides aid to customers searching for products and business. It gains a commission from the businesses (example: Travelforall.gr]
R. Law (2001) provides valuable insights into the Priceline.com model. It offers products for sale in two categories: a travel service that offers airline tickets, hotel rooms, rental cars, packaged vacations and cruises; and a personal finance service that offers home mortgages, refinancing and home equity loans through an independent licensee. Priceline.com has pioneered a unique new type of e-commerce known as a "demand collection system" that enables consumers to use the Internet to save money on a wide range of products and services while enabling sellers to generate incremental revenue. Priceline.com is the world's first buying service through which consumers name the price they are willing to pay. Priceline.com licenses its business model to independent licensees.
Orbitz.com has implemented the Marketplace Exchange model. It is a leading online travel company that enables travellers to search for and purchase a broad array of travel products, including airline tickets, accommodation, rental cars, cruises and vacation packages.
