- What is a reverse auction? What company is an example of this type of business?
A reverse auction, used by many purchasing and supply management organizations for the sake of spend management, reverses the traditional roles of buyers and sellers. Reverse auction, which is associated with Internet auction as well as e-procurement， is a kind of B2B business models. In a typical auction, buyers compete to obtain the item through increasing the bids. The seller finally will make a deal with the highest bidder.
However, a reverse auction is a reversed one-sided, open bid descending auction. (Bieberstein.P,2002) Moreover, the whole auction process is done through internet and software instead of a face to face negotiation. These sellers bid for the business by unceasingly decreasing the prices. After the reverse auction, the contract will be awarded to the vendor with the lowest bid. This buyer-oriented auction is widely introduced to many organizations since 1990s, mainly because it cuts down a lot of purchasing expense and it diverts the competition stress to the shoulders of sellers. However, because of highly focusing on price, the reverse auction ignores the value chain and could not maintain a good relationship with the suppliers.
Auto eBid is a company with the aim of bringing reverse auction benefits to consumers looking to purchase with lower price. It develops a platform for the buyer to list his item requirements on the website. Then 3 to 5 suppliers who do not know each others will bid for the business. Moreover, they only know their own places of the list instead of others’ real price number. After ten minutes, the buyer will have a deal with the supplier with the lowest bid. Finally, Auto eBid will charge the transaction fee from the buyer.
- Describe the five primary revenue models used by e-commerce firms.
(1)Advertising revenue model: Borrowing heavily from the newspapers business model, advertising revenue model also receives fees and generates profits by offering advertisements on websites. Generally, the more famous and popular websites could attract more eyeballs, resulting in the more advertisement revenue. There are two main subcategories in advertising revenue model: direct and contextual advertising.
(2)Subscription revenue model: this method earns revenue by charging a subscription fee for offering the contents or services of the website to the subscribers. All the information that the website provided should be recognized as high-value-added, otherwise the number of subscribers will be decreased gradually. The income of this method is more predictable and stable than that of advertising revenue model.
(3)Transaction fee revenue model: These businesses charge fees by offering services to enable or execute the transactions, such as eBay and TaoBao. For example, eBay provides a credible platform for the customers and vendors to do business, and it will charge the transaction fee from the seller when the transaction was done.
(4)Sales revenue model: In this model, the website itself is the seller and it sells the products and services directly to the customers. The revenue is directly from the selling income. Therefore, the website need not to share the income with others and possesses 100% of the income. Chinese electronic retailer HOME is one of the examples.
(5)Affiliate revenue model: Sites that steer business to an “affiliate” and receive a referral fee or takes a commission on the sale. (Laudon & Traver，2010) Routing customers to the other sites successfully will bring the company with high level of commissions. Both Amazon and eBay provide affiliate programs.
- What is a business model? How does it differ from a business plan?
A business model, as Laudon& Traver defined in 2010, is a set of planned activities (sometimes referred to as business processes) designed to result in a profit in a marketplace. As a part of business strategy, a business model describes the method of a company creating, delivering and gaining economic or social values. Generally speaking, anything related with the company’s daily functionality, such as operating strategies or the revenues, could be recognized as the part of a business model.
A business plan is a detailed document which illustrates the company’s business model, that is to say, the business plan is completely originated from the business model. A good business model and a detailed business plan can ensure the success of a company.
However, there are some differences between a business plan and a business model. A business plan is a detailed document forced you to carefully think through your proposed business, (Strauss, 2008) while a business model is a proprietary methodology used to retain customers. Moreover, every company own its business model, while not every company writes down this business model to create a business plan for the sake of saving time and money. Furthermore, a business plan, considered as output-focused, is aimed to tell investors about the company’s mouthwatering story. The input-focused business model, aimed at the customers, is endeavored to gain value through solving customers’ problems. Changing business plan is a common thing in business world, while these changes should never beyond the control of the business model.
Bieberstein.P (2002), B2B Reverse Auctions Germany: GRIN Verlag
Laudon, K & Traver,C (2010) E-Commerce 2010 BUSINESS,TECHNOLOGY, SOCIETY. Sixth Edition
Strauss. S (2008) The small business bible: everything you need to know to succeed in your company New Jersey: John Wiley & Sons, Inc.