Evaluation of Business Models
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This article is presented by:
Professor Joshua Livnat, Ph.D., CPA
311 Tisch Hall
New York University
40 W. 4th St.
NY NY 10012
Evaluation of Business Models


Overview

The underlying logic for an E-Commerce company.
A five-step process to assess the business model.
Classifications of E-Commerce companies.
Various business models.
Implications of the business model.
Long-term viability of business models.


The Underlying Logic

“Old Economy” contains market failures or transaction costs:
Examples:
Information is not freely available, and is costly to gather and process.
Markets may be too fragmented and too dependent on local population (personal items for sale).
The “New Economy” company eliminates or reduces market failure or transaction cost.


The Underlying Logic

Note: The deficiency in the “old” economy is actually the opportunity for the “new” economy company.
However, for the opportunity to be profitably exploited:
It should be significant.
The company should have adequate resources.
The company should have the ability to generate revenues from customers.
The company should be able to deter competition, or differentiate itself from its competitors.

Sellers’ Transaction Costs
Order Taking Costs:
Reduce physical facilities and number of employees dedicated to process orders by accepting and processing orders electronically.
Recording Costs:
Avoid the manual data recording process by connecting the users electronically and allowing them to enter the data themselves.
Display Costs:
Eliminate stores, employees in these stores, and paper catalogues, by maintaining a virtual store.
Mailing Costs:
Reduce physical mail sent to customers by sending E-mail instead.
Marketing costs:
Replace mass marketing channels by direct marketing to relevant customers only.




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