Internet+Commerce+Models

toc **Internet Commerce ** > The emergence of web 2.0 has enabled global commerce as a whole to take advantage of what is known as ‘collective intelligence’ and as such, new ways of doing business have been formed (Saxton, Oh & Kishore, 2013, p4). Companies such as Amazon and Ebay have paved the way for many in maximising the use of internet technologies to reach online audiences and potential customers. They have been highly successful in their online business ventures, (Krishnamurthy, 2004, p30) with Amazon reporting a first quarter net income of 82 million this year (amazon.com, 2013) and ebay reporting 677 million for the 2012-2013 financial year (Wortham, 2013). The main reason for their success derives from the ability to reach a broader audience by dispersing operations globally, which in turn maximises their marketing and sales potential. Use of web technologies has also helped companies to minimise costs associated to staffing and distribution due to the evolving networking economy whereby the consumers become actively involved in contributing to the operational and marketing strategies of a company. (Krishnamurthy, 2004, p30) This type of outsourcing has become prominent in the online world of commerce and brings with it opportunities for the individual to be a part of the e-commerce cycle, where economic growth continues to flourish and opportunities soar. > **Brokerage ** – This model aims to act as an intermediary between buyers and sellers. It consists of marketplace exchanges, transaction facilitation, auction brokerage and distribution services. **Advertising ** – This model is targeted at placing advertising within website content. It can include banner ad placement, classified listings, portal gateways, freeware with embedded advertisements and intromercials. > **Infomediary ** – This model targets consumer behaviour and aims to retrieve statistical information about internet use so that marketing companies can tailor their marketing campaigns accordingly. > **Merchant ** – This model facilitates the transaction process that occurs online. > **Manufacturer ** (Direct) – This model aims to reach customers directly and reduce distribution via online channels. > **Affiliate ** – This model consists of companies sharing a percentage of their revenue to people who engage with banner exchanges and pay-per-clicks. > **Community ** – The Community Model aims to promote loyalty with its followers whereby they invest emotion and time in return for use of various software, online social platforms and in the case of ‘Kickstarter’, rewards for pledges made. > **<span style="color: #000080; font-family: Tahoma,Geneva,sans-serif;">Subscription **<span style="font-family: Tahoma,Geneva,sans-serif;"> – This model aims to attract users who are willing to pay for services and often offer some sort of free option to entice membership. > **<span style="color: #000080; font-family: Tahoma,Geneva,sans-serif;">Utlity **<span style="font-family: Tahoma,Geneva,sans-serif;"> – This model uses the pay as you go approach for services carried out. It consists of metered usage and metered subscriptions. As shown above, there are a number of Internet business models that currently exist and more often than not, they tend to cross-over with each other in order to cater for evolving business strategies. Rappa states that “it is not uncommon for content driven businesses to blend advertising with a subscription model” (Rappa, 2010, para 7).
 * // - By Theresa Keecherer //**
 * =====__**<span style="color: #000080; font-family: Verdana,Geneva,sans-serif;">Internet Commerce concepts **__=====
 * =====__**<span style="color: #000080; font-family: Verdana,Geneva,sans-serif;">Types of Internet Commerce Models: **__=====

**<span style="background-color: #4d4a8c; color: #ffffff; font-family: Verdana,Geneva,sans-serif;">Commerce Comparison Table **
> structured business plans and targeted marketing campaigns
 * ** Traditional Commerce Concepts ** || ** Internet Commerce Concepts ** ||
 * * <span style="font-family: Tahoma,Geneva,sans-serif;">Traditional Commerce concepts are enabled through collaterals,
 * <span style="font-family: Tahoma,Geneva,sans-serif;">Enterprise management is governed by a collective body of business experts
 * <span style="font-family: Tahoma,Geneva,sans-serif;">Raising Venture capital usually requires assistance from financial institutions which can inhibit entrepreneurs in reaching their goals || * <span style="font-family: Tahoma,Geneva,sans-serif;">Internet commerce is characteristically enabled by web 2.0 and targets costomers globally through online platforms
 * <span style="font-family: Tahoma,Geneva,sans-serif;">It is often democratic in that online communities participate and contribute to the decision making and management processes
 * <span style="font-family: Tahoma,Geneva,sans-serif;">Community Fundraising activity is prominent in raising capital fro projects and in doing so gives control and power to the people collectively
 * <span style="font-family: Tahoma,Geneva,sans-serif;">It is more about maximsing ideas and concepts rather than the monetization of them - there is a SROI (Social Return on investment) (Lehner, 2013) ||

**<span style="background-color: #4d4a8c; color: #ffffff; font-family: Verdana,Geneva,sans-serif;">Internet Commerce and Crowdfunding **
**// “Combined with the low cost and easy-to-use social media technology platform, crowdsourcing is diversifying sourcing mechanisms, creating new markets and/or overriding the market share of traditional businesses by managing the scale of online communities in a flexible way for performing different tasks of varying levels of complexity” (//**Saxton, Oh and Kishore, 2013, p11).

<span style="font-family: Tahoma,Geneva,sans-serif;">The traditional e-commerce structure involves the buying, selling and auctioning of goods and or services online, whereby investments into product developments are usually large in size, distribution is often dispersed and return of investment is ongoing. The new economy of ‘Crowdfunding’ focuses more on online community support for product development and without the return on investment, unless it is recognised as being equity-based. However, the majority of crowdfunded projects work on the reward or donation based system, (Belleflamme, Lambert & Schweinbacher, 2013, p4) and according to Peoples, an estimated 1.2 billion dollars of funds have been successfully raised for projects (Peoples, 2013).

<span style="font-family: Tahoma,Geneva,sans-serif;">There are two main forms of crowdfunding models that are currently used globally; <span style="font-family: Tahoma,sans-serif; font-size: 10pt;">This type of crowdfunding relies heavily on the distribution of equity or debt amongst investors. The idea essentially helps businesses or individuals to raise capital through means of selling shares or part ownership of their business. Moreover it is a way for investors of a project / business to potentially obtain a financial return on their investment.
 * ======**<span style="color: #4d4a8c; font-family: Tahoma,Geneva,sans-serif;">Equity-based Crowdfunding Model (Investment Based Funding) **======

//<span style="color: #808080; font-family: Tahoma,Geneva,sans-serif;">“Equity based crowdfunding models tend to raise larger amount of capital than reward-based Venture Capital " // (Belleflamme, Lambert & Schweinbacher, 2013, p3-4). <span style="font-family: Tahoma,sans-serif; font-size: 10pt;">This model relies on donations from crowdfunders who are usually passionate about projects and want to see them succeed. In return, the funders can expect some kind of reward based around the product or service. For example, a music entrepreneur may stipulate to the crowd that for a $50 pledge, they will recieve a copy of the album upon its release. Moreover the rewards vary according to how much is pledged.
 * ======**<span style="color: #4d4a8c; font-family: Tahoma,Geneva,sans-serif;">Reward-based Crowdfunding Model (Donation Based Funding) **======

// “Reward-based models represent the majority of platforms” //(Belleflamme, Lambert & Schweinbacher, 2013, p4) <span style="font-family: Tahoma,Geneva,sans-serif;"> The following illustration demonstrates the different types Crowd-funding that are utilised today and shows their value in economic terms;

//<span style="color: #404040; font-family: Tahoma,Geneva,sans-serif;">Image Courtesy of Glenn Peoples, 2013, ‘Crowd-funded venture capitalism’, Retrieved from Billboard.biz, 2013. //
 * ====== ** Consumer Lending ** ====== || ====== ** Reward-Based ** ====== || ====== ** Donations ** ====== || ====== ** Venture Capital ** ====== ||
 * <span style="font-family: Arial,sans-serif; font-size: 9pt;">Crowdfunding revenue is led by high interest peer to peer lending companies <span style="color: #ff0000; font-family: Arial,sans-serif; font-size: 9pt;">. <span style="font-family: Arial,sans-serif; font-size: 9pt;">One of the leading lending companies known as ‘Lending club’, offers venture loans to those who require capital that traditional banking institutions normally decline (The economist, author unknown, 2013). They also generally offer loans with lower interest rates compared to traditional banking institutions, which makes it more of an affordable alternative for entrepreneurs. || <span style="font-family: Arial,sans-serif; font-size: 9pt;">Reward-Based funding is particularly popular with fans and followers of creative and innovative projects. The idea of this type of crowdfunding is for people to pledge money for a project and in return they receive a reward according to the amount pledged. For example, a music fan may pledge money for a music project which then entitles them to being rewarded with a copy of the album upon completion. The types of rewards often vary in size according to the project and pledge requirements. || <span style="font-family: Arial,sans-serif; font-size: 9pt;">Donation funding is similar in concept to the Reward- based idea except it is purely about donating funds and not about receiving any rewards for doing so || <span style="font-family: Arial,sans-serif; font-size: 9pt;">Venture capital is concerned with equity and ownership. It enables an investor to have some sort of share in the profits derived from the success of a project. ||

**<span style="background-color: #4d4a8c; color: #ffffff; font-family: Verdana,Geneva,sans-serif;">Understanding The Kickstarter Business Model **
<span style="color: windowtext; font-family: Helvetica,sans-serif; font-size: 9.5pt; line-height: 1.5;">Kickstarter’s innovative business model has challenged traditional business concepts through its intermediary ability. Hence, the ability to nurture ideas into successful entrepreneurial campaigns. Their business model aims to support the community by increasing access to start-up capital through the power of collaboration and monetory pledges made by fans and followers. Caterina Fake who was an investor in a kickstarter project amplifies the human need to be part of something bigger than the technology we use. She states, <span style="color: #000000; font-family: Tahoma,Geneva,sans-serif; line-height: 1.5;"> "People increasingly want humanity with their technology," (The Economist – The new thundering herd, 2012, para. 4) <span style="color: windowtext; font-family: Helvetica,sans-serif; font-size: 9.5pt; line-height: 1.5;">Schrage suggests that all business enterprises should mirror the kickstarter model and incorporate it into their organisational structure, as to embrace entrepreneurial culture within the community ( <span style="font-family: Helvetica,sans-serif; font-size: 9.5pt; line-height: 1.5;">Schrage, 2013, p1 <span style="color: windowtext; font-family: Helvetica,sans-serif; font-size: 9.5pt; line-height: 1.5;">). Kickstarter draws its revenue from charging its project developers a 5% fee of the total funds accumulated per successful campaign. It is an all or nothing model where project developers must reach their financial target in raising venture capital otherwise all money raised is refunded back to the investors and the start-up project is then deemed unsuccessful. This all or nothing approach is designed to encourage efficiency in the development of a project and also acts as a safety net for investors.

**<span style="background-color: #4d4a8c; color: #ffffff; font-family: Verdana,Geneva,sans-serif;">The Long Tail Effect **

 * <span style="font-family: Tahoma,Geneva,sans-serif;">Kickstarter projects create opportunities for fundraisers to reap the rewards of success through networked contribution made possible by community participation. A start-up projects' success often paves the way for future networked expansion and potential increases in revenues. It is through the interwoven web of networks that these increases and further developments evolve, thus creating third party business opportunities and ultimately producing the long tail effect. <span style="font-family: Tahoma,Geneva,sans-serif; line-height: 1.5;">A more relevant term that is currently used to define online crowdfunding networks and the way in which they now consume goods and services is known as 'Pretail'. Pretail is the make-up of ‘presumers’ where people now have the opportunity to buy products and services in advance, ahead of time, via crowdfunding participation. (Luzar, 2013).

**<span style="background-color: #4d4a8c; color: #ffffff; font-family: Verdana,Geneva,sans-serif; font-size: 12px;">SWOT ANALAYSIS OF THE KICKSTARTER MODEL **

 * **<span style="background-color: #ffffff; color: #000080; font-family: Verdana,Geneva,sans-serif;">STRENGTHS ** * <span style="font-family: Tahoma,Geneva,sans-serif; line-height: 1.5;">Open to the community - Anyone can apply to have their project funded
 * <span style="font-family: Tahoma,Geneva,sans-serif;">Funders have the opportunity to experience the latest products and services and participate ahead of time
 * <span style="font-family: Tahoma,Geneva,sans-serif;">Democratic in its structure - it offers financial power to the people rather than banking institutions / lenders
 * <span style="font-family: Tahoma,Geneva,sans-serif;">Fills an economic nieche - The creative arts community
 * <span style="font-family: Tahoma,Geneva,sans-serif;">Crowdfunding has a long life-span
 * <span style="font-family: Tahoma,Geneva,sans-serif;">Equity is dispersed fairly
 * <span style="font-family: Tahoma,Geneva,sans-serif;">Unlimited fundraising potential
 * <span style="font-family: Tahoma,Geneva,sans-serif;">Platforms serve as a Marketing tool and in doing so, consistently collect feedback from the public for project improvements || **<span style="background-color: #ffffff; color: #000080; font-family: Verdana,Geneva,sans-serif;">THREATS ** * <span style="font-family: Tahoma,Geneva,sans-serif;">There is limited or no regulation
 * <span style="font-family: Tahoma,Geneva,sans-serif;">There is no obligation for entrepreneurs to actually live up to their promises.
 * <span style="font-family: Tahoma,Geneva,sans-serif;">Projects are made public and therefore risk being copied by competitors ||
 * **<span style="background-color: #ffffff; color: #000080; font-family: Verdana,Geneva,sans-serif;">WEAKNESSES ** * <span style="font-family: Tahoma,Geneva,sans-serif; line-height: 1.5;">Puts pressure on Entrepreneurs - The Pressure of meeting start up deadlines
 * <span style="font-family: Tahoma,Geneva,sans-serif;">Minimal Investor Protection as in some projects may never reach their proposed financial targets
 * <span style="font-family: Tahoma,Geneva,sans-serif;">Is aimed mainly at creative artists and not other forms of entraprenership
 * <span style="font-family: Tahoma,Geneva,sans-serif;">The amount of funds raised are limited to there being no gurantees || **<span style="background-color: #ffffff; color: #000080; font-family: Verdana,Geneva,sans-serif;">OPPORTUNITIES ** * <span style="font-family: Tahoma,Geneva,sans-serif; line-height: 1.5;">To fund obscure projects that otherwise would go unnoticed
 * <span style="font-family: Tahoma,Geneva,sans-serif;">To Democratize Business economics further in spreading economic growth across non-traditional lending practices
 * <span style="font-family: Tahoma,Geneva,sans-serif;">Marketing Opportunities extend beyond the platform to entice interest and further investment ||