A business model is the methods of doing business by which a company can sustain itself, that is, generate revenue. The business model spells out how a company makes money by specifying where it is positioned in the value chain.
Some models are quite simple. A company produces goods or services and sells it to customers. If all goes well, the revenues from sales exceed the cost of operation and the company realizes profit.
Other models can be more complex. Radio and television broadcasting is a good example. The broadcaster is part of a complex network of distributors, content creators, advertisers, and listeners or viewers. Who makes money and how much, It is not always clear at the outset. The bottom line depends on many competing factors.
For our understanding, e-commerce can be defined as any form of business transaction in which the parties interact electronically.' A transaction in an electronic market represents a number of interactions between parties.
For instance, it could involve several trading steps, such as marketing, ordering, payment, and support for delivery. An electronic market allows the participating sellers and buyers to exchange goods and services with the aid of information technology. Electronic markets have three main functions such as:
- matching buyers and sellers,
- facilitating commercial transactions, and
- providing legal infrastructure
Information technology permeates all the three functions and also helps to increase market efficiency and reduce transaction costs.
The interaction between participants is supported by electronic trade processes that are basically search, valuation, payment and settlement, logistics, and authentication, as shown in Figure. The Internet and the World Wide Web allow companies to efficiently implement these key trading processes. For instance, many search services and brokers are available to help buyers find information, products, and merchants in electronic markets.
E-commerce can be formally defined as technology-mediated exchanges between parties (individuals, organizations, or both) as well as the electronically-based intra- or inter- organizational activities that facilitate such exchanges. It is global. It favors intangible things—ideas, information, and relationships. And it is intensely interlinked. These three attributes produce a new type of marketplace and society.
A company's business model is the way in which it conducts business in order to generate revenue. In the new economy, companies are creating new business models and reinventing old models. Reading the literature, we find business models categorized in different ways. Presently, there is no single, comprehensive and cogent taxonomy of Web business models that one can point to.