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E-COMMERCE: Business Model
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About Business Model

When we pitch the promising projects we will require the entrepreneurs to provide their business plans, and amongst their business plans, the business model is one of the most important parts. Business models describe the rationale of how an organisation creates, delivers and captures value through which we can get a better overview how the company works overall. 
 
Business Model VS Revenue Model

There is another concept called the Revenue Model that many people will confuse with the Business Model. They think that these two concepts are the same. 
 
From many business plans we received, we often see the start-ups describe their business models as ’B2B’,  ’B2C’,  ‘Freemium model’,  ’Advertising model’ and so on. We can distinguish where their revenue comes from at the sight of these words, but can we know how the company operates? Who are their customers? What’s their core competition? The simple answer is, no. 
 
Obviously, these two concepts are diverse. Revenue is the amount of money that a company receives during a specific period and the revenue model is the way the company makes money. Besides the revenue model, other resources and activities are all integrated into the business model, which make the business model can be carried out. In this sense, the business model should include the revenue model.
 
In this article, the writer will introduce you to a useful tool and help you to analyse your business model. If you are a start-up company, the tool can help you to build an integrated business with limited resources. If you are a mature entrepreneur it will help you to analyse your current business and find out what can be optimised further. 
 
A Useful Tool: Business Model Canvas 

The business model will be described through nine basic building blocks that show the logic of how a company intends to make money. 
 
Firstly,  draw a picture above dividing paper into 9 blocks. Then, use a sticky note for each and every one of the building blocks of your business model. Please pay attention to the checklist while writing the business model:
 
• Be specific.   
• Keep it simple. 
• Self-explanatory. 
• Focus on the relevant points. 
• Do not reinvent the wheel.
 
To better understand it, I will take Renren.com as an example. Renren is an equivalent of Facebook- primarily based in China. Let’s start:
 
1. Customer segment: An organisation serves one or several Customer segments and that is its target audience. Find out who are the most important customers for you and them. Try to make the description detailed and accurate. 
 
Renren helps Chinese people to stay connected with their friends and families, because people are social. It offers an opportunity to launch the advertisement and publish social apps. So, the target audience should be: 1) Internet users. 2) Advertisers. 3) Developers.
 
2. Value Proposition: The collection of products and services that a business offers to solve customer problems and satisfy customer needs. A good and innovative business model starts with a customer insight into something that is unsolved or badly solved for the customer. This is the case that the customers’ pains are our opportunities. Describe the service and products that create value for the Customer segment.
 
Renren possesses a large amount of users. People can show themselves, find interesting and useful contents, share contents from other websites and most importantly- stay connected with friends and family. Renren has Apps now, so users can sign in via their mobiles. Advertisers can execute precision marketing based upon the information shared by users such as Age, Gender, Location, Education, Work history or specific Interests. Developers can use the offered development tools and APIs in order to build apps and websites integrated with Renren, and they can get payment. So, the value proposition can be described as ‘a large mount users base, connect with friends, discovery and learning, stay connected on mobile, social distribution, interaction, payment’.
 
3. Channels: A company can deliver its value propositions to target customers through different channels. But how to get the customers? Via communication, distribution or sales Channels; it depends on the business.
 
Renren owns its website renren.com, PC terminals and Mobile App. So, there are 3 channels to get access to Renren: website, client and App.
 
4. Customer Relationships: To ensure the survival and success of the businesses, the companies should establish and maintain the relationships with different Customer segments. Besides, figure out how they are integrated with the rest of our business model.
 
Renren creates a community for users to interact with each other, provides the monitor system for the advertiser to track the promotion effects in the website and a series preference for developers on the platform. So, the customer relationships should include user community, developer platform and personal assistance for advertisers. 
 
5. Revenue Streams: The way the company get income from each customer segment. Usually a company can generate profits through these ways but not limited:  product sale, service fee, membership fee, licensing and advertising.
 
Renren’s revenue comes from advertising, membership fee (CNY 20 per month), profit sharing from developers.
 
6. Key Resources: The resources required to create and deliver the value. It is most important assets required to make a business model work. They could be human, physical, technology and intellectual, whichever are needed to support the businesses. 
 
Renren is one of the most popular SNS websites in China with 200 million registered users. Its resources are population and user database.
 
7. Key Activities: The most important activities in operating the value proposition, reaching markets, maintaining customer relationships and earning revenues.
 
Renren continues to improve the user experience, get more exposure to attract more users and developers, as well as sells advertisement space. So its key activities are R&D, Marketing and sales.
 
8. Key Partnerships: To optimise operations, reduce risk and focus more on the core activities, companies need to cooperate with others. This could be a strategic alliance, co-operation and so on.
 
Renren cooperates with many companies, such as 360 and MSN China, to share the accounts and get more users. So, its key partnerships are 360, MSN China, Nokia.
 
9. Cost Structure: Costs are generated by the operation of a company and they should be minimised in every business model, but it depends on different kinds of models. Generally, there are 2 models: cost-driven and value-driven. The most typical example of a value-driven model is the ‘App’.
 
Renren’s costs include B&D, human resources, server, general things like water and electricity.
 
 
To Conclude

When finishing the first analysis, I believe you have already found some problems in your business and it is likely that your mind has already come up with some solutions. If you feel that this can give you a few inspirations or more, it deserves to be tried out. Why not?
 
This tool can also be used in conjunction with a team brainstorm, but to be most effective there should be no more than 6 people involved. It can also help you in the following ways: Firstly, in checking the completeness of your business model within your team, finding out any possible ways to improve your business. Secondly, to explain the project to others such as potential investors, the Business Model Canvas would be a good choice, because graphs can be remembered easier than words. Last but not least, check whether the team members are all aware of what they are doing and deal with the understandings and disagreements amongst them.
 
Tips: If you are interested in Business Model Canvas, you can go to the book named ‘Business Model Generation’ written by Alexander Osterwalder & Yves Pigneur. 


By Rosa Gao 
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