Digital Business Fundamentals: Models, Strategies, and Systems
Drivers of Digital Business
Digital business is driven by multiple forces that push organizations to adopt digital technologies:
- Market Forces: Increasing competition and globalization, demand for better customer experience, and the need for faster product delivery.
- Technology Forces: Advancements in AI, Cloud, Blockchain, and Data Analytics; increased internet penetration; and mobile platforms enabling new business models.
- Economic Forces: Need for cost reduction and efficiency, economies of scale and scope, and digital platforms that reduce transaction costs.
- Social Forces: Changing consumer behavior (online preference), social media influence, and demand for convenience and personalization.
Advertising Model of Business
The advertising model is a digital business model in which a company earns revenue by displaying advertisements to users on its platform.
How It Works
The platform provides free or low-cost services to attract users. Advertisers pay to show ads to these users. Revenue is generated through clicks, views, or actions (CPC, CPM).
Key Features
- Free access for users
- Large audience reach
- Targeted advertising using user data
Examples: Google (search ads), Facebook (social media ads), YouTube (video ads).
eBay: C2C E-Auction Platform
eBay is a classic example of a C2C e-auction platform.
- Process: The seller registers and lists a product, setting a base price and auction duration. Buyers place bids, and the highest bidder wins. Payment and delivery follow.
- Key Features: Dynamic price discovery, global reach, and a secure payment system.
- Advantages: Fair pricing through competition and wide buyer-seller interaction.
- Limitations: Risk of fraud and time-bound processes.
The Five-Layer Model
The five-layer model explains how digital business transactions are supported through integrated technology layers:
- Physical Layer: The base layer consisting of hardware like servers, computers, and storage.
- Network Layer: Ensures connectivity through the Internet and communication networks.
- Application Layer: Includes software like websites and mobile apps that users interact with.
- Data Layer: Manages databases, storage, and data processing.
- Business Layer: Represents business processes, rules, and services like billing and delivery.
Digital Business Transformation (DBT)
DBT is the process of using digital technologies to improve business processes, models, and customer experience.
Components
- Digitalization: Using cloud, AI, and analytics to improve efficiency.
- Business Model Transformation: Changing how a business creates and delivers value.
- Customer Experience (CX): Enhancing interaction through personalized digital services.
B2B Marketplaces
Platforms where businesses buy and sell products or services with each other.
- Buyer-Centric: One buyer, many suppliers; the buyer controls the platform.
- Supplier-Centric: One supplier, many buyers; the supplier controls products and pricing.
- Intermediary-Centric: Third-party platform connects buyers and sellers (e.g., Alibaba).
Enterprise Resource Planning (ERP)
ERP integrates different business processes into a single platform with a shared database.
Key Features
- Centralized Database: Ensures accuracy and consistency.
- Real-Time Data Sharing: Information is updated instantly across departments.
- Integration: Connects finance, HR, production, and sales.
- Process Automation: Reduces errors in inventory and payroll.
Core vs. Extended Components
- Core: Finance, HR, Production, and Materials Management.
- Extended: Business Intelligence (BI), CRM, Supply Chain Management (SCM), and E-business.
Classification of E-commerce
- B2C (Business to Consumer): Direct sales to individuals (e.g., Amazon).
- B2B (Business to Business): Bulk transactions between businesses.
- C2C (Consumer to Consumer): Intermediary platforms (e.g., eBay).
- Government-based: G2C (tax filing), B2G (supplying government), and G2B (government services).
The Role of the Internet in Markets
The Internet moves markets toward perfect competition by:
- Reducing information asymmetry.
- Enabling easy price comparison.
- Increasing competition and reducing monopoly power.
- Lowering entry barriers for small businesses.
E-Auction Process
- Registration: Users provide credentials.
- Auction Setup: Seller lists product and base price.
- Scheduling: Promotion of the auction.
- Bidding: Competitive bidding within a timeframe.
- Evaluation & Settlement: Identifying the winner and completing payment.
Comparison Tables
| Feature | Subscription Model | Utility Model |
|---|---|---|
| Pricing | Fixed intervals | Pay-per-use |
| Flexibility | Less flexible | Highly flexible |
| Example | Netflix | AWS |
| Feature | E-commerce | E-business |
|---|---|---|
| Scope | Narrow (transactions) | Broad (all activities) |
| Focus | External | Internal + External |
| Relation | Subset of e-business | Includes e-commerce |
Challenges in Digital Business
- Business: High competition, customer retention, and logistics.
- Technology: Cybersecurity, rapid changes, and system performance.
- Compliance: Data privacy and legal regulations.
Advantages of Digital Business
- Flexibility: Operate anytime, anywhere.
- Cost Reduction: Minimized physical infrastructure and paperwork.
- Transparency: Better visibility of processes.
- Customization: Personalized services based on data.
- Information Flow: Real-time coordination across departments.