E-Business Models

Computerworld - An e-business model is simply the approach a company takes to become a profitable business on the Internet. There are many buzzwords that define aspects of electronic business, and there are subgroups as well, such as content providers, auction sites and pure-play Internet retailers in the business-to-consumer space.

Many Internet firms witnessed a meteoric rise in their stock values in the late '90s, only to crash this year. For instance, Drkoop.com Inc. in Austin, Texas, announced its initial public offering at $9 per share in June last year. The price rose to more than $30 per share but has since plummeted to less than $1 per share.

Given the carnage among dot-com stocks this year, what online business models are expected to succeed in the future?

"What we learned was what we knew all along," says Kenneth P. Morse, a senior lecturer and managing director of the MIT Entrepreneurship Center in Cambridge, Mass. "Businesses need to make more money than they spend. The new model is the old model, but technology is essential to maintain a competitive advantage, and cash flow is more important than ever."

Yahoo Inc. in Santa Clara, Calif., operates a successful portal site, providing content and an Internet search engine. However, many portal sites, such as Go.com, MSN.com and AltaVista.com, have fallen on hard times.

The idea behind portals is the same as that behind television advertising: aggregating eyeballs and directing them toward advertisements. But television viewers are passive, and people need to wait through the ads to see the shows they want to watch.

"But the Web doesn't work that way," explains Bill Frezza, a general partner at Adams Capital Management Inc. in Sewickley, Pa. "Content presentation is not serial. Viewers are active, not passive. There are always thousands of places to go. No Web advertisement can match a 15-second TV spot."

When First-to-Market Fails

Many of the failing companies were operating on a first-to-market strategy. Their hope was that by getting their ideas out ahead of the market, consumers would develop brand loyalty before competitors arrived.

Priceline.com Inc. in Norwalk, Conn., is a good example of a company that attempted this strategy, with its name-your-own-price scheme for buying airline tickets and other goods.

But the closing of its Greenwich, Conn.-based WebHouse Group licensee - which applied the same model to groceries and gasoline - combined with increased competition from airlines and other travel sites has led Wall Street to trade Priceline.com's stock down to less than $3 per share, from a high of $104.25 in March.