Learning Objectives
The objectives of this lesson are:
➢➢ To help you understand how to formulate e-Tourism Business model canvas
➢➢ To explain the role of e-Tourism intermediaries such as Global Distribution Systems,
Meta search engines and so on.
➢➢ To highlight the current online travel industry scenario in India
After going through this lesson, you will be able to:
➢➢ Explain the business model of an e-Tourism business using the Business model
canvas
➢➢ Appreciate the role played by intermediaries in e-Tourism ecosystem
➢➢ Identify and address the issues faced by different product categories within e-Tourism
Introduction
The emergence of the Internet has had an unprecedented impact on business in
general, and on the tourism industry in particular. The information-intensive nature of
the tourism industry and the perishable nature of tourism products are the crucial factors
behind the rapid growth of Internet applications for travel and tourism.
Electronic commerce (e-commerce) is often thought simply to refer to buying
and selling using the Internet; people immediately think of consumer retail purchases
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from companies such as E-bay. But e-commerce involves much more than electronically
mediated financial transactions between organizations and customers. E-commerce should
be considered as all electronically mediated transactions between an organization and any
third party it deals with. By this definition, non-financial transactions such as customer
requests for further information would also be considered to be part of e-commerce.
A business model is a set of planned activities
(sometimes referred to as business
processes) designed to result in a profit in a marketplace. A business model is not always
the same as a business strategy although in some cases they are very close insofar as the
business model explicitly takes into account the competitive environment (Magretta, 2002).
The business model is at the center of the business plan. A business plan is a document that
describes a firm’s business model. A business plan always takes into account the competitive
environment. An e-commerce business model aims to use and leverage the unique qualities
of the Internet and the World Wide Web (Timmers, 1998).
A company’s value proposition is at the very heart of its business model. A value
proposition defines how a company’s product or service fulfils the needs of customers
(Kambil, Ginsberg, and Bloch, 1998). To develop and/or analyze a firm’s value proposition,
you need to understand why customers will choose to do business with the firm instead of
another company and what the firm provides that other firms do not and cannot. From the
consumer point of view, successful e-commerce value propositions include: personalization
and customization of product offerings, reduction of product search costs, reduction of
price discovery costs, and facilitation of transactions by managing product delivery (Kambil,
1997; Bakos, 1998).
A firm’s revenue model describes how the firm will earn revenue, generate profits,
and produce a superior return on invested capital. We use the terms revenue model and
financial model interchangeably. The function of business organizations is both to generate
profits and to produce returns on invested capital that exceed alternative investments.
Profits alone are not sufficient to make a company “successful” (Porter, 1985). In order to
be considered successful, a firm must produce returns greater than alternative investments.
Firms that fail this test go out of existence.
Market opportunity refers to the company’s intended market space(i.e., an area of
actual or potential commercial value) and the overall potential financial opportunities
available to the firm in that market space. The market opportunity is usually divided into
smaller market niches. The realistic market opportunity is defined by the revenue potential
in each of the market niches where you hope to compete.
A firm’s competitive environment refers to the other companies selling similar
products and operating in the same market space. It also refers to the presence of substitute
products and potential new entrants to the market, as well as the power of customers
and suppliers over your business. We discuss the firm’s environment later in the chapter.
The competitive environment for a company is influenced by several factors: how many
competitors are active, how large their operations are, what the market share of each
competitor is, how profitable these firms are, and how they price their products.
Firms typically have both direct and indirect competitors. Direct competitors are
those companies that sell products and services that are very similar and into the same
market segment. For example, Priceline and Travelocity, both of whom sell discount airline
tickets online, are direct competitors because both companies sell identical products—
cheap tickets. Indirect competitors are companies that may be in different industries but
still compete indirectly because their products can substitute for one another. For instance,
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automobile manufacturers and airline companies operate in different industries, but they
still compete indirectly because they offer consumers alternative means of transportation.
The existence of a large number of competitors in any one segment may be a sign that
the market is saturated and that it may be difficult to become profitable. On the other hand,
a lack of competitors could either signal an untapped market niche ripe for the picking or a
market that has already been tried without success because there is no money to be made.
Analysis of the competitive environment can help you decide which it is.
Firms achieve a competitive advantage when they can produce a superior product and/or
bring the product to market at a lower price than most, or all, of their competitors (Porter,
1985). Firms also compete on scope. Some firms can develop global markets, while other
firms can only develop a national or regional market. Firms that can provide superior
products at lowest cost on a global basis are truly advantaged.
Firms achieve competitive advantages because they have somehow been able to
obtain differential access to the factors of production that are denied to their competitors—
at least in the short term (Barney, 1991). Perhaps the firm has been able to obtain very
favourable terms from suppliers, shippers, or sources of labour. Or perhaps the firm has
more experienced, knowledgeable, and loyal employees than any competitors.
Maybe the
firm has a patent on a product that others cannot imitate, or access to investment capital
through a network of former business colleagues or a brand name and popular image that
other firms cannot duplicate.
An asymmetry exists whenever one participant in a market has more resources—
financial backing, knowledge, information, and/or power—than other participants.
Asymmetries lead to some firms having an edge over others, permitting them to come to
market with better products, faster than competitors, and sometimes at lower cost.
One rather unique competitive advantage derives from being first mover. A first
mover advantage is a competitive market advantage for a firm that results from being the
first into a marketplace with a serviceable product or service. If first movers develop a loyal
following or a unique interface that is difficult to imitate, they can sustain their first-mover
advantage for long periods (Arthur, 1996).
No matter how tremendous a firm’s qualities, its marketing strategy and execution
are often just as important
. The best business concept, or idea, will fail if it is not properly
marketed to potential customers. Everything you do to promote your company’s products
and services to potential customers is known as marketing. Market strategy is the plan you
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put together that details exactly how you intend to enter a new market and attract new
customers. Although many entrepreneurial ventures are started by one visionary individual,
it is rare that one person alone can grow an idea into a multi-million dollar company.
In most cases, fast-growth companies—especially e-commerce businesses—need
employees and a set of business procedures. In short, all firms—new ones in particular—
need an organization to efficiently implement their business plans and strategies. Many
e-commerce firms and many traditional firms who attempt an e-commerce strategy have
failed because they lacked the organizational structures and supportive cultural values
required to support new forms of commerce (Kanter, 2001).
Arguably, the single most important element of a business model is the management
team responsible for making the model work. A strong management team gives a model
instant credibility to outside investors, immediate market-specific knowledge, and
experience in implementing business plans. A strong management team may not be able
to salvage a weak business model, but the team should be able to change the model and
redefine the business as it becomes necessary. Eventually, most companies get to the point
of having several senior executives or managers. How skilled managers are, however, can be
a source of competitive advantage or disadvantage. The challenge is to find people who have
both the experience and the ability to apply that experience to new situations.
