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REPORT PREPARED FOR: ASSIGNMENT 3 TRADE ME - DIGITAL BUSINESS MODELBY RAJNEETRAJNISTEVENVIRALPOSTGRADUATE DIPLOMA IN BUSINESSAPMG 8119: DIGITAL ENTERPRISEASSOCIATE PROFESSOR DR. NITIN SETHAUTHOR CONTACTSNAME: Viral BrahmabhattMobile:0220207803Email:viralbrahmabhatt01@Student ID:1448340NAME: STEVEN ZHAOMobile:0212102058Email:.zhao@Student ID:1431456NAME: Rajni GargMobile:02102988822Email:rajnigarg78@Student ID:1451636NAME: Rajneet KaurMobile:0212177358Email:romi.reagan1987@Student ID:1450838REPORTonBUSINESS MODELOfTRADEME.CO.NZTABLE OF CONTENTS TOC \o "1-1" \u TITLE PAGE3TABLE OF CONTENTS4EXECUTIVE SUMMARY5BUSINESS BACKGROUND6DIGITAL BUSINESS MODEL7REVENUE ANALYSIS PAGEREF _Toc296863399 \h 8COST ANALYSIS10DIGITAL TRIBES12VALUE PREPOSITIONS12THEORETIAL IMPLICATIONS15MANAGERIAL IMPLICATIONS15KEY FINDINGS………………………………………………………..………………16RECOMMENDATIONS16REFERENCE LIST17APPENDICES18EXECUTIVE SUMMARYThe main purpose of this report is to analyse online business model for Trade Me. By analysing three core strategic elements of business model: Revenue, Cost and Value Creation.The process followed to undertake the study was performing detailed analysis of the e- business, industry and its markets and then conducting revenue analysis by considering various components of revenue creation. Than after evaluating different ways in which Trade Me creates revenue and each component is explained and discussed. Further, performing value creation analysis from an: internal organizations perspective and external customer’s perspective. Lastly, concluding by providing practical ways in which Trade Me can transform its approach to value creation.The key findings of the report are as following: Trade Me has a broad range of customer as 70% of New Zealand’s population is using Trade Me. Its customers range from tech savvy to info seeker, in other words digitally active people are potential customers of Trade Me. All customers do not have the same experience some are not happy with their buy / sell because of not having satisfactory product. Does trade me have any quality standard or authenticity that the product which are sold or bought on trade me are good/best?Its major cost component is employee benefit expenses. To reduce this cost it could outsource its customers’ support services and web development. BUSINESS BACKGROUNDTrade Me caters a platform where people can purchase and advertise the products. It is the supreme web based marketplace and categorized advertising platform in New Zealand. Main concept of Trade Me is to associate people and organizations and give them with the desired information and means they need to undertake a transaction. It ranges from bargains to fixed priced sales for new as well as used products with automotive, property and employment business. It has trades which operate in the retail, property, motor vehicle, job hunting, insurance, travel and accommodation, dating, advertising and financial services sectors of the economy. However, its strength lies not in diversification but in concentration.Trade Me has exposure to a broad cross-section of the New Zealand market but it achieves this exposure entirely through the application of internet and mobile technologies. Its motive is to earn money through applying charges on services and via providing advertising platform. It sets fee responsibility and at a suitable level that gives benefits to customers in terms of profit. In other words, it display advertising in such a way that minimizes disruptions to users. Its seven values are as following: delivering seamless online experience; to be enterprise; to think about community; be trusted and successive.Furthermore, to take decision and act on merit; to employ and grow people; and do not be dick. It is a commercial enterprise and liable to provide a return to owners and owners are retail investors which include people who have bought shares and institutional investors which include funds of money from public. Hence, it has become a household name now. DIGITAL BUSINESS MODELThe digital business model is an abstract representation of an organization, be it conceptual, textual, and/or graphical, of all interrelated architectural, co-operational, and financial arrangements designed and developed by an organization, as well as all products and/or services the organization offers based on these arrangements that areneeded to achieve its strategic goals and objectives (Proceedings of the Fourteenth Americas Conference on Information Systems, 2008).Revenue model mainly includes two parts one is cost structure and the other is sources of revenue. Based on revenue model digital organizations decide their costs and sources of revenue. Cost structure mainly depend upon our value structures and sources of revenue is how the organization is going to earn?Digital Tribes are the types of tech savvy customers according to their user patterns. Value prepositions are the value creators for the customers by organizations/ websites to enhance customer experience and profit.REVENUE ANALYSISRevenues of Trade Me come from three key categories of revenue streams: General Items, Classifieds, and Other. According to the financial statements for the year ended 30 June 2015, the total revenues of Trade Me amounted almost 200 million NZD, in which Classifieds represents a half, while General Items and Other constitute approximate one third and one sixth respectively.GENERAL ITEMSThe General Items segment is the online marketplace business of Trade Me. The revenue of General Items includes listing fees, premium fees and success fees. Listing fees, also called insertion fees, are charged to sellers when they list an item for sale. However, Trade Me only charges High Volume Listing Fees, which means 10 cents per listing if the number of live listings of a seller exceeds the allowance. For large professional sellers, Trade Me offers increased support and at the meanwhile charges trade fees. Sellers who use the Gallery or other tools will be charged extra fees while business sellers who own an online store in Trade Me marketplace will pay a service fee monthly. A success fee applies when an item sells and the performance of success fees are driven by the total sales value of completed transactions. The auction business of Trade Me is a good example of network effect, whereby with its popularity the value of network grows dramatically. Even though it kept eBay at bay, Trade Me have to face the increasingly international competition from the online giants such as Amazon, Google, etc.CLASSIFIEDSThe Classifieds segment represents advertising revenue from three classified advertising sites:Motors, Property and Jobs. Revenue is generated primarily from basic and premium listing fees. TradeMe gets paid for listing a car, a house or a job vacancy, regardless of the sales result. They contributed to just fewer than 50 % of total revenues because of its dominant positon in the New Zealand online business. Morning Star projected that the growth rates of motors and property will keep double digits due to yield from these valued products, although it faces the competition from rivals such as Real Estate in property business. Nevertheless, its jobs business is likely to grow at a lower rate due to the .OTHER ITEMSThe Other segment consists of all other businesses, including advertising, travel, Pay Now, payments gateway, online dating, and online insurance comparison (LifeDirect,). For instance, Pay Now allows buyers pay instantly for their purchases by credit or debit card on Trade Me, with all details on one screen, and Trade Me can protect the transaction. That gives the security of buyers’ accounts, and Trade Me makes one cent deposit in the sellers’ accounts. The emergence of new approaches constantly increase the operating margins of Trade Me. Overall, Trade Me has a strong capability to earn money and improve its incomes, especially in fitting the local environment of New Zealand. The competitive advantage of Trade Me is that it has more than 3 million live members in New Zealand, which has already built a wide economic moat, while the risk for Trade Me is failing to navigate and adapt the changes of online customer habits and preferences.COST ANALYSISLike brick-mortar businesses, there are various kinds of cost that are beared by the online businesses. Major categories of cost engaged with websites are variable cost, fixed cost and invisible cost. Though various cost components depend upon the scale of business, yet most common components of variable cost that are beared by all e-retailers are Domain fee paid per annum, hosting fee per annum, Paypal commission, Shopping cart cost, Telecom expenses, depreciation on assets, maintenance and membership plugins.Major fixed cost include cost of premises, computers, Internet access, Insurance and servers. Invisible cost occurs only in small businesses that are run by a single owner who maintains the websites by himself. It includes the time spent for website updating, data analytics, communicating with customers and promoting the website. However, big e-retailers hire qualified employees for various jobs and pay salary that becomes the part of variable cost. Thus, big e-retailers like Trade Me bear two types of cost: Recurring/ variable cost and fixed cost. As per the annual report 2015 of Trade Me, there are various components of cost and these are discussed below:Cost of salesSimilar to small online businesses, Trade Me pays for Domain name and website hosting per annum, telecom expenses, power expenses, legal expenses and insurance. It bears the cost of depreciation on its fixed assets. Being an ecommerce site, Trade Me needs to maintain trust among its users. So, it pays a significant attention on fraud prevention. For instance, it provides MotorWeb Basic reports taken from NZTA (New Zealand Transport Agency) and MBIE (Ministry of Business, Innovation and Employment) to ensure that motor cars listed on the site are listed by the owners and not by the car thieves. Total cost incurred for these variable components for the year ending June 2015 is NZ$ 10,967K while it was NZ$ 7,724K for 2014. Employee benefit expenseThis is the major expense for Trade Me and it includes salaries paid to various employees for website updates, maintenance of website, content creation, data analytics, maintaining accounts, marketing and so on. It also includes various other benefits paid to employees along with salaries like allowances for accommodation, meals, travelling, medical, annual leave etc. Total expenses for this component are NZ$ 28,842K for the year ending June 2015 while these were NZ$ 24,629K for 2014. Web infrastructure expenseThese expenses incurred to big e-retailers who continuously engage for developing new products, new web design, changes in business model etc. For instance, in June 2014, Trade Me made a major change in its business model by introducing Pay-per-Listing option for sellers. Expenses to implement such a change in website get included in this component of cost. Total cost incurred during the financial year ending June 2015 is NZ$ 4,089K. Promotion expenseThese expenses include all the payments made to attract more customers or users for the website. It also spends on promotion of its brand to attract more businesses to hire its advertisement space available on the website. TradeMe spent NZ$ 9,434K for the year ended on 30th June 2015 for this purpose. Other expensesThese are the minor expenses that are not classified in the major components of cost. For the year ending June 2015, these are NZ$ 11,135K. Thus, total expenses incurred to Trade Me for the year ending June 2015 are NZ$ 64,467K while these were NZ$ 51,385K for the previous year. DIGITAL TRIBESCustomers these days are not confined to physical boundaries instead they started connecting in tailored and personal manner with other people of same interest across the globe, in turn forming digital tribes that posse’s common interests and beliefs. Therefore, e- businesses need to understand and identify their digital tribes in order to cater their needs and switching from one to one to relationship to a one to many and many to many.Hence, digital tribes of Trade Me are on the go workers, who spend more time on mobile phone, professionals who seek services like employees for job or advertising, digital communicators, who are socially active on social networking sites and video digerati, who spend more of time on watching videos than average viewer.VALUE PREPOSITIONSCompelling Content: Content is the main value preposition for Trade me. And content of trade me is very strong.Convenience: Website of trade me is very user friendly and easy to understand. By giving multiple options and pictures and wide range of services it is making it convenient to customer to access.Choice: Trade Me is providing wide range of product in other words whatever you think it will be on Trade me. Trade me has a strong Choices as a value preposition.Connectivity: It is available as a website and mobile application as well so there is a strong connectivity to the customers.As here buyers and sellers/ members also share their personal information to contact.Customization:They do not allow to customize their website as per user binations:Yes they are bundling of membership and discounts and they also provide some customised offers like first listing news etc.Contribution:Customers and advertisers are the contributors.Customer experience:They are also allow to give feedback to customers and also allow the customers to share their experiences.THEORETICAL IMPLICATIONSCustomersare always understand and evaluate the online service experience in comparison and overall level.Value prepositions are very strong for TRADE ME For TRADE ME online scenario trust and past experiences plays an important role in deciding customer satisfaction.MANAGERIAL IMPLICATIONSTRADE ME as a brand is known by customers, quality of services and wide range of options are competitive advantage. Satisfaction level is depends on each experience when first purchase/sell/advertise. TRADE ME needs to explore that what customers more preferences are about any new changes in the website like options, Services etc.TRADE ME has to be innovative, more customized, more contracts , well designed products to attract new customers and retain them.KEY FINDINGSTrade Me has a broad range of customer as 70% of New Zealand’s population is using Trade Me. Its customers range from tech savvy to info seeker, in other words digitally active people are potential customers of Trade Me. All customers do not have the same experience some are not happy with their buy / sell because of not having satisfactory product. Does trade me have any quality standard or authenticity that the product which are sold or bought on trade me aregood/best?RECOMMENDATIONSTrade Me should also cater its non tech savvy people by providing simple and easy browsing options such as providing more options of filtering the information. So that they do not feel lost and experience a seamless online experience.To influence various other digital tribes, it needs to improve its web infrastructure by providing more filter option in all categories. For instance, in Property for rent category, it could include a filter for number of tenants.It can make changes in its Revenue Model by providing option for bargain that Kiwis like rather than Auction system. Its major cost component is Employees Benefit expenses. To reduce this cost, it could outsource its customer Support service. Given by it through phone calls and emails. Some of the value prepositions can be added to their services to enhance the experience of tech savvy customer.REFERENCESAl.dabei, M., El- Haddadeh, R. & Avison, D. (2008), Defining the Business Model in the New World of Digital Business, Retrieved from , N. (2015). 2 high-quality small-cap stocks. Retrieved from, G. (2015). First mover advantage, a trusted brand and promising e-commerce prospects enhance Trade Me's appeal. Retrieved from Services. (2010). Mobile services innovation and business models. Retrieved from Me, (2015), Annual Report, Retrieved from me, (2015), trade me, Retrieved from REPORT TRADE ME Figure.1 Mobile services innovations and business models (Source: Mobile services, 2010) ................
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