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Business Model Analysis for OnlineSocial Shopping CompaniesCase Study: RunToShop OyLogisticsMaster's thesisLiang Zhang2009Department of Business TechnologyHELSINGIN KAUPPAKORKEAKOULUHELSINKI SCHOOL OF ECONOMICS

HELSINKI SCHOOL OF ECONOMICS (HSE)Department of Business TechnologyBusiness TechnologyBUSINESS MODEL ANALYSIS FORONLINE SOCIAL SHOPPING COMPANIESCase Company: RunToShop OyLogisticsMaster s thesisLiang Zhang K80217Fall/2009Approved by the Head of the Department of Business Technology / 200 , andawarded the gradeMarkku TinniläAnu Bask

Helsinki School of EconomicsDepartment of Business Technology/LogisticsMaster‘s ThesisLiang Zhang25, 11, 2009ABSTRACTOnline social shopping is a new business model emerging in E-Commerce world and becomingquite popular in recent years. Online social-shopping website is where people can recommendtheir favorite products for others to discover and purchase online. Online social shoppingcombines Business-to-Business, Business-to-Consumers and Consumers-to-Consumers servicestogether and blends two powerful elements of real-world shopping otherwise lost for onlineconsumers: word-of-mouth recommendations from trusted sources and the ability to browseproducts in the way that naturally leads to discovery. Attracted by the market perspective ofonline social shopping, many start-ups have entered in the market in recent years. In addition,some large Internet media companies have seen the potential in the market and tend to take ashare of the market, such as Amazon‘s aStore.The goal of this study is to analyze the business model of the case company and compare itsbusiness model with its selected main competitors‘ (namely YELP, Kaboodle, and Zlio) in orderto find out the success factors for an online social shopping company in the fiercer competition.The research framework is adapted from Osterwalder‘s business model framework. Qualitativeresearch methods, e.g. case study and interviews, are applied in this research. RunToShop Oy, thefirst Finnish social shopping company is the case company of this study.According to the business models analysis, YELP‘s unique business model which emphasizes onproviding localized reviews in USA has achieved great success in the USA market. Kaboodle‘sbusiness model which focuses on facilitating online shopping for consumers makes it verypopular among young females so that it is acquired by Hearst as an online marketing channel inMay 2008. Zlio‘s business model which aims at building the largest sales forces in the world withhigh commissions rewards seems not to be accepted in the market. Its aggressive money makingbusiness model causes problems in trust from consumers and conflicts with its business partners.RunToShop‘s business model would like to bring personality and trust which are missing inonline shopping. At the beginning of the business development, the biggest challenge forRunToShop is how to attract more users in order to build up an active and loyal onlinecommunity. Based on the lessons learnt from the selected International competitors, somemanagerial recommendations are made to RunToShop‘s management team. It is important topropose a unique value proposition according to the actual needs of consumers. Startups shouldconsider focusing on niche market in order to gain competitive advantages over Internationalcompetitors. It is critical to focus on developing an active local community and encouraging theloyalty and trust. Maintaining good relationship with business partners is a key to success. Therevenue model should be carefully designed to get as many revenue streams as possible in orderto make good profits. Fast International expansion does not always guarantee success so it shouldbe considered only after the business model is accepted in the local market.Keywords: Online Social Shopping, Business Models, and E-CommerceTotal number of page: 95 pages

Business Model Analysis for Online Social Shopping Companies(Case Company: RunToShop Oy)Table of ContentsAbstractList of FiguresList of Tables1 INTRODUCTION . 51.1 Background . 51.2 Study objectives . 61.3 Research approach and methodology . 71.3.1 Research process . 71.3.2 Qualitative research . 91.3.3 Structure of the study . 102 LITERATURE REVIEW . 122.1 Business model for Internet based E-Commerce . 122.2 E-Business model ontology. 142.2.1 Product innovation . 162.2.2 Infrastructure management . 182.2.3 Customers relationship . 202.2.4 Financial aspect . 232.3 Adapted research framework . 253 RESEARCH METHODOLOGY . 283.1 Qualitative research method . 283.2 Case study research method . 293.3 Interviews . 304 CASE STUDY: RunToShop Oy . 324.1 General strategies of RunToShop: . 334.2 Brief description of the business process of RunToShop . 344.3 Business model of RunToShop . 364.3.1 Products innovation . 364.3.2 Infrastructure management:. 394.3.3 Customer relationship . 424.3.4 Financial aspect . 43

5 EMPIRICAL STUDY . 455.1 Companies‘ profiles of the selected competitors . 455.1.1 Company profile of Yelp. 465.1.2 Company profile of Kaboodle . 475.1.3 Company profile of Zlio . 485.2 Strategic analysis and comparison . 495.2.1 Yelp‘s strategic focuses . 495.2.2 Kaboodle‘s strategic focuses . 495.2.3 Zlio‘s strategic focus . 505.2.4 Comparison of strategies . 505.3 Business models analysis and comparison . 525.3.1 YELP‘s business model . 525.3.2 Kaboodle‘s business model . 555.3.3 Zlio‘s business model . 585.3.4 Comparison of the business models of competitors and RunToShop . 615.4 Comparison of market/business performance . 675.4.1 Comparison of product features . 675.4.2 Comparison of partner‘s network . 695.4.3 Visitors analysis and comparison . 715.4.4 Financial aspect . 745.5 Summary . 766 CONCLUSIONS. 786.1 Objectives and aims of the thesis . 786.2 Summarization of key findings . 786.3 Conclusion and management recommendations for RunToShop . 836.3.1 Conclusion . 836.3.2 Managerial recommendations for RunToShop . 846.4 Suggestions for future research . 867 APPENDICES . 88Appendix 1: A list of RunToShop‘s competitors . 888 REFERENCES . 91

List of FiguresFigure 2-1 Business logic triangle . 14Figure 2-2 E-Business model framework . 15Figure 2-3 Value proposition . 16Figure 2-4 Target customers . 17Figure 2-5 Capabilities and resources . 18Figure 2-6 Value configuration . 19Figure 2-7 Partnership . 20Figure 2-8 Customer relationship . 21Figure 2-9 Distribution channel . 22Figure 2-10 Revenue model . 23Figure 2-11 Cost Structure . 24Figure 2-12 Adapted research framework for empirical study . 25Figure 4-1 RunToShop‘s business process . 35Figure 4-2 RunToShop builds a platform for interacting with social network . 37Figure 4-3 RunToShop‘s partnership netwrok . 40Figure 4-4 RunToShop‘s business model analysis . 44Figure 5-1 Yelp‘s business model analysis . 54Figure 5-2 Kaboodle‘s business model analysis . 58Figure 5-3 Zlio‘s business model analysis . 61Figure 5-4 Comparison of the business models . 62Figure 5-5 Comparison of changes in the number of visitors . 74Figure 5-6 Comparison of raised fund and the number of visitors . 74List of TablesTable 5-1Table 5-2Table 5-3Table 5-4Table 5-5Table 5-6Table 5-7Table 5-8Table 6-1Company‘s profile of YELP . 46Company‘s profile of Kaboodle . 47Company‘s profile of Zlio . 48Comparison of strategies . 51Comparison of products features for consumers . 69Demographic analysis of visitors based on index . 72Comparison of changes in the number of visitors . 73Net worth and Ads revenue comparison . 75Managerial recommendations for RunToShop . 85

1 INTRODUCTION1.1 BackgroundElectronic Commerce (E-Commerce) can be defined loosely as ‗doing business electronically‘(European Commission 1997). E-Commerce includes electronic trading of physical good and ofintangibles such as information. This encompasses all the trading steps, such as online marketing,ordering, payment, and support for delivery. E-Commerce is also a convenient channel to provideservices, such as after sales support or online legal advice, etc. Furthermore, E-Commerce alsoincludes electronic support for collaboration between companies, such as collaborative design.An explosive development in Electronic Commerce can be seen during last 20 years. Internet andthe World Wide Web make E-Commerce much more accessible, easily usable and lower cost.Thus, E-Commerce on the basis of the Internet is set to become a very important way of doingbusiness (Paul Timmer, 1998). The emergency of E-Commerce re-constructs the traditional valuechain and brings companies various innovative choices of business models.A 2007 Pew Internet and American Life Project report 1 found that of 2,400 internet userssurveyed, 30 percent have felt overwhelmed by the amount of information they have found whileshopping or researching online, while 43 percent have been frustrated by the lack of information.It indicates a large potential market that could make use of more advanced shopping assistancesites. Thus, online social shopping websites are emergent by bringing the values ofrecommendations from consumers‘ online social network in order to facilitate online shopping.Online Social-Shopping Website is where people can recommend their favorite products forothers to discover and purchase online. Social shopping websites are bridging the continents ofoffline media, brand advertising and e-commerce by building a media platform that supports themarketing lifecycle -- awareness, consideration, trial and consumption. Online social shoppingblends two powerful elements of real-world shopping otherwise lost for online consumers: wordof-mouth recommendations from trusted sources and the ability to browse products in the waythat naturally leads to trepreneur/2008/july/194428.html5

Online social shopping has becoming popular. There are many players in the market already,such as Yelp, Kaboodle, and Zlio etc. Attracted by the market perspective of online socialshopping, many start-ups have entered in the market in recent years. In addition, some largeInternet media companies have seen the potential in the market and tend to take a share of themarket, such as Amazon‘s aStore.As the competition become fiercer, it is significantlyimportant to investigate the movements of the competitors and changes in market trends in orderto differentiate from the competitors and outperform in the competition.RunToShop, launched in September 2008, is the first online social shopping company in Finland.RunToShop provides service for consumers to find the products which their peers love and wherebuying is made easy by offering the most relevant and personal recommendations. Run bringstools for extending online shopping to communities where there is a lot of involvement frompeople. RunToShop is chosen as the case study company in this research where its strategies andbusiness model are analyzed and compared with the selected international competitors.1.2 Study objectiveAs the online social shopping companies are emerging and getting popular during the recentyears, there is rarely scientific research in this filed. The goal of this study is to analyze thebusiness model of the case company and compare its business model with its main competitors‘in order to find out the success factors for an online social company in the fiercer competition.According to the research objectives, the research problems are identified as follows:1. What are the business models of the case company RunToShop and its three selectedcompetitors, namely Yelp, Kaboodle, and Zlio?2. Based on the evaluation of the selected competitors‘ business models with their marketperformance, what lessons can RunToShop learn from the competitors in order to becomea successful online social shopping company?Generally, the success of the business models is evaluated with the comparison of the companymarket performance according to our adapted research framework. Since RunToShop is still at6

the initial stage to implement its business model, it is hard to compare its business performancewith the selected international competitors who have operated in online social shopping businessfor several years. Thus, the comparison of market performance is only conducted among the threeselected international competitors (YELP, Kaboodle and Zlio) in order to propose somemanagerial recommendations for RunToShop for future business development.1.3 Research approach and methodology1.3.1 Research processAs online social shopping is a new concept in research, there are not many studies in the field sofar. In the theoretical part, many literatures about business models in E-Business are reviewedand especially Osterwalder‘s E-Business model ontology is introduced. Since there are noresearch frameworks which are established particularly to analyze and compare the businessmodels for online social shopping business, the first task of this thesis is to develop an adaptedresearch framework of business model analysis especially for online social shopping companiesbased on reviews of the existing theoretical frameworks.In this study, the data used in the analysis is collected from various sources. The primary data iscollected in a form of interviews with the company directors in RunToShop and anexpert/consultant in the social shopping business field from the USA. The secondary data iscollected from various literatures, related references and international publications. Theobservation of discussions on concerned blogs and forums are also significant sources for thestudy. In addition, the updated information about the competitors‘ movements is searched fromdifferent database and online newspapers collections.The different types of sources for the research were used as follows: Literature from specific references in business modeling field Publications and discussions on online social shopping related blogs and forums Observations from the selected key competitors‘ websites Interviews and discussions with the managers in the case company and a professionalconsultant7

These sources were chosen for different reasons. The following provides the justification for theselection of specific sources of information.The literature for the theoretical part used in this thesis is based on theories of E-Commerce,value chain in E-Commerce, the importance of business models and frameworks to map abusiness model particular for Internet companies.The secondary data for this thesis was mainly collected from the web pages of differentorganizations and public agencies, which provide reliable information in various formatsincluding research papers, articles and statistics. The pages used are official websites of publicorganizations that maintain and update their information consistently. In addition, some socialshopping related blogs provide updated information in the industries and the reviews of onlinesocial shopping business in different perspectives.The observation from the main competitors‘ websites is an important resource to collectinformation from the selected competitors. Because competitors use their websites as a keychannel to communicate with its consumers‘, business partners and the public, much valuableinformation can be found on their websites in order to analyze their business models.The primary data for the research is obtained from interviews with the key managers in the casecompany RunToShop in order to discover its business strategies and business model.Furthermore, an interview with a professional consultant from a consulting company in USAaims to gain professional insights in online social shopping business in order to providemanagerial recommendations to the case company.In summary, the literature reviews build an overall picture of the development in E-Business andthe business modeling techniques for Internet companies in E-Business. The research frameworkis developed on the base of Alexander Osterwalder‘s E-Business model ontology. According tothe adapted framework, the primary and secondary data is collected and analyzed to answer theresearch questions.8

1.3.2 Qualitative researchAs the nature of ‗Social Shopping‘ indicates the social science research methods should beapplied rather than quantitative study. Thus, qualitative research methods are selected in thisstudy. These were developed in the social science to enable researchers to study social andcultural phenomena. The motivation for selecting qualitative research is because the qualitativeresearch methods are designed to help researchers understand people and social and culturalcontexts within which they live. Kaplan and Maxell (1994) argue that the goal of understanding aphenomenon from the point of view of the participants and their particular social and institutionalcontext is largely lost when the textual data are quantified.Case study research is used as the main methodology in this study. Case study research excels atbringing an understanding of a complex issue or object and can extend experience or add strengthto what is already known through previous research. Case studies emphasize detailed contextualanalysis of a limited number of events or conditions and their relationships. Researchers haveused the case study research method for many years across a variety of disciplines. Socialscientists, in particular, have made wide use of this qualitative research method to examinecontemporary real-life situations and provide the basis for the application of ideas and extensionof methods2. (Yin, 1984, p. 23)Both interviews and case study, two of the most common qualitative research methods, are usedin this study. RunToShop, the first online social shopping company in Finland, is chosen as thecase company in our research and its main competitors in the world are selected to study in orderto make a comparison and generalize the conclusions in the online social shopping business. Theinterviews with the managers in RunToShop are actually a part of the case study in order todiscover how the business model is designed in practice according to the strategies. Moreover,the interview with the consultant from USA inputs insights of the development of the onlinesocial shopping companies worldwide from an expert point of view. The interviews with thebusiness consultant from USA provide some updated information about the movement of theselected competitors, as well as an expert evaluation of the selected competitors‘ businessstrategies, business models and market performance. The interviewee is also asked to give his2Yin, R. K. (1984). Case study research: Design and methods. Newbury Park, CA: Sage.9

opinions about the success factors for online social shopping companies and propose somemanagerial recommendations for RunToShop future development.1.3.3 Structure of the studyThe first chapter of this thesis gives an overview of the background of the research, the objectiveof study, the research process, and the structure of the study.Chapter 2 explains theoretical issues in the study. The development of business modeling in EBusiness is reviewed and the four pillars of the E-Business model ontology are introduced. Theframework of this research, which is developed based on the Osterwalder‘s ontology, is adaptedfor the purpose of analyzing the business models of the case company and its main competitors inthe following chapters.Chapter 3 introduces the methodology of this research. The case study research method is chosenaccording to the research objectives. Furthermore, both observations and interviews are used tocollect data in order to analyze and compare the business models of the case company and itsselected competitors.Chapter 4 focuses on the business model analysis of the case company RunToShop according tothe collected data applying with the research framework which is developed based on theliterature reviews.Chapter 5 is an analysis and comparison of the business models of the three selected internationalcompetitors with RunToShop‘s according to the adapted research framework. The businessperformances of the three competitors are analyzed as well in order to evaluate the success of thebusiness models in an operative level.Chapter 6 gives a conclusion. The aim of this chapter is to summarize the key findings about eachresearch problem and to discuss the findings in relation to existing theories. The conclusions aredrawn from the analysis and comparison of the business models of the case company and its maincompetitors. In the discussion part, the lessons learnt from the case company and its competitors10

are summarized as success factors for a popular online social shopping website in order to win inthe fiercer completion. The success factors are also managerial recommendations for the casecompany.11

2 LITERATURE REVIEWSome literatures are reviewed to build a theoretical base for the research in this chapter,which is structured in the following way. In the first section, the notion of ‗business model‘used in this paper is clearly defined and the importance of understanding the business modelfor Internet based E-Business is summarized. In the second section, E-Business modelontology is introduced. Moreover, the four pillars of E-Business model are decomposed andwell explained in order to build a framework to analyze the business model of the casecompany and its selected competitors in the later chapters. In the third section, based onOsterwalder‘s business model analysis framework, an adapted research framework is createdin order to compare and evaluate the business models according to the research objectives.2.1 Business model for Internet based E-CommerceThere are different definitions of business models with different focus. According to Afuah(2004), a business model is a framework for making money. It is the set of activities which a firmperforms, how it performs them and when it performs them so as to offer its customers benefitsthey want and to earn a profit. The definition of business model refined by Osterwalder is appliedin this paper: Business model is a conceptual tool containing a set of objects, concepts and theirrelationships with the objective to express the business logic of a specific firm. Therefore we mustconsider which concepts and relationships allow a simplified description and representation ofwhat value is provided to customers, how this is done and with which financial consequences.(Osterwalder A. & Yves P., 2005)Traditional business models are transforming or developing to better exploit the opportunitiesenabled by technological innovations (Adamantia G.

Business Model Analysis for Online Social Shopping Companies Case Study: RunToShop Oy Logistics Master's thesis Liang Zhang 2009 Department of Business Technology