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Transcript of Chapter 3: Selling on the Web: Revenue Models and Building a Web Presence Part 1 Electronic Commerce...
![Page 1: Chapter 3: Selling on the Web: Revenue Models and Building a Web Presence Part 1 Electronic Commerce Sixth Edition.](https://reader035.fdocuments.in/reader035/viewer/2022062407/56649e635503460f94b5fc8d/html5/thumbnails/1.jpg)
Chapter 3:Chapter 3:Selling on the Web: Revenue Models Selling on the Web: Revenue Models
and Building a Web Presenceand Building a Web PresencePart 1Part 1
Electronic Commerce
Sixth Edition
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 22
ObjectivesObjectives
In this chapter, you will learn about:
Revenue models
How some companies move from one revenue model to another to achieve success
Revenue strategy issues that companies face when selling on the Web
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 33
Objectives (continued)Objectives (continued)
Creating an effective business presence on the Web
Web site usability
Communicating effectively with customers on the Web
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REVENUE MODELSREVENUE MODELSHow do e-commerce sites make money? $$$How do e-commerce sites make money? $$$
Web CatalogDigital ContentAdvertising-SupportedAdvertising-Subscription mixedFee-for-transactionFee-for-service
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 55
CATALOG REVENUE MODELCATALOG REVENUE MODEL
Mail order or catalog model– Proven to be successful for a wide variety of
consumer itemsFirst catalogs: Montgomery Ward, Sears
Web catalog revenue model– Taking the catalog model to the Web
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Types of businesses using theTypes of businesses using theWeb catalog revenue modelWeb catalog revenue model
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 77
Computers and Consumer Computers and Consumer ElectronicsElectronics
Apple, Dell, Gateway, and Sun Microsystems have had great success selling on the Web
– Dell created value by designing its entire business around offering a high degree of configuration flexibility to its customers
Crutchfield and The Sharper Image expanded their successful mail order catalog to include Web sites.
Radio Shack, Best Buy and others had strong retail presences and opened Web sites too.
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 88
Books, Music, and VideosBooks, Music, and Videos
Retailers use the Web catalog model to sell books, music, and videos – Among the most visible examples of electronic
commerce
Jeff Bezos– Formed Amazon.com
Jason and Matthew Olim – Formed an online music store they called CDnow– Used the Web catalog revenue model
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 99
Luxury GoodsLuxury Goods
People are still reluctant to buy luxury goods through a Web site
Web sites of Vera Wang and Versace
– Constructed to provide information to shoppers, not to generate revenue
Web site of Evian
– Designed for a select, affluent group of customers
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 1010
Clothing RetailersClothing Retailers
Lands’ End– Pioneered the idea of online Web shopping
assistance with its Lands’ End Live feature in 1999
Personal shopper– Intelligent agent program that learns customer’s
preferences and makes suggestions
Virtual model – Graphic image built from customer measurements
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 1111
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 1212
Flowers and GiftsFlowers and Gifts1-800-Flowers
– Created an online extension to its telephone order business
Chocolatier Godiva
– Offers business gift plans on its site
General DiscountersGeneral DiscountersWeb-based deep discounters – Buy.com
– Usually run on thin margins due to fierce competition
Kmart, Wal-Mart, Costco – were slow to introduce e-commerce on their Web sites
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DIGITAL CONTENT REVENUE DIGITAL CONTENT REVENUE MODELSMODELS
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 1414
DIGITAL CONTENT REVENUE DIGITAL CONTENT REVENUE MODELSMODELS
Firms that own intellectual property have embraced the Web as a new and highly efficient distribution mechanism– Some charge hundreds or thousands $/yr to break even due
to low number of subscribers
– Lexis.com Provides full-text search of court cases, laws, patent databases, and tax regulations
– ProQuestSells digital copies of published documents
– ACM Digital Library
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ADVERTISING-SUPPORTED ADVERTISING-SUPPORTED REVENUE MODELSREVENUE MODELS
Used by US Broadcasters (TV and Radio stations) provide free
programming to an audience along with advertising messages
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 1616
ADVERTISING-SUPPORTED ADVERTISING-SUPPORTED REVENUE MODELSREVENUE MODELS
Advertising Revenue Statistics:
1994-1998 – grew from $0 to $ 2 billion
2000-2002 – flat or declining
2003- now – growing, but a lower rate
– Recent statistics ClickZ.com
WHY???
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 1717
ADVERTISING-SUPPORTED ADVERTISING-SUPPORTED REVENUE MODELSREVENUE MODELS
Success of Web advertising is held back by
– No consensus on how to measure and charge for site visitor views
Stickiness of a Web site: the ability to keep visitors and attract repeat visitors
– Very few Web sites have sufficient visitors to interest large advertisers
Most successful advertising is targeted using demographic information
– Very difficult to determine on the Web
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Types of Web sites using Types of Web sites using ADVERTISING-SUPPORTED ADVERTISING-SUPPORTED
REVENUE MODELSREVENUE MODELS
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 1919
Web PortalsWeb PortalsPortal or Web portal– Site used as a launching point to enter the Web– Almost always includes a Web directory and search
engine– Examples: Yahoo!, AOL, AltaVista, Excite
Information SitesInformation Sites
Attract specific group of visitors to which advertisers can direct specific messages– HowStuffWorks, About.com, Grudge Report
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Advertising-Subscription Mixed Advertising-Subscription Mixed Revenue ModelsRevenue Models
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 2121
Advertising-Subscription Mixed Advertising-Subscription Mixed Revenue ModelsRevenue Models
Subscribers
– Pay a fee and accept some level of advertising
– Typically are subjected to much less advertising
Used by
– The New York Times and The Wall Street Journal
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 2222
Advertising-Subscription Mixed Advertising-Subscription Mixed Revenue Models (continued)Revenue Models (continued)
Business Week
– Offers some free content at its Business Week online site
– Requires visitors to buy a subscription to the Business Week print magazine
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Fee-for-Transaction Revenue Fee-for-Transaction Revenue ModelsModels
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 2424
Fee-for-Transaction Revenue ModelsFee-for-Transaction Revenue Models
Businesses offer services and charge a fee based on the number or size of transactions processed– Intermediary is removed here (disintermediation)– Web site becomes a new intermediary
(reintermediation)
Examples:– Travel Agents (Cheaptickets, Expedia, Travelocity, Priceline…)
– Online Music (iTunes, MSN Music, Napster, RealPlayer Music Store,
Walmart.com Music Downloads, Sony’s Connect, etc.
– Automobile Sales (CarsDirect.com, MSN Autos, Autobytel, etc.)
– Stockbrokers (E*Trade, Ameritrade, Charles Schwab)
– Event Tickets (Ticketmaster, etc.)
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Fee-for-Service Revenue ModelsFee-for-Service Revenue Models
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 2626
Fee-for-Service Revenue ModelsFee-for-Service Revenue Models
Fee based on the value of a service provided
Services range from games and entertainment to financial advice
Online games (users spent over $10 billion/year in US)
– Growing number of sites include premium games in their offerings
– Site visitors must pay to play these premium games (subscriptions or purchase)
Station.com by Sony, MSN Zone.com
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 2727
Fee-for-Service Revenue Models Fee-for-Service Revenue Models (continued)(continued)
Concerts and films– As more households obtain broadband access to
the Internet, companies are providing streaming video of concerts and films to paying subscribers
RealOne SuperPass, Movielink, etc.
Professional Services– State laws are one of the main forces preventing
U.S. professionals from extending their practices to the Web (lawyers, accountants, physicians, engineers, etc.)
HIPA Law
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Revenue Models in TransitionRevenue Models in Transition
5 examples of companies that faced changes in their revenue models
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 2929
Subscription to Advertising-Supported Subscription to Advertising-Supported modelmodel
Microsoft founded its Slate magazine Web site
– An upscale news and current events publication
– Charged an annual subscription fee after a limited free introductory period
– Was unable to draw sufficient number of paid subscribers
– Now operated as an advertising-supported site
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 3030
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 3131
Advertising-Supported to Advertising-Supported to Advertising-Subscription Mixed Advertising-Subscription Mixed
ModelModelSalon.com
– Operated for several years as an advertising-supported site
– Now offers an optional subscription version of its site
– Subscription offering was motivated by the company’s inability to raise additional money from investors
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 3232
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 3333
Advertising-Supported to Fee-for-Advertising-Supported to Fee-for-Services ModelServices Model
Xdrive Technologies– Opened its original advertising-supported Web
site in 1999– Offered free disk storage space online to users– After two years, it was unable to pay the costs of
providing the service with the advertising revenue generated
– Later switched to a subscription-supported model
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 3434
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 3535
Advertising-Supported to Advertising-Supported to Subscription ModelSubscription Model
Northern Light
– Founded in August 1997 as a search engine with a twist
– Revenue model
Combination of advertising-supported model plus a fee-based information access service
– January 2002
Converted to a new revenue model that was primarily subscription supported
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 3636
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 3737
Multiple TransitionsMultiple Transitions
Encyclopædia Britannica– Original offerings
The Britannica Internet Guide – Free Web navigation aid
Encyclopædia Britannica Online – Available for a subscription fee or as part of a CD package
– 1999Converted to a free, advertiser-supported site
– 2001Returned to a mixed model
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 3838
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Local web sites (Puerto Rico)Local web sites (Puerto Rico)
Visit each web site on the list and browse it
Identify which revenue model or models the web site uses at the moment. Explain why do you think so.
Would you like to do business with this e-commerce site? Explain.
Submit a double-spaced report. Make sure you include the complete URL of the site visited.
3939Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition
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Revenue Strategy IssuesRevenue Strategy Issues
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 4141
Revenue Strategy IssuesRevenue Strategy Issues
Channel conflict or cannibalization
– Occurs whenever sales activities on a company’s Web site interfere with existing sales outlets
– Levi’s Web site now offers product info only
– Maytag stopped from selling on their Web site
Channel cooperation
– Giving customers access to the company’s products through a coordinated presence in all distribution channels
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Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 4343
Strategic AlliancesStrategic Alliances
Strategic alliance– When two or more companies join forces to
undertake an activity over a long period of timeAmazon is a great example
– Look for partners at the bottom of the Home page