PPT ch03

Electronic CommerceEighth Edition

Chapter 3Selling on the Web: Revenue Models

and Building a Web Presence

Electronic Commerce, Eighth Edition 2

Learning Objectives

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

• Creating an effective business presence on the Web

• Web site usability

• Communicating effectively with customers on the Web


Revenue Models

• Web business revenue generating models– Web catalog– Digital content– Advertising-supported– Advertising-subscription mixed– Fee-based

• Can work for both sale types– Business-to-consumer (B2C)– Business-to-business (B2B)

• Can work with one Web site, separate sites, or separate pages


Web Catalog Revenue Models

• Adapted from traditional catalog-based model– Seller established brand image– Sold through printed information

• Mailed to prospective buyers

• Web sites expand traditional model– Replace or supplement print catalogs– Offer flexibility

• Order through Web site or telephone

• Payment though Web site, telephone, or mail

• Creates additional sales outlet


Web Catalog Revenue Models (cont’d.)

• Computers and consumer electronics– Apple, Dell, Gateway, Hewlett-Packard, IBM, Sun

Microsystems• Sell full range of products

– Dell• Allows product configuration; creates value

– Crutchfield and The Sharper Image• Successful mail order expansion includes Web sites

– Best Buy, Circuit City, J&R Music World, Radio Shack• Successful retail store presence expansion

• Sell same products



• Books, music, and videos– Most visible electronic commerce examples– Amazon.com Web-only retailer

• Originally sold only books– Barnes & Noble, Blackwell’s, Books-A-Million,

Powell’s Books• Well-established physical book stores

– CDnow Web-only online music store– Tower Records, Sam Goody retail stores

• Created Web sites to compete with CDnow– CD Universe copied CDnow approach


• Luxury goods– Clientele reluctant to buy through Web– Vera Wang and Versace

• Web sites provide information

• Shopper purchases at physical store

• Heavy use of graphics and animation

– Evian • Uses flash animation

– Tiffany & Co• Graphics and animation require broadband connection



• Clothing retailers– Adapt catalog sales model to Web– Display clothing photos

• Prices, sizes, colors, tailoring details

– Customers examine clothing online • Place orders through Web site

– Lands’ End online Web shopping assistance• Lands’ End Live (1999)

– Text chat and call-back features– Lands’ End personal shopper agent (more recent)

• Learns preferences and makes suggestionsElectronic Commerce, Eighth Edition 10



• Clothing retailers (cont’d.)– My Virtual Model (customers try clothes)

• Graphic image built from customer measurements

– Lands’ End • Two shoppers using different computers

• Simultaneously browse Web site together

– Online overstocks stores• Reaches more people than physical store

– Problem with varying computer monitor color settings• Send fabric swatch on request

• Offer generous return policies



• Flowers and gifts (gift retailers)– 1-800-Flowers

• Online extension to successful telephone business• Competes with online-only florists

– Godiva• Offers business gift plans

– Hickory Farms and Mrs. Fields Cookies• Offer familiar name brands on Web

– Harry and David• Original Web site for informational purposes• Promoted catalog business• Added online ordering feature

Web Catalog Revenue Models (cont’d.)• General discounters (completely new businesses)

– Buy.Com• Borrowed Wal-Mart and discount club sales model

– Many sites sold advertising (originally)• Subsidized extremely low prices• Most sites now out of business

– Rely on volume purchasing strategy (now)• Keeps prices low

– Fiercely competitive (thin margins: little profits)– Traditional discount retailers

• Costco, Kmart, Target, Wal-Mart• Slow to introduce electronic commerce Web sites



Digital Content Revenue Models

• Highly efficient distribution mechanism– Firms own written information or information rights

• LexisNexis: variety of information services

• Lexis.com: traditional research product

• ProQuest: sells published documents’ digital copies

• Dow Jones newspaper publisher subscriptions– Digitized newspaper, magazine, and journal content

• Association for Computer Machinery: digital library

• Sellers of adult digital content– Pioneered online credit card payment processing


Advertising-Supported Revenue Models

• United States network television– Provides free programming and advertising messages

• Supports network operations sufficiently

• Site visitor views problem (measuring and charging)– Stickiness

• Keeping visitors at site and attracting repeat visitors

• Exposed to more advertising in sticky site

• Obtaining large advertiser problem– Demographic information

• Characteristics set used to group visitors


Advertising-Supported Revenue Models (cont’d.)

• Successful sites attract specific groups– About.com, HowStuffWorks, Drudge Report

• Web portals – Yahoo!

• First Web directory• Search engine results presented on separate page• Search term triggered advertising

– Main portal sites (AOL, Excite, Google, MSN)– Smaller general-interest sites (refdesk.com)

• More difficulty attracting advertisers• C-NET (offers items to a specialized group)



• Newspaper publishers– Publish print content on Web– Internet Public Library Online Newspapers page

• Links to worldwide newspaper sites

– Newspaper’s Web presence• Provides greater exposure and advertising audience

• Print edition sales loss (difficult to measure)

• Operating costs not covered by advertising revenue



• Targeted classified advertising sites– More successful at generating adverting revenue– Web site profit potential

• Specialize in classified advertising

– Web employment advertising (CareerBuilder.com) • Web directory and search engine advertising approach

• Topics of interest; short articles (increases stickiness)

• Monster.com



• Targeted classified advertising sites (cont’d.)– Used vehicle sites

• AutoTrader.com, CycleTrader.com, BoatTrader.com

• Accepts paid advertising and charge listing fee

• Seller ad options: Web site only, print version inclusion

– Dedicated following product sites (VetteFinders)• Caters to small audiences

– Product sites useful to buyer after use• Musicians Buy-Line, ComicLink.com, The Golf

Classifieds


Advertising-Subscription Mixed Revenue Models

• Subscribers– Pay fee and accept advertising– Typically less advertising

• Compared to advertising-supported sites

• Web sites offer different degrees of success– The New York Times (today)

• Bulk of revenue derived from advertising– The Wall Street Journal (mixed model)

• Subscription revenue weighted more heavily– Print edition and online editions

• Different model versions


Advertising-Subscription Mixed Revenue Models (cont’d.)

• The Washington Post , Los Angeles Times – Mixed revenue model variation

• No subscription fee charges

• Current stories free

• Pay for archived articles

• Business Week– Mixed revenue model variation

• Free content at online site

• Requires paid subscription to print magazine

• Archived article additional charge (over five years old)


Advertising-Subscription Mixed Revenue Models (cont’d.)

• ESPN– Leverages brand name from cable television business– Sells advertising, offers free information– Collects Insider subscriber revenue

• Consumers Union (ConsumerReports.org)– Subscriptions and charitable donations – Not-for-profit organization

• No advertising

– Free information • Attracts subscribers and fulfills mission


Fee-for-Transaction Revenue Models

• Service fee based on transaction number or size

• Web site offers visitor personal service– Formerly, human agents provided service

• Value chain– Disintermediation

• Intermediary (human agent) removed

– Reintermediation• New intermediary (fee-for-transaction Web site)

introduced


Fee-for-Transaction Revenue Models (cont’d.)

• Travel agents– Receive fee for initiating transaction– Replaced by computers

• Online travel agents– Saber system (Travelocity)– Expedia, Hotels.com, Hotel Discount Reservations

• All profitable

– Orbitz • Five major U.S. airlines consortium

• Generates advertising revenue



• Travel agents (cont’d.)– Traditional travel agents being squeezed out

• Reduced or eliminated fees

– Smaller travel agents specializing (cruises, hotels)– Reintermediation strategy

• Travel agents focus on groups

– Cruise Web sites• VacationsToGo.com, Cruise Specialists

– Group travel Web sites• WaveHunters.com, WannaSurf



• Automobile sales– Web site removes salesperson negotiation

• Reduces costs• Provides buyers information service

– CarsDirect.com model• Customers select specific car, site determines price

and finds local dealer– Autoweb.com and Autobytel model

• Site locates local dealers, car sells at small premium over dealer’s nominal cost

– Car salesperson disintermediated– Web site: new intermediary (reintermediation)



• Stockbrokers– Charge customers trade execution commission– Web-based brokerage firms (E*TRADE and Datek)

• Offer investment advice, fast trade execution

• Creates competition

– Discount brokers and full-line brokers• Web sites opened for stock trading and information

• Transaction cost reductions (like online auto buying)

• Stockbrokers disintermediated



• Insurance brokers– Quotesmith

• Internet policy price quotes direct to public (1996)

• Independent insurance agents disintermediated

– Insurance policy information, comparisons, sales sites• InsWeb, Answer Financial, Insurance.com,

YouDecide.com

– Progressive Web site• Provides quotes for competitors’ products too

– Major insurance company Web sites• Offer information or policies for sale



• Event tickets– Event promoters use Web

• Ticketmaster, Tickets.com, TicketWeb

• Sell original tickets

• Customers reside anywhere worldwide

– Secondary market tickets• StubHub, TicketsNow

• Operate as brokers

• Connect ticket owners with buyers

• Reduce transaction costs



• Real estate and mortgage loan brokers– Web sites provide all traditional broker services

• Coldwell Banker, Prudential

– National Association of Realtors Web site• Realtor.com

– IndyMac Bank Home Lending• Offers online credit review, decision in minutes, printing

approval letter

– Successful Web mortgage brokers• Ditech and E-LOAN



• Online banking and financial services– No physical product

• Easy to offer on Web

– Web financial transactions concerns• Trust and reliability of financial institution

– Solutions• Use existing bank’s identification and reputation

(Citibank Online)

• Start online bank not affiliated with existing bank (First Internet Bank of Indiana)

• Use different name (Bank One used Wingspan)



• Online music– Amazon MP3, Apple’s iTunes, eMusic, Microsoft’s

MSN Music, Napster, Rhapsody, Yahoo!, Walmart.com Music Downloads

– Sell single songs (tracks) and albums– Sales revenue source

• Fee-for-transaction model

• Some sites offer subscription plans



• Online music (cont’d.)– Problems

• Digital products easily copied

• Stores promote own music file format

• Buyers required to download and install software

• Software limits number of audio file copies

• Software does not prevent illegal copying

– Solution• Adopting one standard file format

• No copying restrictions

• DRM-free MP3 format (Amazon)


Online Video

• Copying control– Use DRM software

• Three issues hampering sales– Large file size

• Reduced by higher Internet connection speeds

– Fear of online sales impairing other sales types• Potential serial release pattern impact

– Inability to play on variety of devices• DRM not platform compatible


Fee-for-Service Revenue Models

• Companies offer Web service– Fee based on service value

• Not broker service• Not based on transactions-processed number or size

• Online games– Sales revenue source

• Advertising (older concept)• Pay-to-play premium games• Subscriptions

– Frequent player demographics• 40% over age 35


Fee-for-Service Revenue Models (cont’d.)

• Professional services– Limited Web use

• State laws prohibit extension of practice

• Patients may set appointments

– Major concern• Patient privacy

– Significant barrier• Patient diagnosis difficult without physical examination


Revenue Models in Transition

• Need to change revenue model– When Web users’ needs change

• Conditions after 2000– Funding became scarce

• Unprofitable growth phase

– Change model or go out of business


Subscription to Advertising-Supported Model

• Slate magazine (e-zine)– Upscale news and current events

• Success expectations were high– Experienced writers and editors– Acclaim for incisive reporting and excellent writing

• Initial revenue source– Annual subscription

• Did not cover operating costs

• Now an advertising-supported site– Part of MSN portal

• Increases stickiness


Advertising-Supported to Advertising-Subscription Mixed Model

• Salon.com– Acclaim for innovative content

• Initial revenue source– Advertising-supported site– Needed additional money to continue operations

• Investors did not provide

• Now offers optional subscription version– Annual fee for Salon premium

• Free of advertising• Downloadable content• Additional content


Advertising-Supported to Fee-for-Services Model

• Xdrive Technologies– Free disk storage

• Initial revenue source (1999)– Advertising-supported

• Pages contained advertising

• Targeted e-mail advertising

• Did not cover operating costs

• Now subscription-supported service– Monthly fee dropping

• Other similar companies (IBackup and Kela)


Advertising-Supported to Subscription Model

• Northern Light– Search engine (includes own database)

• Results include Web site links and abstracts

• Initial revenue source– Combination (advertising-supported and fee-based)

• Individual article payment

• Search results page advertising

– Did not cover operating costs

• Now subscription model– Annual, large clients


Multiple Transitions

• Encyclopedia Britannica– Initial Web offerings

• Britannica Internet Guide• Encyclopedia Britannica Online

• Initial revenue source– Paid subscription site

• Low subscription sales– Converted to free advertiser-supported site

• Sold educational and scientific products

• Returned to mixed model– Subscription plan and free content


Revenue Strategy Issues

• Implementations issues– Channel conflict and cannibalization– Strategic alliances and channel distribution

management– Mobile commerce

Channel Conflict and Cannibalization• Channel conflict (cannibalization)

– Company Web site sales activities interfere with existing sales outlets

• Retail distribution partner issues– Levis: stopped selling products on company Web site

• Site now provides product information

– Maytag: incorporated online partners into Web site• Site now provides product information

– Eddie Bauer• Online purchases returnable at retail stores

• Required compensation and bonus plans adjustments to support Web site



Strategic Alliances and Channel Distribution Management

• Strategic alliance– Two or more companies join forces

• Undertake activity over long time period– Joining Web sites with channel distribution

management firms• Yodlee

– Relationship with portal site clients• Amazon.com

– Joined with Target, Borders, CDnow, ToyRUs• Handleman Company

– Manages music inventories (Walmart, KMart)

Mobile Commerce

• Few companies successful generating significant revenues– NTT’s DoCoMo I-Mode service (Japan cell phone)

• Send short messages, play games, obtain weather forecasts

– AvantGo (United States)• Offers channels of information as PDA downloads

• Mobile commerce: $400 billion by 2012– Requires larger memory, easier-to-use interfaces,

higher screen resolutions• E-mail, telephone, Web access, entertainment services

convergence



Creating an Effective Web Presence

• Organization’s presence– Public image conveyed to stakeholders– Usually not important

• Until growth reaches significant size

– Stakeholders • Customers, suppliers, employees, stockholders,

neighbors, general public

• Effective Web presence– Critical

• Even for smallest and newest Web operating firms

Identifying Web Presence Goals• Business physical space

– Focus on very specific objectives• Not image driven• Must satisfy many business needs• Fails to convey good presence

• Web business site intentionally creates distinctive presence

• Good Web site design– Provides effective image-creation features– Provides effective image-enhancing features

• Serves as sales brochure, product showroom, financial report, employment ad, customer contact point



Identifying Web Presence Goals (cont’d.)

• Making Web presence consistent with brand image– Different firms establish different Web presence goals– Coca Cola pages

• Usually include trusted corporate image (Coke bottle)

• Traditional position as a trusted classic

– Pepsi pages• Usually filled with hyperlinks to activities and product-

related promotions

• Upstart product favored by younger generation

Achieving Web Presence Goals

• Effective site creates attractive presence– Meets business or organization objectives

• Objectives– Attract visitors to the Web site

– Make site interesting

– Convince visitors to follow site’s links

– Create impression consistent with organization’s desired image

– Build trusting relationship with visitors

– Reinforce positive image

– Encourage visitors to returnElectronic Commerce, Eighth Edition 55

Achieving Web Presence Goals (cont’d.)

• Profit-driven organizations– Toyota

• Good example of effective Web presence

• Presence consistent with corporate goal

– Quaker Oats older Web site• Offered little sense of corporate presence

– Quaker Oats current Web site• Much better


Achieving Web Presence Goals (cont’d.)

• Not-for-profit organizations– Web presence effort goals

• Image-enhancement capability

• Provide information dissemination

– Successful site key elements• Integrate information dissemination with fund-raising

• Provide two-way contact channel

– American Civil Liberties Union (ACLU)• Serves many different constituencies

– Political party Web sites



Web Site Usability

• Current Web presences– Few businesses accomplish all goals– Most fail to provide visitors sufficient interactive

contact opportunities– Improve Web presence

• Make site accessible to more people

• Make site easier to use

• Make site encourage visitors’ trust

• Develop feelings of loyalty toward organization

How the Web Is Different

• Simple mid-1990s Web sites– Conveyed basic businesses information– No market research conducted

• Web objectives achievement failure– Not understanding Web presence-building media

• Web objective achievement success– Sites create organization’s presence– Sites contain standard information set

• History, objectives, mission, product information, financial information, two-way meaningful communication



Meeting the Needs of Web Site Visitors

• Successful Web businesses:– Realize every visitor is a potential customer (partner)

• Crafting Web presence is an important concern– Know visitor characteristic variations

• Visitor at site for a reason


Meeting the Needs of Web Site Visitors (cont’d.)

• Web site visitor motivations– Learning about company products or services– Buying products or services– Obtaining warranty, service, repair policy information – Obtaining general company information– Obtaining financial information– Identifying people– Obtaining contact information

• Visitors have:– Various needs, experience, expectations, technology



• Making Web sites accessible– Build interface flexibility

• Optional to use frames

• Offer text-only version

• Option to select smaller graphic images

• Option to specify streaming media connection type

• Option to choose among information attributes

– Controversial Web site design• Animated graphics software use

• Some tasks lend themselves to animated Web pages



• Making Web sites accessible (cont’d.)– Offer multiple information formats– Web site constructions goals

• Offer easily accessible organization facts

• Allow different visitor experiences

• Provide meaningful, two-way communication link

• Sustain visitor attention and encourage return visits

• Offer easily accessible information about products, services, and their use


Trust and Loyalty

• Creates relationship value

• Good service leads to seller trust– Delivery, order handling, help selecting product, after-

sale support

• Satisfactory service builds customer loyalty

• Customer service in electronic commerce sites– Problem

• Lack integration between call centers and Web sites

• Poor e-mail responsiveness

– Unlikely to recover money spent to attract customers


Rating Electronic Commerce Web Sites

• Review electronic commerce Web sites– Usability, customer service, other factors– Gomez.com

• No longer publishes most scorecards

– BizRate.com• Comparison shopping service

• Links to low price and good service ratings sites


Rating Electronic Commerce Web Site (cont’d.)

• Usability testing– Helps meet Web site goals– Avoids Web site frustration

• Customers leave site without buying anything

– Simple site usability changes• Include telephone contact information

• Staff a call center

– Learn about visitor needs by conducting focus groups– Usability testing cost

• Low compared to Web site design costs


Rating Electronic Commerce Web Site (cont’d.)

• Customer-centric Web site design– Important part of successful electronic business

operation– Focus on meeting all site visitors’ needs– Putting customer at center of all site designs

• Follow guidelines and recommendations

• Make visitors’ Web experiences more efficient, effective, memorable

– Usability• Important element of creating effective Web presence


Connecting with Customers

• Important element of a corporate Web presence

• Identify and reach out to customers


Connecting with Customers (cont’d.)

• Nature of Web communication– Personal contact (prospecting)

• Employees individually search for, qualify, contact potential customers

– Mass media• Deliver messages by broadcasting

– Addressable media• Advertising efforts directed to known addressee

– Internet medium• Occupies central space in medium choice continuum


Summary

• Six main approaches to generate Web revenue– Models work differently– Different business types use different models– Learn more about customers, business environment

• Change models

• Channel conflict and cannibalization challenges– Form strategic alliances with other companies – Contract with channel distribution managers

• B2C mobile commerce not widely successful• Create effective Web presence to deliver value• Must understand Web communication

PPT ch03

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