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EN3515 Lecture 2: The Internet Industry: Success and Failures

EN3515 Lecture 2: The Internet Industry: Success and Failures The Internet Industry: Successes and Failures The Legends Types of Businesses in the Internet Economy The Major Financer of Internet Business: Advertising Some interesting business models Current Successors The Less Fortunate

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EN3515 Lecture 2: The Internet Industry: Success and Failures

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  1. EN3515 Lecture 2: The Internet Industry: Success and Failures The Internet Industry: Successes and Failures • The Legends • Types of Businesses in the Internet Economy • The Major Financer of Internet Business: Advertising • Some interesting business models • Current Successors • The Less Fortunate

  2. The LegendsYahoo! And Jerry Yang (1) • In 1994, Jerry Yang, a graduate student at Stanford University, compiled a list of favorable websites with his fellow student David Filo. This list soon became Yahoo!, one of the legendary Internet companies in the world. • In 1999, the fourth quarter net income of Yahoo! quadrupled to US$57,6 million, and revenues jumped from US$91million to US$201 million.

  3. The LegendsYahoo! And Jerry Yang (2) • In 2000, the financial performance of Yahoo was strong. One of the few dotcoms that turn a profit, Yahoo's revenue more than doubled in the second quarter to $270.1 million from $128.6 million a year earlier. Excluding acquisition-related charges and employer payroll taxes, Yahoo earned $74 million, compared with $27.1 million a year ago. • In 2001, it held a stock-market value of more than US$70 billion.

  4. The LegendsYahoo! And Jerry Yang (3) • In April 2001, Yahoo posted a US$11.5 million first quarter net loss, compared with a profit of $67.6 million for the same period in 2000. It was cutting 12% of its workforce. • Revenues declined 33 percent to $182.2 million in the second quarter, from $273 million in the same period the previous year. And the company, once one of the Web's biggest money-spinners, says revenues for the full year will total between $700 million and $775 million, down roughly by one-third from $1.1 billion in 2000.

  5. The LegendsYahoo! And Jerry Yang (4)Nasdaq: Yahoo! Stock Price 2001

  6. The LegendsYahoo! And Jerry Yang (5)Business Model • Search Engine/Portal • Search • News • B2B • B2C • Communication (instant communication) • Revenue 80 percent from advertising (not just banner ad, e.g. real estate)

  7. The LegendsAmazon and Jeff Bezos (1) • In 1994, Jeff Bezos started his online book store from his garage. Within a few years, Amazon.com became the largest online e-commerce company and the biggest brand name of the Internet industry (still doing quite well). • One fifth of the world Internet users and 70% of U.S. Internet users have visited this site. • Compare the HK version: http://www.yesasia.com

  8. The LegendsAmazon and Jeff Bezos (2) • In 1999, the stock traded as high as $113.00 each share. Jeff’s stock shares were worth about US$7 billion. • In 2000, Amazon lost US$1.4 billion. On September 7, 2001, the share price went down to $8.51, a drop of 90%. • Now it’s going up again!

  9. The LegendsAmazon and Jeff Bezos (3) Nasdaq: Amazon.com Stock Price 2001

  10. The LegendsAmazon and Jeff Bezos (4)

  11. The LegendsAmazon and Jeff Bezos (5) • Stock Price (9/7/01): 8.51 • 1Week  -4.8% • 4 Weeks  -14.5% • 13 Weeks  -45.8% • 52 Weeks  -80.2%

  12. The LegendsAmazon and Jeff Bezos (6) Fiscal Year-End: December2000 Sales (mil.): 2,762.001-Yr. Sales Growth: 68.4%Employees: 9,000Revenue per employee: $306,888.89

  13. The LegendsAmazon and Jeff Bezos (5) Business Model • B2C Vertical Retail • Books • CDs, VCDs, Records (expanding) • Expanded to B2C Horizontal Retail • Cars • Home improvement • Almost everything else • The Web site design (interaction!!)

  14. The LegendseBay and Pierre Omidyar (1) • eBay Incorporated. The principal activities of the Group are to provide personal online trading to a web-based community and offline traditional auction services. In a web-based community, buyers and sellers are brought together in an auction format to trade personal items such as antiques, coins, collectibles, computers, memorabilia, stamps and toys. As of March 1, 2001 the Company operated dynamic pricing online trading platforms in the United States, Germany, the United Kingdom, Australia, Japan, Canada, France, Austria, Italy and South Korea.

  15. The LegendseBay and Pierre Omidyar (2) • It all started in 1995 when Pierre Omidyar, a young technical graduate, built a website to let people auction off their items. • By the end of 1999, eBay was the most visited e-commerce site on the Internet, surpassing Amazon.Net income more than tripled to US$1.35 billion in the third quarter of 1999. Registered members grew to 7.7 million. Its stock was as high as US$117.

  16. The LegendseBay and Pierre Omidyar (3) • On September 7, 2001, the stock price went down to US$52.95. • During the first quarter of 2001, eBay reported earnings per share of $0.08. This is an increase of 700% versus the first quarter of 2000, when the company reported earnings of $0.01 per share.

  17. The LegendseBay and Pierre Omidyar (4)

  18. The LegendseBay and Pierre Omidyar (5)Business Model • Trading platform • Charging for membership fees • Charging commissions • Conducting own auctions • Build you small “e-stores” (a lot of HK retailers do that)

  19. The LegendseBay and Pierre Omidyar (5) • eBay reports profits by product line. During 2000, the itemized operating profits at all divisions were $34.99 million, which is equal to 8.1% of total sales. Of all the product lines, Online Services had the highest operating profits in 2000, with operating profits equal to 9.8% of sales. (This product line is the largest at eBay, and accounted for 91% of sales in 2000).

  20. Types of Internet Businesses (1) • Internet Content Providers (ICPs, most of the media organizations and some horizontal portals, http://www.cnn.com/, and most porno sites [Prvt], http://www.prvt.com/flash/start.asp) • Internet Service Providers (ISPs, infrastructure businesses) • Internet Data Centers (ICDs, data storage and processing services, such as sunnyvision)

  21. Private Media Group (PRVT.com)

  22. Types of Internet Businesses (2) • Application Service Providers (ASPs, mostly software application providers, http://asp.thelist.com/list.asp) http://verticalNet.com/solutions/ • B2B trading portals and platforms (some are vertical, http://chinese.mediachina.net/chinese/index.jsp, http://www.easelink.com/index.aspand others are horizontal, http://www.8848.net) • (http://www.activmediaresearch.com/online_success_strategies_in_b1.html) (http://www.activmediaresearch.com/magic/pr032001.html) • (http://www.ahk-china.org/china-economy/internet-b2b-right-on-the-cross.htm) • B2C Retail (online stores, garage sales, factory outlets, etc. http://amazon.com, )

  23. Types of Internet Businesses (3) • Services on line (travel, http://www.ctrip.com/index.asp, http://www.travelocity.com/ stock, http://etrade.com/, medical care) • Hardware Providers (e.g. Cisco) • Software Providers (e.g. Microsoft, Macro Media, Adobe) • Instant Message (IM, e.g. ICQ, Yahoo, Microsoft, AOL) • Email providers

  24. Some interesting examples • Buy.com (revenue from advertisement) • HKgolden.com • Priceline.com (HK also has a site, +.hk) • Bestbuy.com and walmart.com (now think, how about the fortress.com.hk??) • Fatwallet.com and dvdtalk.com • Expedia.com and Travelocity.com, also eztravel.com.tw (now compare the Wingontravel.com and hongthai.com) • Ebay.com HK retailers

  25. Other creative examples • http://www.kland.com.tw • http://www.webbyawards.com/ • Read weekly: http://www.wired.com and http://www.slashdot.org • Top 100 Web sites: http://www.pcmag.com/category2/0,4148,7488,00.asp

  26. GMS SMS Growth (1) • More than 50 billion SMS (Short Message Service) text messages were sent over the world's GSM (TM) networks in the first three months of 2001. These figures confirm sustained global consumer interest in text communications with networks on track to exceed GMS Association's forecast of 200 billion global messages during 2001.(GMS Association, London, UK: 25th MAY 2001)

  27. GMS SMS Growth (2) • Mobile Lifestream estimated that the number of short messages will reach 40 billion per month in the world, of which: • 24 billion in Europe • 5.6 billion in Asia • 4 billion in North America

  28. GMS SMS Growth (3)The case of UK The Mobile Data Association announced in May 2001 that over 900 million text messages were sent throughout the UK during April 2001. The total number of chargeable person-to-person text messages sent across the four UK GSM network operators in April was 900 million, compared with 375 million sent in the same period last year. (Mobile Lifestream, 22 May 2001)

  29. SMS Growth (4)The Case of China • In China, short messages have grown rapidly. Although there are no authoritative statistics on the total amount of the messages, there are indications of a tremendous increase in the use of short messages. Most people would receive or send several short messages (mostly political satire and jokes) each day. Sohu and Netease both provide short messages through China Mobile. Obviously, communicating though short messages has become a popular form of entertainment/communication in China.

  30. SMS Growth (4)Trend Analysis • Evidently, SMS has become an increasingly popular form of wireless communication in the world. • The growth will slow down only when GPRS and 3G are well established. However, that will take several years.

  31. SMS Growth (5)Trend Analysis • Weaknesses of current SMS: 1) mostly one way (although a mediating software application is being developed in China to make it quasi-interactive); 2) inputting messages is fairly difficult, especially on the mobile phone; 3) when done across cultures, it cannot overcome the language barrier; 4) because of those limitations, SMs are mostly for entertainment or greetings.

  32. SMS Growth (6)Trend Analysis • An idea to take advantage of this trend: a multilingual WAP easymail (with user selecting and/or inputting only the key words). • Really think about why people use SMS (e.g. American culture, Asian culture..etc.)

  33. Paid E-mail (1) • Paid e-mail services may become a trend in the near future. They been considered and flirted with by the major players in the e-mail game, including Hotmail and Yahoo Mail. • In China, several e-mail providers, including 263, 163 and 21cn have launched paid services. • Users’ acceptance: one survey in China found that 31% respondents are willing to pay a small fee for a better and more sophisticated service; 10.3% have no opinion; and 58% say “no.”

  34. Paid E-mail (2)Trend Analysis • Chargeable e-mail services are probably inevitable because of the hefty costs in the provision of “ free lunch.” They are also the most feasible and acceptable of most of the Internet services. However, e-mail as it is may not warrant undisputed charges. Better, more secured and more value-added services should be provided. • The multilingual easymail, mentioned in “SMS Growth (6),” may be a good value-added and indispensable service after people are hooked up.

  35. The Major Financer of Internet Business: Advertising (1) • Internet advertising has witnessed a robust growth over the past few years. In 1999, according to the US Internet Advertising Bureau, advertising revenue on the Internet in the world was US$4.62 billion. It was predicted to reach US$45.55 billion in 2005. However, as the bubble of the Internet burst in 2000, the pace of growth slowed down -- despite a net increase. (Economic Journal, July 23, 2001, p.22)

  36. Internet Advertising (2)The case of the United States • Internet advertising in the United States recorded $2.2 billion in revenue for the fourth quarter of 2000, bringing the total online revenue for the year to $8.2 billion. While the $2.2 billion shows an increase of 9 per cent over the $1.986 billion for the third quarter of 2000, the percentage increase is markedly lower than historical levels, and it is reflective of the overall slowdown in ad revenue across all media sectors, in addition to a higher revenue base.

  37. Internet Advertising (3)The case of the United States • General Motors spent the most on online media in 2000, with an estimated $47.9 million expenditure. That almost doubles the $24.4 million the company spent in 1999, according to CMR figures. • Microsoft ranked second in 2000 ad spending, with $25.5 million, followed by BankOne ($25.5 million), IBM ($24.3 million) and AT&T ($18.5 million). Only GM and AT&T increased their expenditure from 1999. Microsoft, BankOne and IBM reduced their spending by 31 percent, 3 percent and 24 percent, respectively. (INTERACTIVE ADVERTISING BUREAU, April 23, 2001)

  38. Internet Advertising (4)The case of the United States • The categories which lead online spending during the fourth quarter of 2000 were: • Consumer-related (32%) - year 2000 (31%) • Computing (21%) - year 2000 (18%) • Financial Services (13%), - year 2000 (14%) • Business Services (6%), - year 2000 (9%) • Media (9%) - year 2000 (8%) (INTERACTIVE ADVERTISING BUREAU, April 23, 2001) http://www.iab.net

  39. Internet Advertising (5)The case of the United States • Overall, companies in media and advertising -- which include portals, content sites and search engines -- spent the most on Web media of any sector, with $542.2 million spent in 2000, up by 83.4 percent from 1999. Retail and e-tail firms spent about 73.6 percent more in 2000, or about $510.9 million, while computers and software businesses ($445.7 million; a 29.5 percent growth) and financial concerns ($294 million; 36.8 percent growth) also showed an increase in spending. (Competitive Media Reporting, February 6, 2001)

  40. Internet Advertising (6)The case of China • Internet advertising saw a jump start in China. In 1999, advertising expenditure in Beijing, Shanghai and Guangzhou was RMB31.69 million. However, the growth rate has been slower than that in the United States.

  41. Internet Advertising (7)Trend Analysis • The Internet can be seen as serving two functions: as an industry (or business), and as a communication medium. As an business, it has not fared well, as evident in the recent recession. However, as a communication medium, it has been very successful, reaching more and more people (while fragmenting them). Therefore, advertising on it is appealing to advertisers. The question is: Where to advertise, which heads to reach, and how the effect can be assessed?

  42. Internet Advertising (8)Trend Analysis • As portals and websites get consolidated, and as the presentation of online advertisements improves, the Internet may serve as a good, if complementary, medium for advertising along with the traditional mass media. What it has experienced was also encountered by radio and television in their early years (although the later enjoyed a monopolistic position because of the limited airwave resources).

  43. Who Has Made It – for the Moment? • Hardware providers • Software providers • Some ISPs • Increasingly ASPs (VerticalNet) • Porno sites (for content providers) • Travel (for services on line) • Some B2C (amazon’s vertical operation) • Auction platforms (ebay)

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