E-Business Eighth Edition

E-BusinessEighth Edition Chapter 3Selling on the Web: Revenue Models and Building a Web Presence

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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

E-Business, Eighth Edition

Web Catalog Revenue Models (cont’d.) • 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 E-Business, Eighth Edition

Web Catalog Revenue Models (cont’d.) • 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 E-Business, Eighth Edition

Web Catalog Revenue Models (cont’d.) • 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 suggestions E-Business, Eighth Edition

Web Catalog Revenue Models (cont’d.) • 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 E-Business, Eighth Edition

Web Catalog Revenue Models (cont’d.) • 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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

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) E-Business, Eighth Edition

Advertising-Supported Revenue Models (cont’d.) • Newspaper publishers • Publish print content on Web • Internet Public Library Online Newspaperspage • 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 E-Business, Eighth Edition

Advertising-Supported Revenue Models (cont’d.) • 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 E-Business, Eighth Edition

Advertising-Supported Revenue Models (cont’d.) • 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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

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 onlinesite • Requires paid subscription to print magazine • Archived article additional charge (over five years old) E-Business, Eighth Edition

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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

Fee-for-Transaction Revenue Models (cont’d.) • 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 E-Business, Eighth Edition

Fee-for-Transaction Revenue Models (cont’d.) • 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) E-Business, Eighth Edition

Fee-for-Transaction Revenue Models (cont’d.) • Stockbrokers • Charge customers trade execution commission • Web-based brokerage firms (E*TRADEand 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 E-Business, Eighth Edition

Fee-for-Transaction Revenue Models (cont’d.) • 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 • ProgressiveWeb site • Provides quotes for competitors’ products too • Major insurance company Web sites • Offer information or policies for sale E-Business, Eighth Edition

Fee-for-Transaction Revenue Models (cont’d.) • 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 E-Business, Eighth Edition

Fee-for-Transaction Revenue Models (cont’d.) • 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 E-Business, Eighth Edition

Fee-for-Transaction Revenue Models (cont’d.) • 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) E-Business, Eighth Edition

Fee-for-Transaction Revenue Models (cont’d.) • 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 E-Business, Eighth Edition

Fee-for-Transaction Revenue Models (cont’d.) • 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) E-Business, Eighth Edition

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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

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) E-Business, Eighth Edition

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 E-Business, Eighth Edition

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 E-Business, Eighth Edition

Revenue Strategy Issues • Implementations issues • Channel conflict and cannibalization • Strategic alliances and channel distribution management • Mobile commerce E-Business, Eighth Edition

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 E-Business, Eighth Edition

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) E-Business, Eighth Edition

E-Business Eighth Edition