E- Business Ninth Edition

1. E- BusinessNinth Edition Chapter 7Virtual Communities

2. Virtual Communities Virtual community (Web community, online community) Gathering place for people and businesses No physical existence Early virtual communities Bulletin board systems (BBSs) Revenue source: monthly fees and selling advertising Usenet newsgroups Message posting areas on usenets E- Business, Ninth Edition 2

3. Virtual Communities (cont’d.) Current forms Web chat rooms Sites devoted to specific topics or general exchange of information, photos, videos People connect and discuss common issues, interests Considerable social interaction Relationship-forming activities Similar to physical communities E- Business, Ninth Edition 3

4. Social Networking in the Second Wave of Online Communities As the Internet and Web grew: Experience of sharing new online communication faded New phenomenon in online communication began Multiple common bonds joined people with all types of common interests Internet became a tool to facilitate communication Social networking sites Allow individuals to create and publish a profile, create a list of other users with whom they share a connection (or connections), control that list, and monitor similar lists made by other users E- Business, Ninth Edition 4

5. Social Networking in the Second Wave of Online Communities (cont’d.) Social networking sites Six Degrees (1997); Closed in 2000. Friendster (2002) Had features found in today’s social networking sites LinkedIn: devoted to business connections Tribe.net YouTube: popularized video inclusion MySpace: popular with younger Web users Twitter Users can send short messages to other users who sign up to follow their messages (tweets) E- Business, Ninth Edition 5

6. Social Networking in the Second Wave of Online Communities (cont’d.) Basic idea behind social networking People invited to join by existing members Site provides directory New members work through friends established in the community E- Business, Ninth Edition 6

7. FIGURE 7-1 Social networking Web sites E- Business, Ninth Edition 7

8. Social Networking in the Second Wave of Online Communities (cont’d.) Web logs (Blogs) Web sites containing individual commentary on current events or specific issues Form of social networking site Encourages interaction among people Visitors add comments Early blogs focused on technology topics 2004: blogs used as political networking tool 2008: all major candidates using blogs Communicating messages, organizing volunteers, raising money, meetups E- Business, Ninth Edition 8

9. Social Networking in the Second Wave of Online Communities (cont’d.) Retailers embracing blogs to engage site visitors Bluefly.com online discount apparel retailer Flypaper blog Ice.com online jeweler Blogs may encourage potential customers to visit online store Business uses CNN Blog information included in television newscasts E- Business, Ninth Edition 9

10. Social Networking in the Second Wave of Online Communities (cont’d.) Business uses (cont’d.) Newspapers Inviting information and opinion contributions Targeting 18- to 35-year-old generation Participatory journalism Trend toward having readers help write the online newspaper Blogs can become businesses in themselves Must generate financial support (fees, advertising) E- Business, Ninth Edition 10

11. Social Networking in the Second Wave of Online Communities (cont’d.) Social networking Web sites for shoppers Social shopping Practice of bringing buyers and sellers together in a social network to facilitate retail sales Example: craigslist Operated by not-for-profit foundation All postings free (except help wanted ads) Example: EtsyWeb site Marketplace for selling handmade items We Love Etsy:Etsy buyers, sellers share information E- Business, Ninth Edition 11

12. Social Networking in the Second Wave of Online Communities (cont’d.) Social networking Web sites for shoppers (cont’d.) Social networking sites form communities based on connections among people Idea-based virtual communities Communities based on connections between ideas Idea-based networking Participating in idea-based virtual communities Examples: del.icio.us site, 43 Things site E- Business, Ninth Edition 12

13. Social Networking in the Second Wave of Online Communities (cont’d.) Web portals Combine portal and social networking features Typical portal offerings Search engines, directories, free e-mail, news stories, weather reports Social networking elements Games and chat rooms Allow site visitors to interact with each other Examples: Yahoo!, AOL, MSN E- Business, Ninth Edition 13

14. Revenue Models for Social Networking Sites By late 1990s: Revenue created by selling advertising Used by virtual communities, search engine sites, Web directories 1998 Purchases and mergers occurred New sites still used advertising-only revenue-generation model Included features offered by virtual community sites, search engine sites, Web directories, other information-providing and entertainment sites Goal: be every Web surfer’s doorway to the Web E- Business, Ninth Edition 14

15. Revenue Models for Social Networking Sites (cont’d.) Advertising-supported social networking sites Smaller sites with specialized appeal Can draw enough visitors to generate significant advertising revenue Example: I Can Has Cheezburger site Recall from Chapter 3: Sites with higher number of visitors can charge more Stickiness: important element in site’s attractiveness Rough measure of stickiness Time user spends at the site E- Business, Ninth Edition 15

16. FIGURE 7-2 Popularity and stickiness of leading Web sites E- Business, Ninth Edition 16

17. Revenue Models for Social Networking Sites (cont’d.) Advertising-supported social networking sites (cont’d.) Social networking sites Members provide demographic information Potential for targeted marketing: very high High visitor counts Can yield high advertising rates Second-wave advertising fees Based less on up-front site sponsorship payments Based more on revenue generation from continuing relationships with people who use the social networking sites E- Business, Ninth Edition 17

18. Revenue Models for Social Networking Sites (cont’d.) Mixed-revenue and fee-for-service social networking sites Most social networking sites use advertising Some charge a fee for some services Examples: Yahoo! All-Star Games package, Yahoo! premium e-mail service Monetizing Converting site visitors into fee-paying subscribers or purchasers of services Concern: visitor backlash More examples: The Motley Fool and TheStreet.com E- Business, Ninth Edition 18

19. Revenue Models for Social Networking Sites (cont’d.) Fee-based social networking Google Answers site Early attempt to monetize social networking Questions answered for a fee Google operated service from 2002 to 2006 Similar free services Yahoo! Answers, Amazon (Askville) Uclue (paid researchers earn 75 percent of total fee) Advocates claim better quality Fee-based Web sites can generate revenue by providing virtual community interaction E- Business, Ninth Edition 19

20. Revenue Models for Social Networking Sites (cont’d.) Microlending sites Function as clearinghouses for microlending activity Microlending Practice of lending very small amounts of money Lend to people starting or operating small businesses (especially in developing countries) Microlending key element Working within social network of borrowers Provide support, element of pressure to repay Examples: Kiva and MicroPlace E- Business, Ninth Edition 20

21. Mobile Commerce Short messaging service (SMS) Allows mobile phone users to send short text messages to each other 2008: United States developments allowing phones as Web browsers High-speed mobile telephone networks grew dramatically Manufacturers offered range of smart phones with Web browser, operating system, applications E- Business, Ninth Edition 21

22. Mobile Operating Systems and Applications Japan and Southeast Asia mobile commerce Much larger online business activity Had high-capacity networks early on Mobile wallets Mobile phones functioning as credit cards Japan’s NTT DoCoMo phones combined capabilities Generate significant business E- Business, Ninth Edition 22

23. Mobile Operating Systems and Applications (cont’d.) United States mobile commerce capabilities began in 2008 Smart phone and high-capacity network introductions Mobile commerce smart phone examples Apple iPhone, Palm Pre, several BlackBerry models Use the Android operating system Provide serious U.S. mobile commerce for the first time E- Business, Ninth Edition 23

24. Mobile Operating Systems and Applications (cont’d.) Mobile commerce browser display options Wireless Application Protocol (WAP) Allows Web pages formatted in HTML to be displayed on devices with small screens Display a normal Web page on the device Made possible by increased screen resolution Example: Apple iPhone Design Web sites to match specific smart phones Much more difficult to accomplish E- Business, Ninth Edition 24

25. The Future of Mobile Commerce Companies wanting mobile user commerce Review Web sites for compatibility May create separate Web sites for mobile users Mobile phones for online banking In early stages in the United States Physicians using smart phones Phones’ global positioning satellite (GPS) service capabilities Allow mobile business opportunities E- Business, Ninth Edition 25

26. Online Auctions • Business opportunity perfect for the Web • Auction site revenue sources • Charging both buyers and sellers to participate • Selling advertising • Targeted advertising opportunities available • Online auctions capitalize on Internet’s strength • Bring together geographically dispersed people sharing narrow interests E- Business, Ninth Edition

27. Auction Basics • From Babylon to the Roman Empire to Buddhists • Common activity of 17th century England • Sotheby’s (1744), Christie’s (1766), colonial auctions • Auction: seller offering item for sale • Bids: price potential buyer willing to pay • Bidders: potential buyers • Private valuations: amounts buyer willing to pay • Auctioneer: manages auction process • Shill bidders: work for seller or auctioneer • May artificially inflate price E- Business, Ninth Edition

28. Auction Basics (cont’d.) • English auctions • Bidders publicly announce successively higher bids • Item sold to highest bidder (at bidder’s price) • Also called ascending-price auction • Open auction (open-outcry auction) • Bids publicly announced • Minimum bid • Beginning price • If not met: item removed (not sold) E- Business, Ninth Edition

29. Auction Basics (cont’d.) • English auctions (cont’d.) • Reserve price (reserve) • Seller’s minimum acceptable price • Not announced • If not exceeded: item withdrawn (not sold) • Yankee auction • Multiple item units offered for sale (bidders specify quantity) • Highest bidder allotted bid quantity • Remaining items allocated to next highest bidders until all items distributed • Bidders pay lowest successful bidder price E- Business, Ninth Edition

30. Auction Basics (cont’d.) • English auctions (cont’d.) • Seller drawback • Small increments of bids  Seller may not obtain maximum possible price • Buyer drawback • Winner’s curse psychological phenomenon • Bidder gets caught up in competitive bidding excitement • Bids more than their private valuation E- Business, Ninth Edition

31. Auction Basics (cont’d.) • Dutch auctions • Open auction • Bidding starts at a high price • Drops until bidder accepts price • Also called descending-price auctions • Seller offers number of similar items for sale • Common implementation • Use a clock (price drops with each tick) • Bidders stop clock and take items at the given price • If items remain: clock restarted E- Business, Ninth Edition

32. Auction Basics (cont’d.) • Dutch auctions (cont’d.) • Often better for the seller • Quickly move large numbers of commodity items • Successful examples: • Google initial public offering stock sale (2004) • LookSmart stock repurchase E- Business, Ninth Edition

33. Auction Basics (cont’d.) • First-price sealed-bid auctions • Sealed-bid auctions • Bidders submit bids independently • Prohibited from sharing information • First-price sealed-bid auction • Highest bidder wins • If multiple items auctioned: next highest bidders awarded remaining items at their bid price E- Business, Ninth Edition

34. Auction Basics (cont’d.) • Second-price sealed-bid auction • Same as first-price sealed-bid auction • Except highest bidder awarded item at second-highest bidder price • Commonly called Vickrey auctions • William Vickrey: 1996 Nobel Prize in Economics • Findings: • Yields higher seller returns • Encourages all bidders to bid private valuation amounts • Reduces tendency for bidder collusion E- Business, Ninth Edition

35. Auction Basics (cont’d.) • Open-outcry double auctions • Example: Chicago Board of Trade auctions of commodity futures and stock options • Buy and sell offers shouted by traders in trading pit • Each commodity, stock option traded in own pit • Quite frenzied • Double auctions (either sealed bid or open outcry) • Good for items of known quality traded in large quantities • No item inspection before bidding E- Business, Ninth Edition

36. Auction Basics (cont’d.) • Double auctions • Buyers, sellers submit combined price-quantity bids • Auctioneer • Matches sellers’ offers • Starts with lowest price and then goes up • To buyers’ offers • Starts with highest price and then goes down until all quantities offered are sold • Operation format • Sealed bid or open-outcry • Example: New York Stock Exchange E- Business, Ninth Edition

37. Auction Basics (cont’d.) • Reverse (seller-bid) auction • Multiple sellers submit price bids • Auctioneer represents single buyer • Bids for given amount of specific item to purchase • Prices go down as bidding continues: • Until no seller willing to bid lower • Occasionally operated for consumers • Most involve businesses as buyers and sellers E- Business, Ninth Edition

38. FIGURE 7-4 Key characteristics of seven major auction types E- Business, Ninth Edition

39. Online Auctions and Related Businesses • Online auction business: rapidly changing • Three auction Web site categories • General consumer auctions • Specialty consumer auctions • Business-to-business auctions • Varying opinions on categorizing consumer auctions • Business-to-consumer • Consumer-to-consumer • Consumer-to-business E- Business, Ninth Edition

40. Online Auctions and Related Businesses (cont’d.) • General consumer auctions • eBay: registration required, seller fees, rating system • Seller’s risk: stolen credit cards; buyer fails to conclude transaction • Buyer’s risk: no item delivery; misrepresented item • Most common auction format: English auction • Seller may set reserve price • Bidders listed: bids not disclosed (until auction end) • Continually updated high bid amount displayed • Private auction option available E- Business, Ninth Edition

41. Online Auctions and Related Businesses (cont’d.) • General consumer auctions (cont’d.) • Another eBay auction format: Dutch auction • Both formats require minimum bid increment • Amount by which one bid must exceed previous bid • Proxy bid • Bidder specifies maximum bid • May cause bidding to rise rapidly • eBay stores • Integrated into auction site • Sellers generate additional profits E- Business, Ninth Edition

42. Online Auctions and Related Businesses (cont’d.) • eBay’s success due to unspecified audience • Also spends $1 billion each year to market and promote Web site • Major determinants of Web auction site success • Attracting enough buyers and sellers • Yahoo! Auction operation closed in 2007 • Amazon.com with “Auctions Guarantee” • Offered buyer protection through escrow service • Closed in 2006 • Overstock.com (still active) E- Business, Ninth Edition

43. Online Auctions and Related Businesses (cont’d.) • Future challengers to eBay • Must overcome lock-in effect • New auction participants inclined to patronize established marketplaces • Example: Japanese general consumer auction • Yahoo! first to enter market • Now dominates (more than 90% market share) • eBay maintains low market share (less than 3%) E- Business, Ninth Edition

44. Online Auctions and Related Businesses (cont’d.) • Specialty consumer auctions • Identify special-interest market targets • Create specialized Web auction sites • No need to compete with eBay • Examples: • JustBeads.com, Cigarbid.com, Winebid E- Business, Ninth Edition

45. Online Auctions and Related Businesses (cont’d.) • Consumer reverse auctions • Reverse bid • Visitor describes desired items or services • Site routes visitor to participating merchants • Reply to visitor by e-mail • Offer item at particular price • Buyer accepts • Lowest offer • Offer best matching buyer’s criteria • All these types of sites now closed E- Business, Ninth Edition