Business Models and Strategies, The B2C Space

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3Business Models and

Strategies: The B2 C Space

LEARNING OBJECTIVES

By the time you complete this chapter you will be able to:

1. Describe the special economic issues that affect e-business.

2. Explain the concept of a business model.

3. List the various types of revenue models that are prevalent in e-businesses.

4. Explain the process of value creation.

5. Name and describe the business models that are most common in the B2Cmarketspace.

Our examination of value nets in Cha pter 2 makes it clear tha t orga nizations that

existed prior to the ad vent of th e Intern et can take advanta ge of oppor tunities and

prosper as a result of Inter net-ena bled business processes. Firms tha t ha ve mad e this

move are thriving because they have been clever eno ugh to un derstand th e chara c-

teristics of th e new econo my, to reen gineer th eir business process to ta ke ad van tage

of them, an d to execute at Inter net speed.

Anoth er categor y of enterprises is also pa rt of the o verall transformation that we are

calling the n ew econom y. These are fi rms tha t ha ve created whole new business

models as a result of the Internet. They represent businesses that have the Internet

as part of their corporate DNA and could not exist without it. They are taking

advantage of the n ew econo mics shaped by the Inter net an d creating value in ways

tha t were previously un thin kable. In time, man y existing fi rms tha t sur vive the tran s-

form ation will adopt some o r a ll aspects of these models. Both pure-play Internet

enterprises and fi rms with th eir roots fi rmly in th e physical world represent mod els

that are importa nt to the futu re of e-business.

The advent of the Internet as a medium of commerce shattered many of the eco-

nom ic principles that guided th e industrial age. The econ omics of the infor mation

age is founded on a n ew set of principles, some of which are th e opposite of tradi-

tional economic doctrines. In order to understand the power of the new business

The Economics of E-Business

6

C H A P T E R



//64 CHAPTER 3 Business Models and Strategies: The B2C Space

mod els, we need to und erstand the econ omic parameters that a ffect revenue, costs,

and value creation.

1. The econ omy has shifted fro m a n en vironment of scarcity to one of

abundance.

In th e old econo my, tang ible resources were the foun dation for th e creation of eco-

no mic assets. These resources ha d fi nite limits and, a s they became more d esirable,

they became more valuable. In the n ew econo my, infor mation becomes more valu-able as it is shared , as discussed in C ha pter 1. Tha t makes info rma tion a n a sset that

grows in value as it is employed for productive purposes, not one that depreciates

with use.

Amazon.com, generally acknowledged to be th e initiator of man y aspects of cur rent

Internet business models, provides examples of persuasive information use every-

where the visitor turn s on the Web site. As Amazon ’s merchan dise lines ha ve

increased beyond books, the site has been carefully organized by prod uct categor y

in a way that is simple to decipher and use. Searching is easy and reasonably accu-

rate. Pro ducts are described bo th briefl y and, with a single click, in d etail.

One of Amazon’s great early innovations was in itsuse of customers to provide some

of the interest ing and useful informat iona l content on the site. Amazon has only afew professional reviewers, who cannot pretend to be familiar with all the books of-

fered. Consequently, Amazon asks visitorsto review books—and then asks readers to

rate the usefulness of the reviews. Content isgreatly expanded beyond what Amazon

co uld m an ag e o n its o wn , a nd ever y visito r, wh eth er h e b uys a b oo k o r n ot, h as a

chance to interact with and become involved in the site. Amazon was a lso one of the

fi rst to give personalized recommendations based on the customer’s purchase pat-

tern. If the customer buys several books on advertising and marketing communica-

tions, the recommendations for other advertising and marketing communications

b ooks a re usually quite a ccura te. I f, however, the customer throws in a purcha se

f rom a completely d if feren t ca tegory—sa y he b uys a b ook on spir itua lit y—the

pr ed ictive m od el ten ds to b eco me a b it co nfused . Th e in fo rm atio n, h owever,

remains an interesting and potentia lly useful adjunct to a visit .

More recently, Amazon has used collaborative filtering technology (software that

performs statistical analysis to determine patterns of activity) to generate personal-

ized recommendations for books, CDs, and videos. The user gets an individualized

recommendation: “ People who bought In ternet M arketing also bought E-Commerce .”

It also produces “Purchase Circle” recommendations; “This book is also popular at

the Acme Corpo ration,” or “ See what books are popular at Your Schoo l.”

2. Both business and consumers have a glut of choices in th e marketplace.

Amazon.com based a substantial part of its initial business proposition on the fact

that it has access to essentially every book in print and many that are not. The im-

plicit message was that there were hun dreds of thousand s of boo k stores but on lyon e place to come fo r on e-stop sho pping for a ny title the customer desires. An

edited selection, no matter h ow large, could n ot h ave accomplished the same posi-

tioning. Amazon maintains the immodest vision o f “ Earth’s G reatest Selection.”

This is not to say, however, that niche positionings are ineffective in this landscape

of en dless choice. Take, for example, Ho tHo tHo t.com, a pu r veyor o f “th e ho ttest



// The Economics of E-Business 6

FIGURE 3.1 Monthly Feature on HotHotHot.comSource: www.hothothot.com

According to Ben Arora, the vice president for Internet operations, the site has

never advertised on television or done much media advertising of any kind.

Instead, the site relies on word of (burnt) mouth, like when a visitor orders, say,

Blair’s Sudden D eath Jersey Shore h ot sauce and tells a friend. C ustomer a cquisi-

tion costs are therefo re limited to th e expense of run ning a bar e-bon es site with a

few drawings and icons directing visitors to a product catalog, which lists inventory

by heat level, country of origin, ingred ients, and nam e.

Arora says . . . his company now averages revenues of about $25,000 a month.

That’s a pittan ce compared with what mo st sites take in, but then again, most sites

can’t boast HotHotHot’s gross profit margins, which are consistently in the 40 to45 percent range. With a tight rein on m arketing an d oth er costs, “we do ma ke a

profi t,” Arora says.2

1“HotHotHot,” ecompany.com, August 2000, p. 78.2Ibid.

products in its niche.”1 The online business was a creation of Perry and Monica

Lopez, who o wn a little hot-sauce store in P asaden a, Ca liforn ia. They later sold to

G olden H oldings, a small producer and d istributor of gour met food s. The prod uct

line includes delicacies such as Mean D evil Woma n, Ja maica H ellfi re, an d its best-

seller, DO A-Cyanide Hot Sauce. Each m on th it fea tures best sellers from its line an d

at lea st one specialty item (Figure 3.1).




a m a z o

n. c o m

Y our S it e

A CU S TOMER VISITS

THEN SHOP S AT

AND WE PAY YOU.

FIGURE 3.2 Amazon.com Affiliate ProgramFlowchartSource: www.a mazon.co m. Used w ith permission.

The “Join Associates” pa ge d escribes Amazon Associates as ran ging “from AOL.com

to Zor ro.co m.” I t explains that the site owner receives a commission o f up to 15 per-

cent on referral sales without th e expense and h assle of developing a transactional

site and ca rr ying out fulfi llment an d customer service function s. The pro cess is

simple: just establish on e of thr ee types of links; an yone with a Web site can do it!

The prospective associate can register online by agreeing to Amazon’s operating

principles and fi lling out a simple form.3 It appears that the af fi liate acquisition pro-

gram is essentially cost free. Software monitors the sales attributed to linked sites

and issues royalty checks. There is undoubtedly some human monitoring of the

process to ensure that linked sites are suitable compan ions for Amazon, but th e pro-

gram is an excellent example of a lmost no nexistent costs for both transaction an dcoordina tion. Amazon does not disclose the propor tion o f sales that a re achieved

through associate referrals—neither does it attempt to estimate the advertising

value d erived fr om the presence of the Amazon.com logo o n o ver 500,000 Web

sites!

3www.amazon.com.

3. Transaction an d coordina tion costs are disappearing.

Just a s the d isappearan ce of friction in value chains fosters effi cient relationships

between a large number of specialized pa rtners, it also p ermits the development of

new business processes an d models. Affi liate marketing is a creature of the Inter net

that would not be possible if transaction an d coor dination costs were a significan t

factor.

Amazon began its program in 1996 and had over 500,000 associates as of early 2002.On its site, where it does most of its affi liate recruiting, it has a fl owchart th at

describes the affiliate program with bea utiful simplicity (Figure 3.2).



// The Economics of E-Business 6

4. It is possible to calculate dem and with precision.

Whether it is Dell manufa cturing computers to ord er or Amazon fulfi lling ord ers

for bo oks that are no t inventoried, d emand forecasting can be a real-time operation

on the Web, no t a ha zy pred iction of th e future. While this has obvious benefi ts, it

also increases the speed of the prod uct life cycle. Winners can be spot ted q uickly, as

can losers. The latter are quickly eliminated with little opportunity for products to

catch on an d gr ow slowly but stead ily.5. Switching costs approach zero in the absence of actions by marketers.

Just as visitors can fi nd their way to a Web site with th e click of a mouse, they can fi nd

their way out eq ually quickly. Low switching co sts are a built-in fea ture o f th e In ter-

net because of the common TCP/IP platform that eliminates the need for unique

ha rdware or software conn ections. The issue of ma king it una ttra ctive for customers

to switch vendors is so important that we devote a chapter to relationship mar keting

programs.

Internet businesses of many types have concluded that when a visitor/customer

invests time in creating a personal page, that visitor will return more frequently.

Portals like Yahoo! and subscription services like WSJ.com go to considerable

lengths to encou rage visitors to develop a custom page and to con tinually enh ancethe con tent a nd services that are available thro ugh those pages. Amazon takes it a

step further, effectively creating a personal page for each registered visitor upon

each visit. The p age greets the visitor by name and offers product recommend ations

in several categories. A link on th e entr y page con nects the visitor to a “New For You

Home Page” that extends more personalized recommendations. Even more com-

pelling a re services such as its paten ted 1-Click process tha t “ remembers” your

purchasing informa tion, eliminating th e need to fi ll out length y forms. The boo ks

Amazon sells are a standardized commodity; services like this make the customer

experience nonstandard and encourage repeat transactions.

6. Costs for ma ny products follow a mod el of high fi xed development costs

and virtually no variable cost of pro duction.

A company like Amazon.com spends a massive amount of money purchasing off-

the-shelf technology as well as developing its own. I t must then embed a ll this tech-

no logy in a n easy-to-use Web site. H aving mad e th at in itial investment, the front-end

cost of serving each incremental customer is almost nonexistent. That remains true

until the capa city of th e site is reached, at which time a noth er large investment in

additional site capacity is required. This part of the equation reflects the familiar

stair-step pattern of fi xed cost that ten ds to be true in mo st indu stries. It is the

almost complete absence of unit variable costs of production and customer service

that is different in the Internet environment. On the back end, especially in the

fulfi llment a rena, th ere are also signifi cant econ omies of scale but th e physical

processes of picking (retrieving products from inventory), packing, and shipping

orders for ta ngible products incur signifi cant un it variable costs that must not be

ignored in mod eling total costs of d oing b usiness.

7. Scale is more likely to be defi ned by number o f customers than by

production capacity.

Retailers like Amazon.com do n ot have prod uction ca pacity in either th e physical or

cyber worlds. As noted in the previous chapter, manufacturers like Cisco who are




skilled in the creation of value nets are doing less and less of their own production.

The lack of assets devoted to production leverages the returns to scale that are the

result of large customer bases.

The issue for I nter net retailers is investment in d istribution capa city, as suggested in

the previous section. Amazon.com began by not warehousing any of the books it

sold. Over time, however, it found th at it could n ot pro vide the level of customer ser-

vice that would keep Amazon at the fo refront of its industry withou t d istributioncenters located near population centers. The construction of several huge ware-

houses has clearly add ed a fi xed cost element.

Each one of these seven economic characteristics is different from what we have

learned to expect in the absence of the I ntern et. Some, like the virtually infi nite

amoun t of cho ice, are th e direct opposite. The In ternet h as rewritten the econ omic

rules and permitted th e creation o f n ew forms of b usiness. There is one r ule, how-

ever, that even th e Inter net can not obliterate.

Each one of us has only 24 hours in a day, 7 days in a week. That appears to be an

immutable law of n ature. It mean s that, in the fast-paced In ternet en vironmen t, the

most scarce resource o f all is time —the time of both th e consumer and the business

customer. Because time cannot be expanded it becomes a precious resource. Thereis only so much time that customers are willing to devote to commercial activities,

on the Web o r an ywhere else.

There are two implications of the shor tage o f time for businesses on the Intern et:

1. The batt le to attr act visitors to Web sites is exceeded on ly by the struggle

to keep them on the site once they arrive.

Th ere a re h un dred s o f th ousa nd s o f Web sites a nd m ore b ein g a dd ed o n a d aily

b asis. Alth ou gh a la rg e po rtio n o f th em d o n ot h ave a co mm ercia l p urp ose, th e

choice of sites to serve anysta ted need is usually great . Commonly, only a few of the

many sit es tha t ha ve a product or service tha t might meet a g iven need a re visit ed

by the potent ia l customer. Then, if the init ia l entry point is not a tt ract ive and easyto use, the visitor is gone in a mouse click, o ft en never to return . No t ra nsa ct ion

wa s completed a nd the market ing resources spent on customer a tt ra ct ion were

wasted.

2. Valuable time spent o n th e Inter net is not often devoted to the pure

ad vertising tha t exists there.

Advertisemen ts on th e Web ten d to be viewed as an int rusion , even more th an in

oth er media . The com petition fo r the a tten tion o f the Web visitor is inten se, and

pure ad vertising material is not often the winner of that competition.

The underlying message is that marketers must focus on the customer experience

as the single most compelling fa ctor in th e acqu isition and retention o f customers.

In order to d o th is they must combine th e best of the techn ological capabilities with

the most thorough und erstand ing of customer needs and beh avior. In the contem -

porar y economy products are often standard ized, but value can be add ed by careful

construction o f the shopping and use experiences. Time-pressured customers,

whether con sumer or business, are loo king for ease and convenience an d a re will-

ing to pay for them.



// The Evolution of Internet Business Models 6

The business models that are prevalent in the current Internet economy are the

ones that have incorporated and taken the greatest advantage of the new rules.

The ones that will sur vive in the long run are those who un derstand tha t the

impera tives of ba ck-end costs and pro fi tability ha ve not b een invalidated b y the n ew

rules of the Inter net. The pletho ra o f existing business models needs to be exam-

ined in d etail. An evolutionar y process can a lready be observed, though the fi nal

result is still ver y much in question.

Ever since the Internet b eca me a va ila ble for commercia l purposes in the ea rly

1990s, forward-thinking business leaders have been searching for modelsth at would

be successful in the new environment. Jeffrey Rayport puts the search for workable

Internet business models in an evolutionary perspective:

In just three or fou r short years, e-comm erce ha s evolved at lightn ing speed th roug h

a succession of persuasive business models and approaches. The only problem:

Each business model seemed viable only for a few minutes or hours, not weeks ormonths or years. Moreover, each successive iteration seemed to invalidate much of

what had come before.

Con sider that in the beginn ing there was a mar velous mod el for making mo ney

in the o nline environmen t. It was called th e content business. . . . People who sup-

plied content to online services (AOL was but one of many such services just a few

years ago) got credit for helping keep users online. Since users paid by the minute

or h our, this generated connect-time revenues that were allocated a ccording to a

negotiated split between content providers and online services. When the n umbers

of users became large, these deals could generate unexpected riches. . . . When

AOL saw its franchise und er threa t from Intern et service providers, who from the

start o ffered fl at-rate mon thly pricing, it shifted course to an “all you can eat” pric-

ing pla n. . . . AOL . . . was simply bowing to t he inevitable ma rket structu re impo sed

on th e online wor ld by the Web. There, cou ntless sites off ered up th eir infor mat ion-based wares free of charge to anyone who might surf to their home page or drill

down to their sites through search en gines.

The very ideas of selling content or metering usage suddenly went from viable

and commercially attractive to insupportable and economically naïve. After all,

audiences are valuable—and cha rging for usage is a deterrent to use. So along cam e

the second major commercial model in the online world: the advertiser-driven busi-

ness model. . . . Acknowledging the reality of the online world as a virtual theme

park where most rides are free, e-comm erce players focused on fi nd ing ways to gen -

erate revenues based on the sheer volume of traffi c that some sites could achieve. O f

course, this was a time-ho nor ed pra ctice: on Mad ison Avenue, a nd in the h alls of

med ia cong lomera tes for ma ny decad es, it was, perhap s crassly, terme d “selling eye-

balls” to advertisers. . . . If traffic and audience size are measurable, then there is

even a rational basis for pricing, which allows everyone to heave a great sight ofrelief an d g et do wn to b usiness in a serious way. . . .

The commercial promise was crystal clear: When Yahoo! could report 140 mil-

lion page views a day, Gamesville could boast more than four hours a month per

average user on the site, or Amazon.com could register more than six million

customers, there was a payback for helping advertisers reach their audiences. For

everyone else, however, the mod el did not hold up. Sure, it generated revenues, but

The Evolution of Internet Business Models




4Jeffrey F. Rayport, “The Truth About Internet Business Models,” Third Quarter 1999,

www.strategy-business.com. Dr. Rayport is found er an d CEO of Marketspace LLC, a Monitor Gro up

Company.

so did th e lemon ad e stand you set up as a kid. For mo st players, advertising just was

not a business. Enter econo mic mod el No. 3: e-commerce.

E-co mm er ce r ef er red to t he p ra ctice o f sellin g r ea l p ro d ucts f or r ea l m on ey

through on line channels. The argument was tha t a lower-cost channe l st ructure

result ing from the “disintermediation” o f middlemen such as d ist ributors, who le-

salersand bricks-and-mortar retailers could reward new intermediaries, such as Web-

based retailers, with fatter margins, even as those Web playersshared overallchan nel

cost savings with end-users or Web consumers through lower prices. However, themost celebrated of such e-commerce businesses, Amazon.com, managed to raise

more questions about e-commerce in many people’s mindsthan it answered.

For one thing, Amazon.com did not disintermediate its channel because it de-

pend ed critically on existing ph ysical boo k distributors. . . . Moreover, Ama zon.co m

spent so heavily on marketing, brand awareness and technology that it has yet to

record a profi t despite achieving gross margins of a h ealthy 19 percent.

Finally, Amazo n.co m expan ded into th e sales of no n-boo k items, with an appa r-

ent lack of regard for the underlying profi tability of these new lines. . . . Reasonab le

people can, and do, disagree about Amazon.com ’s future. . . . But while skepticism

about Amazon.com may not be justifi ed, a bead y eye should surely be cast on man y

Internet startup companies that have followed in its wake but with a twist. Consider

econo mic mod el No. 4: e-comm erce comp an ies in which strateg y revolves aro und

the idea of never making a profi t selling real products for real mon ey. Examples are

abund ant. They range from established players such as Cend ant’s C.U .C. Inter na-

tional unit ( which sells good s through its shoppers’ clubs offl ine an d o n th e Web at

cost and makes money on membership fees), to new entrants such as Buy.com

(which m arkets produ cts across diverse catego ries at or belo w cost simply to capture

customer relationships on the Web an d exploit them commercially at a later da te).

Perh aps most extrem e is Ideala b! ’s infam ous Free-PC , a Web b usiness that g ives per-

sonal computers to consumers in exchange for detailed information about them-

selves and a continuing marketing relationship. All of these businesses claim that

the land rush is now and it is for customers, not physical assets or market share—

and that d ollars will follow where consumers begin to tread.

As The Industry Standard magazine recently observed, the magic word these

da ys is “monetize.”The mo netizing con cept argu es tha t online businesses must fi rst

capture large audiences of users or shoppers, and then later monetize those

aud iences through subscription fees, advertising an d e-comm erce throu gh a variety

of cro ss-selling, u p-selling a nd service-based a ppro aches sometime in the in defi nite

future. . . . The investment is in customer relationships, and har vest time is yet to

come.4

AOL (see Figure 3.3) illust ra tes a ll o f these steps except lack of profitability; it is

one o f the few In ternet -b ased b usinesses tha t b eca me profi t ab le ea rly a nd ha s re-

mained so . AOL ha s a lwa ys had subscr ip tion revenue, b ut in the ea rly d ays it a lso

relied hea vily on a dver tising, a s shown on the December 1996 home page. Tha t

page a nnounces the new unlimited usa ge policy a nd the coming in trod uct ion o f

th e imm en sely po pular B ud dy List. B y D ecem ber 1998 th ere wa s a grea t d ea l

more content, a personaliza tion opt ion, and a shopping channel. Advert ising was

still in evid en ce, a s it a lso wa s in D ecem ber 2001. H o wever, o n th e 2001 h om epage you see, in a dd it ion to AOL’s own house a dver tising, a n emphasis on mem-

ber services, and shopping opportunit ies are prominently featured midway down

the page.



// The Evolution of Internet Business Models 7

FIGURE 3.3 The Evolution of AOL(a) December 1996: Mostly content; some interactivity. (b) December, 1998:

Increasinge-commerce. (c) December 2001: Heavy personalization; emphasis

on interactive services and e-commerce.S ource : The Internet Archive, http: //we b. arc hive.org.

This brief histor y of In tern et business mod els makes it clear th at th e evolution is still

in process with n o en d yet in sight. O r, to pu t it ano ther way, we do n ot yet know h ow

man y profi table Inter net business models there are and what they look like. For th at

reason it is useful to consider the fundamental process of value creation by the

business enterpr ise.

(a )

(b)




(c)FIGURE 3.3 (Continued)

5Much of the con tent in th is section is based on a Jupiter Commun ications Executive Progra m report,

“Internet Business Model Implications,” January 2000, www.jupiter.com.

In order to understand the basic foundation of value creation by the business

enter prise, we should fi rst look at the revenue mod els tha t are available to it. Then

we can look at how value is created in the market space occupied by the business.

Internet Revenue Mod els5

Rayport’s chronology of business models suggests that there are several revenue

models, that is, ways businesses can realize revenue on the Internet. Chief among

them:

• Access to the Internet. A few fi rms will make money by providing In tern et access.

Market research fi rm Jupiter Com munications predicts that over time, only

broadband access will be a profi table offering.

• Membership or subscription revenue. As ind icated in the previous section , it is

diffi cult to persuade customers to pay for In ternet con tent. Even tho ugh some

content sites like the online version o f the New York Times charge for articles

retrieved from their archives, it is doubtful that these small unit transactions

contribute much to th e profi tability of th e site. Memberships or subscriptionsseem to be a somewha t easier sell for strong real-world bra nd s who can

leverage that cred ibility onto the Web. The Wall Street Journal is one o f the

relative few that have been able to profi tably employ this mod el.

Enterprise Value Creation



//Enterprise Value Creation 7

6For more o n syndication ar rang ements on the In ternet see Kevin Werbach, “ Syndication : The

Emerging Model for Business in the Inter net Era,” Harvard Business Review, May–June 2000, pp. 85–93.

• Syndicationor l icensing of content. Although it has proven d iffi cult to persuade

customers to pay for conten t on the Web, someon e must create that con tent.

Ph ysical-world pub lishers already have conten t they can migra te on to th e Web,

although most seem to be creating a dditional Web-only content to add to th e

attr activeness of th eir site. Software fi rms may choose to license their prod uct

to users instead o f selling it outr ight. They may collect revenue based on the

number of users, as the creators of most B2B software products typically do,

or they may char ge on a usage basis like search en gine Inktomi, which ch argeslicensees on a per-inq uiry basis.6

• Advertising revenue. As Rayport ind icated, th e justifica tion g iven fo r assuming

high customer acq uisition and retention costs is often to “m onetize” the

customer b ase by selling ad vertising on the site. The click-through rates on

ban ner ad vertising, the m ost common forma t, are ver y low, an d some

advertisers are deserting them, although it is not yet clear that there is a

viable alternative. In ad dition, as the predicted shakeout in B2C fi rms takes

place, there will be fewer businesses to place advertising. On the other hand,

physical-world fi rms are purch asing mo re In tern et ad vertising. The jur y is still

out o n th e q uality of th e advertising revenue stream, but it is clear th at few

sites can depend on advertising revenue to sustain them.

• Transactions revenue. Sites of a ll kinds, wheth er it is their ma jor objective or

no t, are tr ying to rea lize revenue f rom e-commerce. There a re ma ny ways in

which th ey can attempt to do so, rang ing from a ffi liate progra ms like

Amazon ’s to the a uction pages tha t on e now sees on sites as varied a s Yahoo !

an d U SATod ay On Line.

• Services revenue. As discussed in the previous cha pter, fi rms like Dell and Cisco

are providing customer service on the Web as a value-ad ded element of th eir

of fering . Many more fi rms will do so as they discover the power of self-service

in th e customer ser vice arena . It seems likely that, o ver time, some fi rms will

charge fo r some of their service, either by charging for entran ce into some

parts of the datab ase or by using a service contract mo del.

• Saleor li censing of softwareor systems. As marketers of all kinds develop a betterunderstanding of how the Internet can enhance their business, many of them

see a need to develop specialized systems. These systems may become an

important source of competit ive advantage, and some fi rms will guard them

closely. Others, however, will fi nd additional revenue opportunities in the sale

or licensing of specialized software. In Chapter 2, we referred to the system

development efforts of Life Time Fitness, a chain of health clubs. It operates

in six states in the upper Midwestern United States. That leaves a great dea l

of terr itory in which it does not compete . This provides an opportunity to

leverage its development expenditures by marketing its internal system to

other regional fi tness cha ins and to other firms in the hospitality industry

who need a membership management system. That is it s plan, and it reports

a level of init ia l interest that has led it to crea te a software division ca lledAverisoft.7

7Paul McDougall, “D ecoding Web Ser vices,” October 1, 2001, www.inform ation week.com.




Value

CustomerNeeds

BusinessCompetencies

FIGURE 3.4 Enterprise Value Creation

These revenue m od els are n ot mutua lly exclusive. Many fi rms do , in fact, pursue

multiple revenue streams, and it seems likely that, going forward, most sites will

need to do so in o rder to be viable. Chances are that add itiona l revenue mo dels will

be revealed in this process. The challenge for all Internet marketers is to choose a

value pro position th at ta ps into viable revenue stream s.

Creating ValueStrategists assure us that value creation occurs—economic value is created—when

an enterprise has competencies that can be profi tably employed to meet customer

needs, as illustrated in Figure 3.4. That is not a new idea. The preceding chapter

emphasized the impo rtance of identifying core competencies and focusing o n th em

while off-load ing o ther fun ctions to more skilled and /or lower-cost value cha in

partners.

In a na lyzing value creation it is impor tan t to realize that the customer-need s equa-

tion h as also evolved. Customers are aware of their power in th e new chan nel of dis-tribution . They have high expecta tions, and th ey want to be in con trol. This lead s to

a reprioritizing of customer needs in many situations. This is especially true in the

B2C space where customer information provision and service, with a few notable

exceptions, is often severely defi cient in the physical world .

Jupiter Research h as an empirical assessment of con sumer n eeds in the Inter net re-

tail environment and recommend ations about wha t kinds of m arketing a nd Web

site pra ctices can b e used to meet tho se needs (Figure 3.5).

None of the con sumer need s are new but some o f them have fallen by the wayside

in the era of ma ss retail merchand isers. It can also be argued that some n eeds like

convenience, selection, an d info rmation can b e better met by a well-run e-tailing

operation than by a mass merchan diser.

Looking at th e other h igh-priority needs, good prices have been a prom inent fea-

ture of many early B2C Internet business models. The highest priority need—

immediacy—is arguable; some consumers want to shop and take their purchases

home with them; oth ers fin d rapid delivery not only acceptable but an agreeable

substitute fo r th e d etested mall shopping experience. The disparity suggests con-

sumer segments. With digitizable products there is no argument; demand can be




Immediacy

NeedsEase

ReturnsExpend

SelectionOffer Uniq ue

ProductCustomer

ServiceLocalizeInventory

P remiumServicing

Sa ve Money

Convenience

Selection

Information

Ease of Use

Sa mple P roduct

Trus t

Entertainment

“They Know Me”

Prestige

Ta ctics

FIGURE 3.5 Mapping Consumer Needs to Retail TacticsSource: w ww.jup.com. Used with permission.

8Jeffrey F. Rayport an d Joh n J. Sviokla, “Mana ging in the Marketspace,” Harvard Business Review,

November–De cember 1994, pp. 141–150.9The Merriam-Webster online dictiona ry defi nes context as “the parts of a discourse that surround a

word or passage an d can throw light o n its meanin g” ( www.m-w.com). Informa tion technology usage of

the term “ context” can refer to anything from the type of system a user has (a desktop PC with a large

mon itor vs. a ha ndh eld device with a tiny screen, for example) to the person’s customer status (ord er

placed but n ot yet received, for exam ple).

fulfilled immediately. Other needs, such as sampling the product, are not easily

met o n th e Web for tan gible products but a re ideally suited to digital prod ucts like

software. The n eeds also include ease of use, a req uirement o f the Web site itself,

an d tr ust, which must be established for Web en terprises. It is interesting to n ote

that Jupiter suggests no specific retail tactics for the entertainment need, al-

tho ugh some retailers have become ver y skilled a t th e experiential aspects of their

business.

Referring more explicitly to the manner in which value is created in virtual space,

Jeffrey Rayport and John Sviokla8 see value as having three dimensions—content,

context,9 and infrastructure. In the ph ysical world, it has often been diffi cult to sep-

arate th e three for th e most effi cient value creation. In th e cyber world, they can bedivided and one or more dimensions can be handed off to suppliers or partners.

Take, for exam ple, the case of a po rta l like Yah oo! Because it began as a search en-

gine, its business proposition is based on conten t from oth er sites. Because it was an

early mover, Yah oo ! h ad to create mo st of its own initial infr astructure. The ear ly

context, or presentation , of the materia l to the Web surfer was a bit primitive by

toda y’s stand ards but a h uge improvement over earlier search engines like Goph er.

In m oving from a search engine to a porta l, Yaho o! has not on ly increased the

amoun t of con tent it can access in con ducting searches, it has also ad ded d ifferent

types of conten t. Yaho o! offers news, stock qu otes, shopp ing, auctions, and enter-

tainment ran ging fr om live Webcasts of sport ing events to fan tasy sports leagues.




10“Yah oo ! Selects Inktom i as Its Defa ult World Wide Web Search En gine P art ner,” Pr ess Release,

May 18, 1998, www.inkto mi.com .

Personal services available through the portal range from a personalized page to

bill-paying services. When Yah oo! bought G eoCities in 1999 it ad ded no t on ly a sub-

stantial number o f registered members, but also an en tirely new—and ver y sticky—

activity by incorpora ting the largest supplier of free con sumer Web sites into the

Yah oo! space.

Con text in a sense remains the same; a hom e page th at is a portal, or ga teway, to a

wealth o f infor mation and activity. It is worth n oting th at, in spite of all its techno l-ogy and the m assive amo unt of con tent, th e Yaho o! hom e page r emains visually

clean and uncluttered, enticing the visitor to delve further into the contents, not

distracting him with vivid color, a jumble of content, or animation.

Infra structure ha s undergon e even mo re drastic transform ation. Yaho o! started

with Jerr y Yang and David Filo writing o riginal code in their Stanford dor mitor y

room. I n 1998 Yaho o! ann ounced th e addition of th e Inktomi search engine to its

technology repertoire. According to an Inktomi press release at the time:

Yaho o!, which is the m ost popular navigationa l guide to the Web, was founded on

the principle of building a directory aroun d subject-based, demog raphic an d geo -

graphic conten t. U nlike search engines, which use automated “spiders” to electron-

ically crawl the Web to ca pture a nd store sites in th e search eng ine’s index, Yah oo! ’s

staff of experts approp riately categorize conten t based on a Web site publisher’s

description of the con tent when the site is submitted for inclusion in the d irectory.

Yaho o!’s d irectory features content an d services within relevant context tha t can be

bro wsed q uickly and ea sily. The In ktomi search eng ine will be integrate d with th ese

services to provide users with ad dition al search ca pab ility on the Web. P age views

generated from Inktomi search results will become part of Yaho o!’s ad vertising a nd

merchan dising inventor y.10

Tran slated , the pr ess release seems to say tha t the Yah oo ! pr ocess for d ocumenting

Web con ten t was an extr emely labo r-inten sive on e which th ey were fo rced to sup-

plement with an automa ted pro cess. And since Inktomi had an award-winn ing

search en gine, why sho uld Yahoo ! invent its own? The subject was in the n ews aga in

in June 2000 when Yaho o! ann ounced that it was retaining In ktomi for its newly

announced corporate portal business but transferring its default search engine

business to a competitor with th e interesting na me of G oogle.

There are many such examples of Yahoo! ’s use of other software services in spite

of its irrefutable technological prowess. The strategic conclusion seems to be that

Ya hoo ! ha s d eve loped core exper tise in a cquir ing a nd ret ain ing customers a nd

tha t it is out sourcing a s much of the conten t a nd in frast ructure funct ionalit y a s

it ca n.

W. Chan Kim an d Renée Mauborgne seem to summarize the who le issue of value

creation in the virtual world when they point out th at it requires a new manag erial

mind -set. They reinforce what good m arketers knew long befor e the d igital age—

that competition can come from unexpected directions. Consequently, the mar-

keter must look at customer n eeds and all possible ways of fulfi lling n eeds and

delivering benefi ts. The fact that th e Intern et permits needs to be met and benefi ts

to b e delivered in entirely new ways only complicates an existing situat ion.




High

Low Price

R e l a t i v e

L e v e l

Ea se of Use Optiona l

FeaturesKey Elements of P rod uct, S ervice, and Delivery

Speed

The P enc il

Accuracy

Quicken

Other P ersonalFinancialSoftware

FIGURE 3.6 Quicken’s Value CurveSource: Harvard Business Review . Used with permission.

11W. Chan Kim and Renée Maubo rgne, “C reating New Market Space,” Harvard Business Review,

January–February 1999, p. 86. Used with permission.

The fi rst step is still to iden tify custom er n eeds. The secon d step is to look as widely

as possible for ways in which th e fi rm ca n h elp custom ers meet those needs. They

use Quicken, the accounting software for households and small businesses, as an

example.

Software fo r persona l and small business uses ha d been available for some time, but

had not achieved significan t market penetration . Existing software was accounting-

orien ted a nd co uld no t be described as user-friend ly. Quicken also recognized thatanother competitor had gone unrecognized by the industry, even though it long

predated PC accounting software. The pen cil had existed fo r several hun dred years

and was still the personal fi nan cial management tool of cho ice for many people (see

Figure 3.6). According to I ntuit foun der Scott C ook:

“The greatest compet itor we saw was not in th e ind ustry. It was the pencil. The pen -

cil is a rea lly tough an d resilient substitute. Yet the en tire ind ustry had overlooked

it.” . . . Intuit focused on bringing out both the decisive advantages that the com-

puter has over the pencil—speed and accuracy—and the decisive advantages that

the pe ncil ha s over com puters—simplicity of use an d lo w price.11

Quicken also broke away from the debit and credit format of conventional

accounting software. With a user interface that looks like a personal checkbook, it

almost lives up to its advertising claims of requiring n o learn ing time o n th e part of

the new user.

Kim an d Mauborg ne ad vise man agers to ask four q uestions when attempting to con-

fi gure a n ew value curve:

• Which e lements should b e eliminated that the industry has previously taken forgran ted? Quicken eliminated arcane accoun ting conventions and modeled

the user inter face on th e mann er in which con sumers are accustomed to

handling their personal finances.




12W. Cha n Kim and Renée Mauborgn e, “Creating New Market Space,” Harvard Business Review,

January–February 1999, pp. 83–93. Used with permission.13Gen eral sources for th is section were: Varda Lief, “Anatomy of New Market Models,” Forrester

Research, I nc., Februar y 1999; Mar y Modahl, Now or Never, New York: H arp erBu siness, 2000; Evan I.

Schwartz, Digital Darwini sm, New York: Bro ad way Boo ks, 1999; Do n Tapscott , Da vid Ticoll, an d Alex

Lowy, Digital Capital : H arnessing the Power of Business Webs, Boston: Ha rvard Business School Press, 2000;

Kevin Werbach, “ Syndication : The Emergin g Model fo r Business in th e Inter net Era,” Harvard Business

Revi ew, May–June 2000, pp. 86–93; “Business Models for th e New Econo my,” C amb ridge Techn olog y

Partn ers, Januar y 2000.

• Which elements should be reduced below the curren t ind ustr y practice? Intuit

has priced its persona l fi nan cial man agement software afforda bly from th e

beginn ing. Now its Web site o ffers ta x submission using the Turbo Tax software

at low cost or, in some instances, free o f cha rge. Figure 3.6 also suggests that

Intuit eliminated optiona l features included on other offerings, presumably

ones it found that customers were not using.

• Which elements should be raised well beyond the current industry level?

Speed and ease of use are critical to th e customer, so In tuit concentrated on

those dimensions of th e product.

• Which elements ca n b e created that customers want a nd the industry has not

previously of fered ? Quicken’s success can b e att ributed to its overall

of fering—an easy-to-use software package th at is fast, accurate, and

mod erately priced. I ntu it’s key insight—its new creation , if you will—was to

recognize that consumers don ’t want to learn accounting; th ey want to

balan ce their checkboo k and pay their bills. As In tuit moved onto the Web it

ha s added a h ost of free services including investmen t an alysis, tax a na lysis,

and frequen tly asked personal fi nan cial mana gement q uestions. Only the

context of the Web allows a compa ny to embed these kind s of services in its

offering in a way that add s value to th e basic product or service.

12

Marketersare accustomed to thinking in termsof customer needs, making that aspect

of value creation part of their traditional toolkit. Strategists think of core competen-

cies, so locating the intersection of the two should not be especially difficult for the

skilled marketing strategist. However, “thinking the unthinkable”—creating value

from activit iesand services that could only by imagined prior to the Internet—is not

easyfor anyone.Thiswillbe the true valuead ded byexperte-marketersgoing forward.

Having examined the basic underlying concepts and economics of Internet busi-

ness models, we need to loo k at actua l business models that ha ve emerg ed. We

should keep two things in mind. First, this is all a work in progress. Some of these

models may soon disappear. It is likely that others will appear. Second, there is no

generally accepted taxonomy of Internet business models to structure our review.

The term “business model” is frequent ly used, but less frequent ly defined . In the

context of the Internet, it seems to be commonly assumed that we are primarily talk-

ing about the ways the enterprise usesto generate revenue—the revenue models we

have just discussed. Probably the reason for this emphasis is that the revenue side of

the business seems to be the most changed by the Internet . Although the basic cost

Internet Business Models13



//Internet Business Models 7

14Hen ry Chesbrough and Richard S. Rosenbloom, “The Role of the Business Model in Captu ring Value

from Inn ovation: Evidence from Zeros Corpo ration’ s Technolo gy Spinoff Comp anies,” Har vard

Working P aper #01-002, Janu ar y 2002, http ://digit alen terprise.or g/.

elements that you would fi nd on any business’s income statement are lit tle changed

by the Internet , it is a great mistake to ignore the cost side of the business equation.

Cost elements do not change, but the rela tive weights of various costs may change

signifi cantly. Comparing catalog marketers to retailers gives a good example. Most

retailers of necessity spend extensively on their stores, both to permit attractive pre-

senta tion of merchandise and to of fer the shopper an enjoyable experience. Most

ret ailers tod ay t ry to have a s lit tle a s possib le in the wa y o f wa rehouse facilit ies,

preferring to receive shipments directly from the manufacturer. The pure catalogmerchant does not have stores, except possibly for an outlet or two. It does, however,

have large investments in and operat ing expenditures on warehousing and order

fulfi llment facilities. Many contemporary marketers have major efforts in both retail

and ca ta log channels (Talbot’s, Sharper Image, and Williams-Sonoma are good

exa mples). They find it necessa ry to ha ve separate mana gement a nd a ccounting

groups for retail and catalog because the two channels are operationally so different.

A functional characterization of business models includes costs as well as other

operationa l issues that a re importan t to un derstanding th e nature o f business mod-

els. According to H enr y Chesbrough and Richard Rosenbloom, th e functions of a

business model are to:

• Articulate th e value proposition, tha t is, the value created for users by the

offering based on the technology

• Identify a market segment, that is, the users to whom the technology is useful

and for what purpose

• D efi n e th e str ucture of th e value chain within the fi rm req uired to create and

distribute the o ffering

• Estimate the cost structure and profit potenti al of prod ucing the offering, g iven

the value proposition an d th e value chain structure cho sen

• Descr ibe the posit ion of the firm with the val ue network linking suppliers and

customers, including identifi cation of po tential complementors and

competitors

• Formulate the competi ti ve strategy by which the inn ovating fi rm will gain andhold advantage over rivals14

While this description does a grea t dea l to aid our understand ing of the subject of

business models, it also poses a danger. By making more explicit the various ele-

ments of a business model, it begins to sound like a business plan. A business model

and a business plan are two distinctly di fferent enti ties. A business mod el is a conceptual

description th at can be given a n ame, like “aggreg ator.” A business plan is a detailed

document that is prepared for strategic guidance and to aid in the acquisition of

resources, either internal or external. There is clearly some similarity of content

between the two, but they are no t synon ymous.

There are a n umber o f strategic dimensions on which ma rketers could attem pt to

categorize Intern et business models including d egree of integration, locus of con -trol, and primary source of revenue. However, it is not clear which are most useful

and, since models are evolving and enterprises are consolidating, many Internet




TABLE 3.1 Internet Business Models

The B2C Space The B2B Space

Agg rega tor AS P

Bricks ’n’ c licks Infomedia ry

C ontent provider Ma rketpla ce

C onsumer porta l Ma chine-to-ma chine

Peer-to-peer

15For a mo re parsimonious typology of business models that d oes not d istinguish between

B2C an d B 2B mod els, see Michael Rapp’s O pen C ourseware Web site,

http://digitalenterprise.org/models/models.html.

businesses have characteristics of more than one model. Consequently, it will be

suffi cient fo r our purposes to d iscuss them in terms of m odels that are m ost com-

monly used in the B2C space and those that are most prevalent in the B2B space

(Table 3.1). Thro ugh out, we will note tha t even this categorization is no t clear-cut

and that several of the models are currently in use in both marketspaces. It is likely

that, as the In ternet matures as a commercial medium, an d especially as it becomesevident which revenue streams are the most viable, the topic of Internet business

mod els will become more order ly.15 As Rayport po inted o ut, content provider seems to

have been the o riginal In ternet b usiness mod el, so th at is a good place to start.

Co nte nt Providers

The con tent mo del is the tra ditional media mo del in which content, the entertain-

ment an d infor mation th at draws an audience, is provided free (radio an d network

television) or a t a price far below the tota l cost of production (ma gazines and news-

papers), an d advertising pro vides the primar y revenue stream. I ts heritage prob ably

explains why it was the origina l Inter net bu siness mod el. In the days befor e avenues

to pro fi tability on th e Inter net were clear, the goal was to attract a sizable customerbase which would, in tu rn, attract ad vertisers, leading to profi table advertising-

supported Web sites. This is the “mon etization” discussed by Rayport earlier. Large,

general-purpose (o r, perh aps more precisely, ma ss-targ eted) sites foun d this impos-

sible and took action to increase their sources of revenue. Some added “tiers” of

paid subscription services to their free content. Others became portals, as we will

discuss in the n ext section.

There a re several reason s why advertising revenue is often insuffi cient to prod uce

profi tab le operations. First, sites tha t attra ct a relatively un targ eted visitor ba se (gen -

eral news, for example) cann ot comma nd a high CP M (cost per thousand advertis-

ing impressions), even if th ey have a large au dience, which is in itself unlikely if th ey

offer unfocused con tent. Second , ma ny advertisers were n ot satisfi ed with “ click-throug h” rates, even tho ugh th ey often a pproximated response rates in traditional

direct marketing, as we will discuss in more detail in Chapter 7. Third, the barriers




16“Special Report: Publishing Money Online,” April 3, 2000, www.ecommercetimes.com.17www.yellowbrix.com, May 23, 2002.

to en tr y in the Web site aren a a re very low, an d a h uge am ount of a dvertising

inventory quickly came online, further depressing advertising rates.

Does that mean that sites that are primarily content providers are road kill on the

Internet superhighway? No, it does not. The E-Commerce Times conducted an analy-

sis of the fi na ncial status of fi ve publicly trad ed con ten t sites. And over.net is a site for

Linux ( a free op erating system that competes directly with Microsoft Wind ows) pro-

grammers. CNET.com is a multimedia prod ucer of Intern et a nd computer-relatedcontent that targets the more technically oriented among us with news, product

reviews, and Web development content. Inter net. com is a news site for In tern et pro-

fessiona ls. Yahoo ! we ha ve alread y classifi ed a s a porta l, not a simple content site.

The fi fth, th e ZDNet G roup, pr ovides news, prod uct reviews, an d d ownloadab le

software. The E-Commerce Times an alysis showed th at a ll five sites had experienced

substantial growth in revenue altho ugh o nly two of them (Yaho o! and ZDNet) had

become consistent ly profi table by 1999. All seemed to be intent on pursuing their

content -based model.

Yah oo ! a side, do you see a patt ern in the n ature of these sites? They are all targeted

to In tern et professiona ls who have two desirable chara cteristics as an ad vertising a u-

dience. First, they are upscale. They ha ve mon ey to spend, eith er as individua ls or a s

corporate decision m akers. Second, th ey are denizens of the In ternet; willing to getnews there and to buy products online. They are a highly desirable target market,

and advertisers are willing to pay a premium to reach th is audience.16 Customized

news sites like Individual.com and WSJ.com that are targeted to business or other

pro fessiona ls fi nd tha t users are willing to ta ke out pa id subscriptions because they

provide convenience in locating essentia l con tent a nd a voiding time-consuming

Web search es. The paid subscription model, h owever, has not been successful in

consumer markets.

Content sites are also realizing revenue by syndicating their content to other sites.

Most e-comm erce sites provide n ews as a way to ma ke their sites more sticky and to

build community through devices such as discussion of relevant issues. Many of

them make dea ls with individua l conten t providers to provide fi ltered n ews items totheir commer ce site. To smooth this process, con tent synd icators ha ve emerged. As

an example, iSyndicate agg regates content fro m mo re tha n 2,500 content providers

an d d isseminates it to Web sites in vertical markets ran ging f rom fi na ncial services

to high tech to non-profi t.17 Finally, widespread availability of broadband may give

an impetus to content sites, especially game sites and others that have a great deal

of multimedia.

It appears that e-marketers have learned two important things about content in the

ear ly stages of the Web. Content is important to draw people to a site and to encour-

a ge them to return f requently. However, it is d ifficu lt to make money o ff conten t

alone. It looks as if onlycontent sitestargeted to desirable upscale audiencesand syn-

dicators will become profitable solelyon content.

Oth er content sites have gone in a d ifferent direction. They have add ed oth er func-

tionality to th eir content and have transformed themselves into portals.




18www.freetailer.excite.com.

Portals

The early d irector ies (such as Yahoo!) , search engines (such as Lycos) , and pure

co nten t provid ers ( such a s th e “ Path fi nd er” site o f Tim e Wa rn er, wh ich is n o

longer in existence a s a loca ta ble sit e) soon found tha t a dver tising a lone wa s no t

going to provide sufficient revenue to support a complex site targeted to a mass au-

dience. They did as much as possible to increase the stream of advertising revenue.

One approach was to make sites more “st icky” (rough transla tion: more interest-in g) so visito rs wo uld sta y lo nger a nd r ates fo r a dver tisin g o n th e site co uld be

raised . Another wa s to make d ea ls for specia l p la cements on the sit es ( to b e d is-

cussed in d et ail a s a customer a cquisit ion technique in C ha pter 8) . For the more

po pula r sites like AO L a nd Ya ho o! , th e p la cem en t d ea ls co uld b e th e so urce o f

large up-front payments. However, advertising revenue was still not sufficient, and

it wa s clea r th at pur e co nten t m od els were un likely to b e p ro fi ta ble. H en ce, th e

emergence of the porta l. By 1998 the search engines and director ies had taken on

that appellation.

The everyday defi nition of the word portal is clear. It is a doorway or entrance to

someth ing. The Intern et defi nition is not so clear. Because th e original players in

this space evolved from search engines or directories, search is one key function.

Live links to content ranging from weather to breaking news to daily horoscopesof fer ea sy access to desirable ma terial. Free e-mail services were mad e available and

later some po rtals began to o ffer free In ternet a ccess.

E-commerce offers a revenue stream, so that was an obvious ear ly addit ion. Affi l i-

a te or par tnersh ip programs a re one wa y to o ffer merchants a list ing on the por ta l

(an a lready-estab lished travel site, for example) instead of invest ing direct ly in

building e-commerce capability. The e-commerce programs have gradually become

more sophist icated than simple merchant directories and links. The Excite portal

has a service called Freetailer that offers free storefronts to retailers. This includes

25 m eg ab ytes o f sto ra ge spa ce, Excite’ s sh oppin g ca rt a nd secu re tr an sa ctio n

server, and traffic reporting. Excite provides a site authoring tool and several tuto-

r ia ls including “How to Sell Online” a nd “Br inging in Traffic.”18

It is not easy tofind out wha t the cost s to the ret ailer a re, b ut there is obviously a per-t ra nsa ct ion

cost (Excite of fers the first 100 transact ions free) and perhaps a lso a percent of the

revenue.

Porta ls ha ve also ad ded co mmunity-building fu nction s like chat ro oms, daily sur-

veys, and discussion forums to bring visitors back often for engaging interactive

activities. When Yah oo! purch ased th e well-established G eoCities site, it a cquired a

memb ership ser vice that brings users back freq uently for stays tha t tend to be much

longer than the average on th e Net.

A main feature of portal marketing programs is their personalized pages. The goal

is to ma ke the persona lized pa ges so useful and attr active tha t users ident ify them as

their “start pages” to com e up auto matically when the comp uter is turned on. Thisguaran tees visits and en courages attention to the con tent, including e-shopping

oppor tunities. There is understanda ble confusion between the con cepts of portals

and start pages; a user can frequent many portals but, at any given time, has only

one start page.




19For site traffi c data on a weekly or mon thly basis go to Nielsen Net Ratings

(http ://www.nielsen-netratings.com/) or Media Metrix ( www.mediametrix.com) . B oth

have reports on Web traffi c for man y countries in addition to the U nited States.

The idea of a portal as a gateway to a massive amount of useful content is so com-

pelling th at a ll sort s of special-interest por tals have emerged . They serve iden tifi ed

target segments, usually with specialized conten t an d a ctivities.

Sp ecialty Po rtalsNo offi cial taxonomy exists for th e huge n umber of portals currently available to the

Net user. Ho wever, two ident ifi able gro ups are niche porta ls an d voice port als.

Niche Portals Literally hundreds of portals appeal to targeted segments of Internet

users. They typically do not register among the top 10 most visited sites in any given

mon th; the largest numbers are registered b y the general-interest portals like AOL

and Yahoo! 19 Some of the larger special-interest por tals, as measured by traffi c statis-

tics, include CNET and ZDNet ( Intern et-related content); iVillage and Women .com

(to pics of interest to women ); iWon, Coolsavings, and FreeLotto ( contests, coupons,

and incentives). Visitor numbers for the huge sports portals ESPN.com and

CBS.SportsLine.com are reported a s part of th e traffi c of their parent compa nies, Dis-

ney and Viacom respectively. All of th ese sites offer a ccess to con tent from a variety of

sources. Coupons and free offers are intrinsically compelling to certain market seg-

ments. The sports sites are pa rticularly enterta inmen t-oriented with a ccess to mega-content. They have been especially aggressive in adding streaming media featuring

sporting events to their sites. Both ESPN and CBS SportsLine also offer extensive pro-

grams of fanta sy sports, which fi rmly attach players to their computers for substantial

period s of time. They also of fer large q uan tities of sports-oriented merchand ise.

Sites like iVillage and Women.com ha ve foun d th at women respond especially well to

community-building activities like chat, including sessions led by experts in fi elds from

parenting to ga rdening. Some of these features are shown in Figure 3.7, which presents

a portion of th e hom e page of iVillage and ESPN’s Fantasy Racing site. Not on ly is the

content of these two targeted sites totally different, notice that the overall look of each

page is appropriate both to the target market and to the reasons they come to th e site.

The com mon theme o f the sites categorized as niche portals is that they appeal to a

specifi c, identifi ed ta rget market. The iVillage a nd ESPN Fantasy Racing sites arenot targeted to all women and all men. They are targeted to segments (probably

lifestyle segments) of the demographic markets, segments that want different

experiences and functionality from sites they frequent. The most successful sites

have in-depth knowledge of their target segment a nd make their site content a nd

design refl ect that. Even so, it is not yet clear th at a large num ber of niche sites can

atta in stan d-alon e profi tability.

Voice Portals Voice portals represent a different type of portal; one that is based on

technical functionality. As the name suggests, these portals respond to the spoken

word. Except for adaptive computing applicat ions (accommodations for the physi-

ca lly cha llenged user) , who would want to speak to his computer, you ask! Answer

the question by looking at how many people are walking down the street—or worse,driving down the expressway—talking on their mobile phones. With each passing

d ay m or e o f th ese d evices a re I nter net-en abled , a nd th ey a re fo reca sted t o be a




FIGURE 3.7 Two Niche Portals Targeted to FemalesandMales, RespectivelySource: The s creenshot from ww w.ivillage.com made available

co urtesy o f iVillag e, Inc. © 2002 iVillage Inc. All rights res erved .

iVillage and the iVillage logo are trademarks of iVillage Inc.

Used with permission.

major factor in the Internet space by the mid-2000s. The voice portals, however, are

currently accessible from any phone, cellular or regular. Currently major applica-

t ionsappear to be act ivit ies l ike going to a pay phone to check the weather or stand-

ing on a street corner and using a wireless deviceto locate the nearest recommended

C hin ese r esta ura nt. I n bo th ca ses it is ea sier to d o th is u sin g vo ice co mm an ds a s




20Do n Tapscott , Da vid Ticoll, an d Alex Lowy, Digital Capi tal : H arnessing the Power of Business Webs,

Boston: Harvard Business School Press, 2000, p. 67.21For an interesting case histor y of a failure, see Ga ry J. Stockport, G eorge Kunna th, Rashida Sedick,

“Boo.com—The Path to Failure,” Journal of In teractive Marketing, Autumn 2001, pp. 56–70.

opposed to entering numbers on a keypad, be it large or small. Voice access will be a

boon to m-commerce (mobile commerce) as it evolves over the next few years.

Voice porta ls are a special case of por tals based on a techn ology, altho ugh in this

case they do appear to m eet a real marketplace need. Will there b e oth er types of

portals that offer special functionality as the Internet grows? It will be a develop-

ment to watch for.

Inte rnet Service Pro viders Versus Po rtalsPortals offer one type of gateway to the Internet. Another means of access is the

internet service provider (ISP), n ational or local, who offers an en trance ramp onto

the I ntern et but less in the way of con tent a nd ser vices than the m assive por tals. In

the B 2C space, a ccess provision is dominated by AOL, a porta l. The free ISP mod el,

in which access is provided free of cha rge in return for acceptance of a con stant ad-

vertising presence on the user’s screen, is struggling to survive. In the B2B space,

ISPs have turned into or have been replaced by application service and managed

service pro viders (ASPs an d MSPs), which will be discussed in C ha pter 4.

Although portals and ISPs provide access to the Internet, these business models

could n ot exist in isolation from o ther Net mod els. Oth er types of e-businesses off erboth con tent an d e-commerce. An importan t model that comb ines both con tent

and commerce is the agg regator.

Aggregators

In their boo k detailing a number of In ternet business models, Don Tapscott, D avid

Ticoll, and Alex Lowy say that aggregato rs “organ ize an d choreogra ph the d istribu-

tion of g ood s, services, an d info rmat ion. They intermediate tra nsactions between

producers and consumers, creating value for both and for their shareholders. An

[aggregator’s] value proposition depends on six complementary variables: selec-

tion, orga nization, price, convenience, matching, and fulfi llment.” 20

This is a familiar model, not unlike the catalog model of direct marketing.

Amazon.com is an aggregato r tha t deals in physical products, from books to patio

furn iture. Most retailers are ag gregators, combining merchan dise from a variety of

suppliers into an edited selection for their customers. Among those who have made

successful moves onto the Web are cata loger L.L. Bean (www.llbean.com) and re-

tailer Neiman -Marcus (www.neima nmarcus.com) .21 The aggregation of physical

products is, in fa ct, a commo n b usiness practice. The a ggregation of services is less

common, however.

An exception is the m an ner in wh ich some fi na ncial services institutions are of-

fering customers access to information about their accounts in other institutions.

Figure 3.8 sho ws the Cha se Online P lus product o f Ch ase. This free consumer ser-

vice urges customers to “g et all your o nline accou nts togeth er.” The a ccount s can




FIGURE 3.8 Chase Online Plus: Aggregation in Consumer BankingSource: www.c hase.c om. Used w ith permission.

22www.yodlee.com.

include everything from credit card accounts to freq uent fl ier programs. The real

aggregator in this application is an In ternet infrastructure fi rm called Yodlee that

describes itself as an “accou nt aggr egato r.” The free service on its own Web site of-

fers access, via a single persona lized p age, to a wide variety of in dividual accou nts

including cred it card, ba nking, investmen t, shoppin g, e-mail, and news.22

Aggregators exist in large numbers in B2B markets also. The move of B2B content

onto the Web was typifi ed by content fr om large tra de publishers and the catalogs

of B2B vendors, large and small. Moving catalogs onto the Net and making themeasy to use was more diffi cult than many fi rms originally anticipated. As a conse-

quence, successful ear ly entr an ts like W.W. G rainger a nd Marshal In dustries have

add ed th e offerings of other industrial suppliers to th eir own, effectively becoming

aggregators.

Bricks ’N’ Clicks

Although aggregato rs can a nd do exist in both B2C and B2B markets, one o f the key

Internet business models is intrinsically B2C. It goes by the captivating title of

bricks ’n’ clicks (BNC). In the B2C space the BNC model is very important as exist-

ing compan ies attem pt to integra te the In tern et into successful physical-world

businesses.

Th is m od el represen ts o ne o f th e giga ntic str uggles o f th e tra nsfo rma tio n to

e-b usin ess. Th ere h as b een g rea t co nfl i ct in ch an n els a s existin g r eta iler s a nd

wholesalers have worried, sometimes correctly, that e-commerce would cannibalize




their businesses. Reluctant to jeopardize channels built with great expense over long

per iod s o f t ime, some firms ha ve e lected to follow a go-slow st ra tegy tha t ha s lef t

them behind the transformation curve. Others have gone forward on the assump-

tion that , if your business is going to be cannibalized, you should cannabil ize it your-

self , not wait for a competi tor to do it . This is a sometimespainfulrecognit ion of the

seemingly inexorable trend to online purchasing in many consumer and business

markets.

It is not an entirely new dilemma, however. Many retailers faced the same issue in

the 1980s as direct marketing became an important channel. Those who were dar-

ing enough to move into a noth er chann el, wheth er it was retailers add ing a catalog

or cat alogs beginn ing reta il cha ins, often experienced success. The success could b e

synergistic, not just additive. Multiple channels enjoyed promotional economies of

scale as well as purchasing economies. They gave customers choice. And skilled

direct marketers used devices such as credit cards to build customer databases that

spanned both their direct and retail channels. The result was a much more com-

plete picture of their customer behavior and data that fueled growth in areas in-

cluding the issuance of specialty catalogs and the location of new retail stores.

Retailer/direct marketers ranging from Sharper Im age ( consumer electronics) to

Talbot ’s (women’s specialty clothing) to Williams-Sono ma (upscale kitchen items)experienced th e synergistic benefi ts of multiple channels.

In the Internet economy the same can be true. Office suppliers Office Depot and

Staples have experienced similar synergy. Both of them have successful retail, cata-

log, and now In ternet ch ann els. Customers may choose to locate items and acq uire

inform ation at the Web site and th en go into a store to ma ke a purchase and take

the item directly to th eir business or hom e. Or they may choo se any of a number of

other reasonable chann el combination s, depending on their own shopping pro pen-

sities and time constrain ts.

Charles Sch wab

One of the best examples of the problems and opportunit ies involved in trying tointegrate physical and cyber strategies is the discount brokerage Charles Schwab.

Mr. Schwab founded the brokerage that bears his name in 1975 after the Securit ies

and Exchange Commission eliminated fi xed-rate commissions on stock brokerage

trades. In order to elimina te the conflict of interest inherent in the pract ice of com-

pensating brokersbased on their clients’ trades, Schwab employed salaried brokers.

The discount brokerage did not offer investment advice or actively manage client

portfolios. It provided an objective environment in which consumers could make

their own investment decisionsan d experience superb customer service when it was

n eed ed . I n th e m id -1990s th e co st to execu te a tra de a t Sch wa b a vera ged $80 a s

compared to trades executed through full-service brokers which could cost hun-

d red s o f d olla rs. I t o ffered a wid e va riety o f fina ncia l services product s, a nd con-

ducted business in over 200 retail branches and a full-service telephone call center.Schwab CIO Dawn Lepore recoun ted the evolution of th e online trading capa bility

in a speech in 1999:

When we saw the o ppor tunity to plun ge into on line investing in 1985, we took it an d

introduced a software prod uct called the “Eq ualizer® ”—which ha d a small, dedi-

cated user group o f abo ut 6 people who met in a Silicon Valley garage. In th e late

’80s an d ea rly ’90s, with th e ad vent of Wind ows, we were able to b uild a m uch mo re




23 “E-Com merce Is More Than Dot C om,” Speech by Dawn Lepo re, Vice Chairma n, EVP &C IO,

Ch arles Schwab , In c., May 1999, 1999 Forrester For um Series.24Erick Schon feld, “Schwab P uts It All Online,” Fortune, December 7, 1998, www.fortune.com. Used

with per mission.25“Ch arles Schwab: Bea ting Weblets at Their Own G ame,” Forbes, July 24, 2000, www.forbes.com.

user-friendly software trad ing pro duct called Streetsmart® , which b ecame a big suc-

cess with a bo ut 200,000 to 300,000 customers.

By the end of 1995, we had crea ted e.Schwab ™ —a separa te, stan d-alon e division

of Charles Schwab that catered to online customers at a much lower price point

[$30 per tra de for lots of 1,000 sha res or less] t ha n o ur existing b usiness. By mid-’96,

we felt that In ternet technology was strong en ough, a nd we added web trading. This

was a dram atic event. It was the eq uivalen t of ha ving a who le new world-wide free

telephone system available overnight.

23

e.Schwab was created as a separate division tha t repor ted d irectly to P residen t Da vid

Pottruck:

“We had to fi gure out h ow to comp ete with these small bro kerages [deep-discount

brokerages including E*Trade and Ameritrade], says Pottruck. “So we needed a

group tha t felt like they did: n imble, unshackled from the larg er bureaucracy.” . . .

But there was also an element of caution in e.Schwab’s quarantine from the rest of

the com pan y. Says Da n Leemo n, hea d of strategy: “We created e. Schwab beca use we

wanted to learn. But we did no t want to risk the whole compan y. By the midd le of

1996, e.Schwab was ready. . . . The only publicity for the launch was an announce-

ment at the ann ual shareh olders’ meeting.

Despite the lack of fanfare, the new service was an immediate success. Says

[G ideon] Sasson [a mem ber of the d evelopment team ]: “We were totally unprepared .

Customers began voting with their keyboards, and in two weeks we reached 25,000

Web a ccounts—our goal for th e entire year.” By the end of 1997, all online a ccounts,

both at e.Schwab and at regular Schwab, had grown to 1.2 million. Online assets

mushro omed 94%, to $81 billion. . . . Schwa b executives were rea dy to d eclare victor y.

For customers, though, the online brokerage’s independence had a downside.

Regular Schwab pho ne reps and branch offi cers could not help e.Schwab cus-

tomers; except for one free phon e call a month, a ll questions had to b e add ressed

to e.Schwab via e-mail. If you couldn’t part with th e option of speaking to a human ,

you could keep your regular Schwab account and still trade on line. Ho wever, you

got only a 20% discount off the regular Schwab commission schedule.24

Customerswere dissatisfi ed with thisun even situation. “It wasconfusing and kludgy,”

[Charles] Schwab recalls. “It wasn’t Schwab-like in its customer focus. It was obvious

that customers didn’t feel good about the nonintegrated services.”25

The fi nan cial implications of integrating the two d ivisions and instituting a fl at

charge of $30 per trade were immense. Schwab executives believed they risked a

decrease of as much as $100 million in revenues. Charles Schwab and David

Pottruck believed there was no alternative and bet the business on integration.

Revenues did initially decline, but within a year online assets nearly doubled. The

numb er of online accounts doubled and th en do ubled again the fo llowing year.

Schwab Presiden t Da vid Po ttruck says:

We do n’t believe tha t the future is about th e ph ysical world versus cyberspace. I t’s

not bricks and mortar versus the Internet. It’s about integrating both—putting




26“Clicks and Mortar,” Speech by David Pottr uck, President and Co-CEO, C harles Schwab, Inc., July 17,

1999, In ternet Summit.

27Ranjay Gulati and Jason G arino, “ Get th e Right Mix of Bricks and Clicks,” Harvard Business Review,

May–June 2000, pp . 107–113.28See, for example, Joanna Barsh, Blair Cra wford, an d Ch ris G rosso, “H ow E-Tailing Can Rise from th e

Ashes,” McKin sey Quar terly, 2000, 3, www.mckinseyqua rterly.com.29Gen eral sources for th is section are: Jason Fr y and Megan Doscher, “How Will the Record Labels

Remember Napster’s Summer?” June 30, 2000, www.wsj.com; Lauren Goldstein, “Tune In,” eCompany,

Decem ber 1999, www.ecom pan y.com ; “I Wan t My MP3,” wsj.com Issue Briefi ng, n d, www.wsj.com ;

www.webopedia.com.

together th e best of wha t’s available through physical distribution with the best of

the web world. At Schwab, we call it building a company with “clicks and mortar.”

The compa nies that can put th em together and create a seamless opportunity for

customers will be th e biggest winner s.26

The Schwab examp le calls for full integra tion between the existing br icks-and-

morta r an d the I ntern et businesses. Writing in th e Harvard Business Revi ew, Ranjay

Gulati and Jason Garino argue that there are degrees of integration along acontinuum ranging from spin-off of th e In ternet business to full integration. They

identify four decision elements:

• Th e d egr ee to wh ich th e brand is transferable onto the In ternet

• Th e n ecessar y management skills to develop a nd man age a n Inter net b usiness

• The required operational skills and infrastructure in the areas of distribution

and IT

• Having or being able to acquire the necessary human and fi nancial resources

to enter the Internet arena27

Find ing the right an swers to th e problems of integrating real-world an d cyberspace

enterprises will continue to vex many businesses for some time to come. Locating

the appr opriate mix and executing the integra tion is going to be critical for manybusinesses, however. Though tful obser vers of the space are pred icting tha t the most

successful e-tailers are likely to be the multichannel retailers who give consumers

choices in where to bro wse and where, when, and how to p urchase.28

The BNC model represents large businesses with roots in both the physical world

and in cyberspace. Seemingly at the oth er end of a continuum of size and com plex-

ity is the newest In ter net business model, peer-to-peer.

Peer-to-Peer29

The In ternet p ublic became aware of th e peer-to-peer (P2P) mo del, which enables

users to tr ansfer fi les directly, in early 2000 when the po pular d ownloa d software fo rmusic files, Napster, became a m edia event. It was already well kno wn to a d edicated

following mostly composed of teens an d young a dults. It emerged from th e shadows

when colleges began to fi lter Napster from th eir networks. The music fi les tha t stu-

dents were downloading in computer labs and dor m roo ms were clogging n etworks

and devouring storage space. The music industry’s unwavering opposition to

Napster forced fi rst its sale to European m edia giant Ber telsman n an d later a court-

ordered fi ltering o f all copyrighted material on th e site.




30Amy Kover, “Who’s Afraid of This Kid?” eCompany, March 2000, www.ecom pan y.com .

Even th ough th e sur vival of Napster itself may be in q uestion, the popularity of P2P

is inescapable, and we need to un derstand th e larger techno logical context. Bo iling

a lot o f techn ology down to its essentials we have the following:

• The MP3 fi le format refers to the fi le extension o f the MPEG d igital video and

audio compression standard. MPEG essentially removes visual data that the

eye cannot see. MP3 removes sounds the human ear cannot hear. The result is

digital fi les that are much smaller than they would be without compression,allowing for relatively easy transmission and storage. The recording industry

has opposed MP3 from the beginn ing because it do es not include copyright

protection.

• The original Napster mod el used the MP3 format to permit P2P sharing of

audio fi les. Napster is software that a user downloads free of char ge to a PC o r

other digital device. The software enables the user to search the hard drives of

all other Napster users who are on line at th at time to fi nd m usic files. Once a

fi le is located it can quickly be do wnload ed to the user’s computer. The upside

is tha t it is quick and free. The downsides are several. The effectiveness of th e

search is unpredictable because the ability to fi nd a specifi c fi le depends on

other users who have the fi le being o nline when th e original user is tr ying to

locate a fi le. The d igital audio fi les hog storage space on th e user’s computer.The “ always on ” fea ture o f Napster provides a po ten tial gateway for viruses, as

do a ll “a lways on ” techno logies. None o f the d rawbacks was seen as suffi ciently

serious to deter users whose numbers quickly swelled in to t he m illions.

Napster’s unwillingn ess to d eal with th e copyright issue, however, was the

downside that, in the end, could no t be igno red.

• Gnutella is a mo re recent en tr y into the fi eld of p eer-to-peer fi le sharing using

free software ea sily download able fro m th e Web. G nutella allows all types of

fi les, no t just digital audio, to be shared between users. In add ition the

software effectively treats each user’s computer a s a server, ma king it relatively

impervious to shutdown by an outside agency.

The battle between the music industry and the purveyors of download softwareseems likely to continue for the foreseeable future. David Kirkpatrick, writing in

eCompany mag azine, put s it in a larger perspective:

In the furor over Napster-induced intellectual-property theft , people seem to have

missed the fac t tha t peer-to-peer in fo rmation swapping among companies is a l-

ready rampan t. Reaching in to another company’s systems and pulling out a p iece

of d ata is n ot m uch d ifferen t fro m grab bin g th e latest Steve Ea rle so ng from

a frien d’ s h ar d d rive. B usin esses n eed a nd wa nt th is kin d o f sh arin g: I ts m ost

common ( if least e legan t) form is the business-to-business exchange , wh ich is

n oth in g m or e t ha n a wa y to exp ose a nd co nn ect o ne co mp an y’ s syste ms to t ho se

o f another. . . . The Holy Gra il is a seamless in tegrat ion o f in fo rmation inside and

outside a corporation.30

Tha t br ings the topic o f business models essentia lly full circle—from newly emerg-

ing peer-to-peer back to content mod els, albeit new con tent models found ed o n

sophisticated new technology. However, rather than assuming that this represents

some sort of completion, it seems wiser to assume that it is another evolutionary

step in the development o f In ternet business mod els.



//Discussion Questions 9

Inorderto understandInternet businessmodelswe must understandthechangingeco-

nomicsof theInternet.Therearerevenuemodelsandcostmodelswhichtakeadvantage

of thespecial capabilitiesof the Internet.It isalsocrucial fore-marketersto understand

themannerinwhichtheycanusethesespecial capabilitiesto createvalueforcustomers

andotherstakeholders. There are multiplemodels inboththe B2Cand B2Bspaces, and

theyare in astate of considerableflux. The turbulence is exaggerated bythe fact that

someofthemodelsseemunlikelytoproduceaprofit—intheneartermoreveninthefore-

seeablefuture.Thisseemstoensurethatexistingmodelswill berefinedandnewoneswill

emerge.Allmarketersneedtobealert tochangesinordertodevelopstrategiesthatnot

only takeadvantage,but also assist in the creation, of viable Internet business models.

In consumer markets, the aggregator model is similar to an online catalog in which the

products of many manufacturers are gathered in a single focused site. The bricks ’n’ clicks

model is usually exemplified by a physical-world retailer who has successfully added the

Internet channel to a preexisting business model. Consumer portals provide gateways to

the Internet. Some portals are broad and targeted to a mass Internet market. Others are

more specialized, targeting a particular demographic, lifestyle, or activity market seg-

ment. Content providers specialize in providing content; many of them are, in fact,aggregators of content. Finally, the peer-to-peer model describes situations in which peo-

ple interact directly with one another over the Internet. This model has received a great

deal of publicity in recent years as a result of the controversy over Napster, but it has

broader applications that are now becoming evident.

Business models are defined according to the value proposition offered to a specified

market segment, the internal value chain that is used to produce and distribute a product

or service, the cost structure and profit potential of the offer, the external value network,

and the enterprise’s competitive strategy. We will use the same concept to discuss

business models in the B2B marketspace in the chapter that follows.

a ffilia te prog ra m dis intermedia tion subs criptionbricks ’n’ c licks monetize syndica tion

bus iness model peer-to-peer va lue c rea tion

collaborative filtering porta l

content revenue model

1. In wha t wa ys ha s the Internet cha nged key eco nomic pa rameters? Identify some B 2C

firms that are taking advantage of the special opportunities offered by the Internet

economy.

2. How have Internet revenue mod els evolved from the original content mo del? In your

opinion, w hich mo de l(s) offer the bes t oppo rtunities for sus ta ina ble long -run profi tabil-

ity? Why?

3. How ha s the presenc e of the Internet a ffected both fixed a nd variab le co sts for both

pure-play and BNC e-businesses?

4. Choose an e-business that you believe fits into one of the B2C business models.

Research its business model and examine the site itself in considerable detail. Be

prepared to discuss both the revenue and cost models of your chosen site and to

expla in how it ad ds value for its ta rge t co nsumers.




5. The te xt implies tha t multicha nnel reta ilers a re more likely to expe rienc e long -run s uc-

ce ss in the Internet eco nomy tha n a re pure-pla y Internet reta ilers. B e prepa red to ta ke

a pos ition on this co njecture and to d efend yo ur position.

1. Choo se one o f the Web s ites yo u are follow ing for a d eta iled study o f the busines s

mod el it repres ents. Ca refully exa mine the wa y(s) in w hich it ob tains revenues, and tryto find out from its own reports or from industry sources what its current revenue is

and wha t w eight is given to e ac h of its revenue s trea ms. Then make your as ses sment

of the ma nner in w hich the enterprise (bo th the Web site a nd a ny phys ica l-world busi-

ness components) creates value for its ta rget c ustomers. B e prepared to present your

analysis in class.

2. Think ag a in a bo ut the reta il entity from w hich yo u boug ht the ma teria l for this c la s s

(se e e xercise 2 in Cha pter 2). Analyze a ll of the wa ys in w hich tha t enterprise atte mpts

to create value for its customers. Also consider the nature of its revenue model and

whe ther it ha s only a single revenue s trea m, or multiple s ource s of revenue.

E x e r c i s e s

Documents

Business Models and Strategies, The B2C Space