Chapter 3: Selling on the Web: Revenue Models and Building a Web Presence Part 1 Electronic Commerce Sixth Edition

Chapter 3:Chapter 3:Selling on the Web: Revenue Models Selling on the Web: Revenue Models

and Building a Web Presenceand Building a Web PresencePart 1Part 1

Electronic Commerce

Sixth Edition

Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition 22

ObjectivesObjectives

In this chapter, you will learn about:

Revenue models

How some companies move from one revenue model to another to achieve success

Revenue strategy issues that companies face when selling on the Web


Objectives (continued)Objectives (continued)

Creating an effective business presence on the Web

Web site usability

Communicating effectively with customers on the Web

REVENUE MODELSREVENUE MODELSHow do e-commerce sites make money? $$$How do e-commerce sites make money? $$$

Web CatalogDigital ContentAdvertising-SupportedAdvertising-Subscription mixedFee-for-transactionFee-for-service


CATALOG REVENUE MODELCATALOG REVENUE MODEL

Mail order or catalog model– Proven to be successful for a wide variety of

consumer itemsFirst catalogs: Montgomery Ward, Sears

Web catalog revenue model– Taking the catalog model to the Web

Types of businesses using theTypes of businesses using theWeb catalog revenue modelWeb catalog revenue model


Computers and Consumer Computers and Consumer ElectronicsElectronics

Apple, Dell, Gateway, and Sun Microsystems have had great success selling on the Web

– Dell created value by designing its entire business around offering a high degree of configuration flexibility to its customers

Crutchfield and The Sharper Image expanded their successful mail order catalog to include Web sites.

Radio Shack, Best Buy and others had strong retail presences and opened Web sites too.


Books, Music, and VideosBooks, Music, and Videos

Retailers use the Web catalog model to sell books, music, and videos – Among the most visible examples of electronic

commerce

Jeff Bezos– Formed Amazon.com

Jason and Matthew Olim – Formed an online music store they called CDnow– Used the Web catalog revenue model


Luxury GoodsLuxury Goods

People are still reluctant to buy luxury goods through a Web site

Web sites of Vera Wang and Versace

– Constructed to provide information to shoppers, not to generate revenue

Web site of Evian

– Designed for a select, affluent group of customers


Clothing RetailersClothing Retailers

Lands’ End– Pioneered the idea of online Web shopping

assistance with its Lands’ End Live feature in 1999

Personal shopper– Intelligent agent program that learns customer’s

preferences and makes suggestions

Virtual model – Graphic image built from customer measurements



Flowers and GiftsFlowers and Gifts1-800-Flowers

– Created an online extension to its telephone order business

Chocolatier Godiva

– Offers business gift plans on its site

General DiscountersGeneral DiscountersWeb-based deep discounters – Buy.com

– Usually run on thin margins due to fierce competition

Kmart, Wal-Mart, Costco – were slow to introduce e-commerce on their Web sites

DIGITAL CONTENT REVENUE DIGITAL CONTENT REVENUE MODELSMODELS


DIGITAL CONTENT REVENUE DIGITAL CONTENT REVENUE MODELSMODELS

Firms that own intellectual property have embraced the Web as a new and highly efficient distribution mechanism– Some charge hundreds or thousands $/yr to break even due

to low number of subscribers

– Lexis.com Provides full-text search of court cases, laws, patent databases, and tax regulations

– ProQuestSells digital copies of published documents

– ACM Digital Library

ADVERTISING-SUPPORTED ADVERTISING-SUPPORTED REVENUE MODELSREVENUE MODELS

Used by US Broadcasters (TV and Radio stations) provide free

programming to an audience along with advertising messages



Advertising Revenue Statistics:

1994-1998 – grew from $0 to $ 2 billion

2000-2002 – flat or declining

2003- now – growing, but a lower rate

– Recent statistics ClickZ.com

WHY???



Success of Web advertising is held back by

– No consensus on how to measure and charge for site visitor views

Stickiness of a Web site: the ability to keep visitors and attract repeat visitors

– Very few Web sites have sufficient visitors to interest large advertisers

Most successful advertising is targeted using demographic information

– Very difficult to determine on the Web

Types of Web sites using Types of Web sites using ADVERTISING-SUPPORTED ADVERTISING-SUPPORTED

REVENUE MODELSREVENUE MODELS


Web PortalsWeb PortalsPortal or Web portal– Site used as a launching point to enter the Web– Almost always includes a Web directory and search

engine– Examples: Yahoo!, AOL, AltaVista, Excite

Information SitesInformation Sites

Attract specific group of visitors to which advertisers can direct specific messages– HowStuffWorks, About.com, Grudge Report

Advertising-Subscription Mixed Advertising-Subscription Mixed Revenue ModelsRevenue Models


Advertising-Subscription Mixed Advertising-Subscription Mixed Revenue ModelsRevenue Models

Subscribers

– Pay a fee and accept some level of advertising

– Typically are subjected to much less advertising

Used by

– The New York Times and The Wall Street Journal


Advertising-Subscription Mixed Advertising-Subscription Mixed Revenue Models (continued)Revenue Models (continued)

Business Week

– Offers some free content at its Business Week online site

– Requires visitors to buy a subscription to the Business Week print magazine

Fee-for-Transaction Revenue Fee-for-Transaction Revenue ModelsModels


Fee-for-Transaction Revenue ModelsFee-for-Transaction Revenue Models

Businesses offer services and charge a fee based on the number or size of transactions processed– Intermediary is removed here (disintermediation)– Web site becomes a new intermediary

(reintermediation)

Examples:– Travel Agents (Cheaptickets, Expedia, Travelocity, Priceline…)

– Online Music (iTunes, MSN Music, Napster, RealPlayer Music Store,

Walmart.com Music Downloads, Sony’s Connect, etc.

– Automobile Sales (CarsDirect.com, MSN Autos, Autobytel, etc.)

– Stockbrokers (E*Trade, Ameritrade, Charles Schwab)

– Event Tickets (Ticketmaster, etc.)

Fee-for-Service Revenue ModelsFee-for-Service Revenue Models


Fee-for-Service Revenue ModelsFee-for-Service Revenue Models

Fee based on the value of a service provided

Services range from games and entertainment to financial advice

Online games (users spent over $10 billion/year in US)

– Growing number of sites include premium games in their offerings

– Site visitors must pay to play these premium games (subscriptions or purchase)

Station.com by Sony, MSN Zone.com


Fee-for-Service Revenue Models Fee-for-Service Revenue Models (continued)(continued)

Concerts and films– As more households obtain broadband access to

the Internet, companies are providing streaming video of concerts and films to paying subscribers

RealOne SuperPass, Movielink, etc.

Professional Services– State laws are one of the main forces preventing

U.S. professionals from extending their practices to the Web (lawyers, accountants, physicians, engineers, etc.)

HIPA Law

Revenue Models in TransitionRevenue Models in Transition

5 examples of companies that faced changes in their revenue models


Subscription to Advertising-Supported Subscription to Advertising-Supported modelmodel

Microsoft founded its Slate magazine Web site

– An upscale news and current events publication

– Charged an annual subscription fee after a limited free introductory period

– Was unable to draw sufficient number of paid subscribers

– Now operated as an advertising-supported site



Advertising-Supported to Advertising-Supported to Advertising-Subscription Mixed Advertising-Subscription Mixed

ModelModelSalon.com

– Operated for several years as an advertising-supported site

– Now offers an optional subscription version of its site

– Subscription offering was motivated by the company’s inability to raise additional money from investors



Advertising-Supported to Fee-for-Advertising-Supported to Fee-for-Services ModelServices Model

Xdrive Technologies– Opened its original advertising-supported Web

site in 1999– Offered free disk storage space online to users– After two years, it was unable to pay the costs of

providing the service with the advertising revenue generated

– Later switched to a subscription-supported model



Advertising-Supported to Advertising-Supported to Subscription ModelSubscription Model

Northern Light

– Founded in August 1997 as a search engine with a twist

– Revenue model

Combination of advertising-supported model plus a fee-based information access service

– January 2002

Converted to a new revenue model that was primarily subscription supported



Multiple TransitionsMultiple Transitions

Encyclopædia Britannica– Original offerings

The Britannica Internet Guide – Free Web navigation aid

Encyclopædia Britannica Online – Available for a subscription fee or as part of a CD package

– 1999Converted to a free, advertiser-supported site

– 2001Returned to a mixed model


Local web sites (Puerto Rico)Local web sites (Puerto Rico)

Visit each web site on the list and browse it

Identify which revenue model or models the web site uses at the moment. Explain why do you think so.

Would you like to do business with this e-commerce site? Explain.

Submit a double-spaced report. Make sure you include the complete URL of the site visited.

3939Electronic Commerce, Seventh EditionElectronic Commerce, Seventh Edition

Revenue Strategy IssuesRevenue Strategy Issues


Revenue Strategy IssuesRevenue Strategy Issues

Channel conflict or cannibalization

– Occurs whenever sales activities on a company’s Web site interfere with existing sales outlets

– Levi’s Web site now offers product info only

– Maytag stopped from selling on their Web site

Channel cooperation

– Giving customers access to the company’s products through a coordinated presence in all distribution channels



Strategic AlliancesStrategic Alliances

Strategic alliance– When two or more companies join forces to

undertake an activity over a long period of timeAmazon is a great example

– Look for partners at the bottom of the Home page

Documents

Chapter 3: Selling on the Web: Revenue Models and Building a Web Presence Part 1 Electronic Commerce Sixth Edition