E-Commerce and Internet Marketing Week#2 Class #4 Wed Sept 26, 2012

In the news: • Yahoo ---no WOW in yesterday’s information

•Today’s main topic: E-Commerce Business Models

-- the big portals continue to change their focus and business models (AOL, Yahoo, MSN)--many online companies still have an unclear business models{Twitter, foursquare,..) For Monday…see homework on e-c biz models & read Chapter 4-building an EC websiteread Chapter 9 in eMarketing—Affiliate Marketing

Marissa Mayer, new CEO of You , comments from Tuesday’s “All Hands Meeting”

Marissa Mayer, generally focused on the big-picture turnaround rather than specific details as she attempts to solve the puzzle that stumped past CEOs: What, exactly, is Yahoo?

Yahoo is a company devoted to personalizing the Web for its users, from content to email to ads.

Mayer's goal is to expand Yahoo's user base, talent pool and advertiser partners.

She wants Yahoo "to become something users touch every day,"

Mayer wants Yahoo to move much more quickly. Employees will have more ownership over and resources for their projects -- which will be approved only if they have the potential to scale to 100 million users or $100 million in revenue.

Dr K: NO “Wow” in this ‘all hands meeting”

an Internet Portal-- a web site that functions as a point of access to information on the Internet & as a destination site

Portals offer an integrated package of content & services—Primary Business Model is Advertising

In 1995-2000 there were over 10 ‘portals’ to access Internet content… now down to 3 co’s:

Yahoo, AOL, MSN We could consider Google a ‘Portal’ in 2012 but most people enter Google’s Internet content through its search function• common services provided by a portal Internet access, Search, email, News, Sports, Weather,

Finance information, Maps, Music, Shopping,……

Today’s Topic:The E-Commerce Business Models…..

Profits = Revenues - Costs ---------

We will define E-C Business Model = the way a company generates revenues

PBworks, Netflix, Napster, AOL are good examples of dotcom companies that have continued to experiment with business models

THE AOL story--what’s been happening to this internet giant?

Jan 2000…12 years ago AOL bought giant Time Warner for $164 Billion

Goal--combine new media speed(AOL-Internet) with old media power(Time Warner)

Time Warner owns: Home Box Office, New Line Cinema, Time Inc., Time Warner Cable,Turner Broadcasting System, Warner Bros. Entertainment, Cartoon Network,CNN, DC Comics.

In 2002: AOL Time Warner reported a loss of $99 billion— at the time, the largest loss ever reported by a company.

In 2009: AOL was ‘spun’ out as independent company

The Transformation of AOL--what’s been happening to this once internet giant? See pages 743-745

In AOL’s first Internet business model—they brought in revenues by subscriptions for dial-up and their email service

But AOL’s customer base eroded from their peak of 30 million ‘paying’ users to 19 million users with the

availability of higher speed Internet access.

In 2009- AOL modifies their business model to include display advertising and search advertising.

-huge implications of this major change in biz model …. recently bought—the Huffington Post —the #1 blog

THE Netflix Story—see pages 341-344

Netflix is a Great example of how the Internet changed an industry (NFLX)

Business model = video subscription service DVD’s to your door or online ‘streaming’ Pricing & rebranding of its services in 2011 --ugh

Value Propositions: 24/7 convenience, no late fees, huge selection online customer experience & and personalizationSee: www.getelastic.com/is-netflix-in-trouble-for-2012

EC Biz Models:1.The Subscription model - or- “Pay per Month”

…….Information or Content or Service at a monthly price… a. This business model is used heavily by the media world.

Magazines and newspapers are trying to get visitors to pay for reading and downloading complete stories.

Ex: Wall Street Journal, Consumer ReportsExample: $Monthly Subscription

The monthly subscription model is also used for many other online businesses: for example --online personal-finance sites

Question:

Who else is a big user of the subscription model?

2. The advertising modelthree types of online ad models: CPC, CPM, CPA

CPC= pay per click ..Google made this popular

CPM business model is used heavily by the portalsCPM = cost per 1000 impressions(page views) of an ad -also called ‘display ads’- (Yahoo, AOL, MSN) since its

for brand awarenessCPA = cost per action..a download of a document, a lead,

a customer

3. The Retail Model –Sales Model ”pay per product”

Amazon and Dell Computers are the role models for online retail and pay per product.

Other examples are Costsco, Lands’End

Pay for product model requires extensive design of ecommerce engines that include shopping carts, credit-card checking, security systems,

and order fulfillment systems. “Dr K, we received your order for _________!”

4. Auction Model or Classified Ad Model --or “Pay per Listing”

-

-A classified ad model biz gets a fee from people or companies that list their products or jobs on their websites.

Good example: Monster.com

eBay has all kinds of fees for using their site…

A listing fee must be paid regardless of whether or not an items sells When an item has a highest bidder, ebay charges “selling fees” and for

helping with an online payment using paypal, ebay has paypal fees.

#5. Application Services Provider(ASP model)

The ASP model -- pay for usage ‘from the cloud’ - usually a subscription instead of the license model

Examples to checkout: a. Webex.com = online video conferencing b. Salesforce.com =online CRM ( customer relationships mgmt) c. Turbotax = Intuit

The main concept or value proposition is a customer only pays for how much they need, and when they need it--instead of having to buy & owning the total product.

It is like a rental vs a purchase

#6: The Affiliate Marketing Business Model

Affiliate marketing is hosting links, banners, and product information on a website or blog and then getting paid a flat fee or percentage of a sale whenever visitors click through on these links and make a purchase. In essence, affiliate marketing is selling products or services offered by others and then getting paid for each sale.

Good example: Cheapesttextbooks is an affiliate forBookRenter.com Note: Very good reading on Affiliate Mktg in Ch 9 of eMarketing

free textbook.

The Affiliate Marketing Business Model

An Affiliate Program allows you to make money by referring customers to a web site. You do this by placing links on your site. Every time a customer you’ve referred to the sites makes a purchase, you earn a commission.

For example—Amazon has thousands of affiliate websites that bring customers to Amazon. The entire sales transaction takes place on Amazon and Amazon passes on a percentage of the sold item’s price as a commission to the affiliate

Other examples: Blog sites that are very popular See: http://www.mymoneyblog.com/

#7 The Freemium Model:

The Freemium Model: most of their customers use their services free…but ~1-10% pay a subscription for

‘premium’ services.. ….The 1-10% get more features & pay for them

Examples: Pandora—the online ‘radio/music’ site -read the Pandora case study in the textbook

Mail Chimp ---for email marketing Pbworks, Dropbox, {NYTimes.com}

PBworks—online team collaboration –----example of moving from “free” to “ freemium” business model

PBworks applied the target mktg segmentation concepts in textbook

“Crossing the Chasm” Had millions of free users of their online tool The challenge was how to create a real business

…with revenues & profits See their website to see their current focus of

target markets and their new business model – freemium

One of their important mktg methods is the use of informative webinars

#8 The “Transaction” Business Model

This model is when a customer pays per transaction

Good examples are the online stock-trading websites: etrade, schwab, TD-Ameritrade,….

Another good example is : ebay/paypal----when you use paypal to get paid for a sale on ebay, you

typically are charged a fee for the transaction: ~ 3%of the product price.

Summary:Business Models for EC--the ways

that online companies bring in $$s(revenues)1. Subscription Model= pay per month2. Advertising: CPM - pay per 1000 impressions (for branding) Advertising-CPC - pay per click (paying to get a visitor to your website Advertising-CPA-- pay per action by the visitor to a website CPA = A negotiated amount for a specific action(download,

lead, order)3. ASP = pay per user of a web site’s services4. Affiliate Mktg = a commission paid for a click to your site 5. The retail model = pay per product purchased online6. Classified ad model = pay per listing (ebay, craigslist, …)7. Freemium model = free for basic service + premium for extras8. Transaction model—example Pay per stock trade

Practice with EC Business Models-homework to hand-in Monday class

1. What is Apple itunes business model= pay per ________

2. What is Napster.com’s ec business model?

3. What is Linkedin’s Target Market and give two of its Business Models:

homework to hand-in Monday class Practice with EC Business Models

4. Open TableTarget customer #1 =Target Customer #2 =who provides their revenues & explain how it works

#5. TripAdvisor: sometimes called ‘the Yelp for the Travel Industry’ with millions of traveler info & reviews

Explain TripAdvisor’s primary way to get revenues See: try this question on Quora or read:

http://articles.businessinsider.com/2011-12-23/research/30550134_1_yelp-tripadvisor-user-facebook-feature

Blogs-Bloggers--Influencers

-Bloggers try to Create Communities around particular interests..

for example: news, sports, investments, hobbies….

See the advertising on this decorator’s blog site: thriftydecorchick.blogspot.com/1998/10/thrifty-decor-chick-was-created-in-

may.html

Many blogs use affiliate marketing—as a type of advertising revenue model. Could be called “Contextual advertising”

Homework for Monday

Do the homework on EC business models forApple iTunes, Napster, TripAdvisor, OpenTable, Linkedin..

Finish Reading Chapter #2: (Chapter 5 in softbound Int’l edition) -review page 77: Table shows B2C Business Models -read page 106-107: Pandora’s Freemium Business Model

Start Chapter 4. Building an E-Commerce Website