10 Social Networks and Communities

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e-commerce

Kenneth C. Laudon

Carol Guercio Traver

business. technology. society.

eighth edition

Copyright © 2012 Pearson Education

Chapter 10

Social Networks, and Communities

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Copyright © 2012 Pearson Education Slide 10-4

Social Network Fever Spreads to the Professions

Class Discussion How has the growth of social networking enabled the

creation of more specific niche sites?

What are some examples of social network sites with afinancial or business focus?

Describe some common features and activities on thesesocial networking sites.

What feature of social networks best explains theirpopularity?

SocialPicks for stock investors, DailyStrength.org for health care professionals, LawLink forlawyers, Sermo for physicians, Inmobile.org for wireless industry executives, AdGabber foradvertising professionals, LinkedFA for financial advisors

Encourage members to intensely discuss realities of their professions and practices,

sharing successes and failures, and developing network for career advancement

Ability to reveal group attitudes and opinions, values, and practices

Class Discussion


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Learning Objectives

Explain the difference between a traditional socialnetwork and an online social network

Understand how a social network differs from a portal Describe the different types of social networks and online

communities and their business models Describe the major types of auctions, their benefits, and

costs, and how they operate Understand when to use auctions in a business Recognize the potential for auction abuse and fraud Describe the major types of Internet portals Understand the business models of portals


Social Networks and Online Communities

Internet began as community buildingtechnology for scientists, researchers to sharedata, knowledge, and opinions in a real-timeonline environment

Early communities limited to bulletin boards,newsgroups; e.g., the Well (first onlinecommunity formed in 1985 in San Francisco by asmall group of people)

Today: Mobile devices; sharing of photos, video;blogs have created new era of social networks

Social networks now one of most commonInternet activities

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What Is an Online Social Network? Online area where people who share common ties can interact

Social networks involve:1. A group of people

2. Shared social interaction

3. Common ties among members

4. People who share an area for some period of time

Participants do not necessarily share goals, purposes, orintentions

Portals and social networks: Moving closer together

Portals adding social network features, e.g., chat groups, bulletin boards, free Website design and hosting

Community sites, e.g., iVillage (site devoted to women’s issues), adding portal-likeservices

Searching

News

E-commerce services


The Growth of Social Networks andOnline Communities

Top 10 social networks account for over 90% social networkingactivity (see next Fig.)

Facebook users: Over 50% are 35+

Unique audience size: Top four U.S. social networks (FB, LinkedIn, Twitter, MySpace): 264

million/month

Top four portal/search engines (Google, Yahoo, MSN, AOL): 650 million/month

Annual advertising revenue U.S. social network sites: $3.08 billion

Top four portal/search engines (Google, Yahoo, Microsoft, AOL): $19 billion

Social networking sites fastest growing form of Internet usage,but still not as powerful as search engines/portals in terms ofunique visitors, overall reach, and ad dollars generated

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Top 10 Social Network Sites, 2011

Figure 10.1, Page 678SOURCES: Based on data from eMarketer, 2010; Hitwise, 2010.


Turning Social Networks into Businesses

Early networking sites relied on subscriptions

Today primarily advertising (see next Fig.)

Profound impact of social networks onbusinesses Marketing and branding tool

Facebook pages, “fans”

Twitter feeds

Listening tool

Monitoring online reputation

Extension of CRMS

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Types of Social Networksand Their Business Models

General communities: Offer opportunities to interact with general audience

organized into general topics, e.g., MySpace, Facebook

Advertising supported by selling ad space on pages andvideos

Practice networks: Offer focused discussion groups, help, and knowledge

related to area of shared practice, e.g., Linux.org andLinkedIn (business)

May be profit or nonprofit; rely on advertising or userdonations

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Types of Social Networksand Their Business Models (cont.)

Interest-based social networks: Offer focused discussion groups based on shared interest in some

specific subject, e.g., E-democracy.org and SocialPicks (stock marketsite)

Usually advertising supported

Affinity communities: Offer focused discussion and interaction with other people who share

same affinity (self or group identification), e.g., iVillage and Oxygen(focusing on women), BlackPlanet (African American community)

Advertising and revenues from sales of products

Sponsored communities: Created by government, nonprofit, or for-profit organizations for

purpose of various purposes, e.g., increasing information available tocitizens (Westchestergov.com), online auction site (eBay), product site(Tide.com), sharing knowledge within corporate (IBM, Cisco, HP)


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Online Auctions Online auction sites are among the most

popular consumer-to-consumer sites on theInternet

eBay: Market leader with 97 million active usersin the US, 200 million items listed each day, $4.8billion net revenues from its Marketplacessegment in 2010

Several hundred different auction sites inUnited States alone

Established portals and online retail sites (fromYahoo, MSN to JCPenny and Sam’s Club)increasingly are adding auctions to their sites


Defining and Measuring the Growth ofAuctions and Dynamic Pricing

Dynamic pricing Airline tickets, coupons, college scholarships Prices based on demand characteristics of customer and

supply situation of seller

Many types of dynamic pricing Bundling of digital goods – including low-demand products

in a bundle “for free” to increase total revenues Trigger pricing – adjust prices based on location of

consumer; used in m-commerce applications Utilization pricing– adjust prices based on utilization of

product, e.g., auto and health insurances Personalization pricing – adjust prices based on merchant’s

estimate of how much customer values the product, e.g.,higher prices paid for hard-covered books by fans of writers

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Defining and Measuring the Growth ofAuctions and Dynamic Pricing (cont.)

Auctions: One form of dynamic pricingC2C auctions (most widely known)

Auction house an intermediary market maker,providing forum where consumers – buyers andsellers – can discover prices and trade

B2C auctionsBusiness owns assets; often used for excess goods

Auctions can be used to Sell goods and services

Allocate resources among independent agents(bidders), e.g., workers bidding for task assignments


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Benefits of Auctions Liquidity– sellers can find willing buyers, and buyers can find

sellers

Price discovery – buyers and sellers can quickly and efficientlydevelop prices for items difficult to assess, where product is rare

Price transparency – public Internet auctions allow everyone tosee asking and bidding prices for items

Market efficiency – auctions can lead to reduced pricesreduced profits for merchants increasing consumer welfare(one measure of market efficiency)

Lower transaction costs – lower cost of selling and buyingproducts

Consumer aggregation – sellers benefit from large auction sites’ability to aggregate large number of consumers

Network effects – large auction sites with large number of visitorsand products make it likely to find what you want at a good price,and highly probable to find a buyer for just about anything


Risks and Costs of Auctions forConsumers and Businesses

Delayed consumption costs – buyers must wait untilauctions are over, and shipping takes time

Monitoring costs – requires time to monitor bidding Possible solutions include:

Fixed pricing – clicking on the “Buy It Now” button and paying premiumprice compared to regular auction price

Watch lists – permit consumer to monitor certain auctions of interest

Proxy bidding – allows consumer to enter maximum price, and auctionsoftware automatically bids for goods up to that price in small increments

Equipment costs – costs of computer system, Internetaccess, and learning complex operating system cost

Trust risks Possible solution—rating systems

Fulfillment costs – buyers pay costs of packing,shipping, and insurance

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Market-Maker Benefits

No inventory

No fulfillment activities No warehouses, shipping, or logistical facilities

eBay makes money from every stage inauction cycle Transaction fees based on amount of sale

Listing fees for display of goods

Financial services fees from payment system, e.g.,PayPal

Advertising or placement fees where sellers pay extrafor particular display or listing services


Internet Auction Basics

Different from traditional auctions Last much longer (usually a week)

Variable number of bidders who come and go fromauction arena

Market power and bias in dynamically pricedmarkets Neutral: Number of buyers and sellers is few or equal

Seller bias: Few sellers and many buyers

Buyer bias: Many sellers and few buyers

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Bias in Dynamically Priced Markets

Figure 10.3, Page 694


Internet Auction Basics (cont.) Price Allocation Rules – Rules for establishing

winning bids and prices in auctions where thereare multiple units for sale Uniform pricing rule: Multiple winners who all pay the same

price Discriminatory pricing rule: Winners pay different amount

depending on what they bid, as in uBid.com From buyer’s point of view, uniform pricing is better, but

from seller’s point of view, discriminatory pricing is better

Public vs. private information Prices bid may be kept secret

Bid rigging – bidders communicate prior to submitting their bids,and rig their bids to ensure lowest price is higher than it mightotherwise be

Open markets Price matching – sellers agree to set floor prices on auction items below

which they will not sell

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Types of Auctions

English auctions (eBay): Single item up for sale to single seller

Highest bidder wins

Seller bias: single seller and multiple buyers competing against oneanother

Traditional Dutch auction (Dutch flower market): Public descending price auction

Uses a clock that displays starting price

Clock ticks down price until buyer stops it Seller bias

Dutch Internet auction (eBay Dutch auction): Public ascending price, multiple units

Final price is lowest successful bid, which sets price for all higherbidders (uniform price rule)


winners3

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Types of Auctions (cont.)

Name Your Own Price AuctionsPioneered by Priceline

Users specify what they are willing to pay forgoods or services and multiple providers bid fortheir business

Prices do not descend and are fixedConsumer offer is commitment to buy at that price

e.g., Priceline

Enables sellers to unload unsold excess capacity

Buyer bias: Multiple sellers compete against oneanother


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Types of Auctions (cont.)

Group buying auctions (demand aggregators) Group buying of products at dynamically adjusted discount prices

based on high volume purchases

Based on two principles Sellers more likely to offer discounts to buyers purchasing in volume

Buyers increase their purchases as prices fall

Buyer bias

Professional service auctions Sealed-bid, dynamic-priced market for freelance professional

services from legal and marketing services to graphics design andprogramming

Sealed bids are submitted and the winner is the low-cost providerof services

Buyer bias

Example: Elance.com, SoloGig


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Table 10.7, p 701

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Seller and Consumer Behaviorat Auctions

Seller profit: A function of arrival rate, auction length,and number of units at auction (see next Fig.)

Auction prices not necessarily the lowest Reasons include herd behavior (tendency to gravitate toward, and bid

for, auction listing with one or more existing bids) Herd behavior results in consumers paying higher prices than necessary

Unintended results of participating in auctions: Winner’s regret – winner’s feeling after auction that he/she paid too

much for an item Seller’s lament – concern that one will never know how much ultimate

winner might have paid, or true value to final winner Loser’s lament – feeling of having been too cheap in bidding and failing

to win

Consumer trust an important motivating factor inauctions


Auction Profits

Figure 10.4, Page 703 SOURCE: Based on data from Vakrat and Seidmann, 1998.

N = arrival rate at the auction

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When Auction Markets Fail:Fraud and Abuse in Auctions

Markets fail to produce sociallydesirable outcomes in four situations: Information asymmetry, monopoly power,

public goods, externalities

Auction markets prone to fraudMost common: Failure to deliver, failure to pay

In 2010, 6% Internet fraud complaintsconcern online auctions


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E-commerce Portals

Most frequently visited sites on Web

Original portals were search enginesAs search sites, attracted huge audiences

Today provide: Navigation of the Web Commerce Content (owned and others’), e.g., news, entertainment,

maps, images, social networks, in-depth info

Compete on reach and unique visitors

Enterprise portals Help employees find important organizational content

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Top Five Portal/Search Engines in United States

SOURCE: Based on data from comScore, 2011.Figure 10.5, Page 708


Types of Portals

General purpose portals:

Attempt to attract very large general audience

Retain audience by providing in-depth verticalcontent channels

e.g., Yahoo, MSN

Vertical market portals:

Attempt to attract highly-focused, loyalaudiences with specific interest in:

Community (affinity group); e.g., iVillage

Focused content; e.g., ESPN.com

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Two General Types of Portals:General Purpose and Vertical Market Portals



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Revenue per Customer and Market Focus

