Revenue Models for Selling on the Web A revenue model is a general term for the combination of strategies and techniques that a company uses to generate cash flow into the business from customers. Revenue models include: Web catalog revenue model Digital content revenue model Advertising-supported revenue model Advertising-subscription mixed revenue model Fee-based revenue model These approaches can work for both business-to-consumer (B2C) and business-to-business (B2B) electronic commerce.

Web Catalog Revenue Models The firm replaces or supplements print catalog distribution with information on its Web site. Most companies that use the Web catalog model give customers a way to complete the payment part of the transaction by telephone or by mail. Many of the most successful Web catalog sales businesses are firms that were already operating in the mail order business and simply expanded their operations to the Web. Other companies that use the Web catalog revenue model adopted it after realizing that the products they sold in their physical stores could also be sold on the Web.

Web Catalog Revenue Models (Cont.) Types of businesses using the Web catalog model include sellers of: Computers (such as Apple, Dell, and Sun Microsystems) and consumer electronics (such as Crutchfield, and Circuit City) Books (such as Amazon.com, Barnes & Nobel, Books-A-Million, and Powell’s Books), music, and videos (such as Tower Records, and Sam Goody) Luxury goods (such as Vera Wang, Evian, and Tiffany & Co) Clothing retailers (such as bebe, the Gap, Lands’ End, L. L. Bean, Talbots, and Wet Seal) Flowers and gifts (such as 1-800-Flowers, Godiva, Harry and David, Hickory Farms, and Mrs. Fields Cookies) General discount merchandise (such as Bluefly, and Buy.com)

Digital Content Revenue Models Firms that own intellectual property or rights to that property have made use of the Web as a new and highly efficient distribution mechanism. Those firms include: LexisNexis – offering a variety of information services, including legal information, corporate information, government information, news, and resources for academic libraries ProQuest – selling digital copies of published documents (dissertations, theses, newspapers, journals, and other specialized academic publications) Dow Jones Interactive – selling subscriptions to digitized newspaper, magazine, and journal content

Advertising-supported Revenue Models The success of Web advertising has been hampered by two major problems: No general agreement has emerged on how to measure and charge for site visitor views. The stickiness of a Web site is its ability to keep visitors at the site and attract repeat visitors. People spend more time at a sticky Web site and are thus exposed to more advertising. Very few Web sites have sufficient numbers of visitors to interest large advertisers. Most successful advertising on the Web is targeted to very specific groups. The set of characteristics that marketers use to group visitors is called demographic information.

Advertising-supported Revenue Models (Cont.) Web portals (such as Yahoo!, AOL, and MSN) Newspaper publishers (such as USA TODAY, THE NATION, and Bangkok Post) Targeted classified advertising sites Employment: CareerSite Used vehicle: AutoTrader.com, CycleTrader.com, and AeroTrader.com Used musical instrument: Musicians Buy-Line Used comic book: ComicLink.com Used watch: watchnetwork.com Used radio: antiqueradio.com

Advertising-subscription Mixed Revenue Model Subscribers are typically subjected to much less advertising than they are on advertising-supported sites. Some good examples of web sites that are using this model are: The New York Times, which charges a small subscription fee for visitors who want online access to the newspaper’s crossword puzzles The Wall Street Journal, which reserves most of the content for subscribers who pay an annual fee for access to the site ESPN, which collects the subscription revenue from Insider subscribers who want to obtain access to more sports information

Fee-based Revenue Model (Fee-for-transaction revenue model) Businesses offer services for which they charge a fee that is based on the number or size of transactions they process. Those businesses are: Travel agents (such as Travelocity and Expedia) earn commissions on each airplane ticket, hotel reservation, auto rental, or vacation that they book. Stockbrokers (such as E*Trade and Merrill Lynch) charge their customers a commission for each trade executed. Insurance brokers (such as Insurance.com and InsWeb) sell insurance policies

Fee-based Revenue Model (Fee-for-service revenue model) The fee is based on the value of the service provided. Some good examples are: Online games (such as Zone.com, Station.com and EA.com): Site visitors must pay to play premium games, either by buying and downloading software to install on their computers, or by paying a subscription fee to enter the premium games area on the site. Concerts and films (such as Intertainer and SuperPass): Web sites provide streaming video of concerts and films to paying subscribers.