E- Business Ninth Edition Chapter 4 E-Business Revenue Models 1

Revenue Models Web business revenue-generating models Web catalog Digital content Advertising-supported Advertising-subscription mixed Fee-based Can work for both sale types Business-to-consumer (B2C) Business-to-business (B2B) Can use same revenue model for both types of sales E- Business, Ninth Edition

Web Catalog Revenue Models Adapted from mail-order (catalog) model Seller establishes brand image Printed information mailed to prospective buyers Orders placed by mail or toll-free telephone number Expands traditional model Replaces or supplements print catalogs Offers flexibility Orders placed through Web site or telephone Payments made though Web site, telephone, or mail Creates additional sales outlet for existing companies E- Business, Ninth Edition

Web Catalog Revenue Models (cont’d.) Computers and consumer electronics E.g., Dell – product customization; Best Buy – Web site sells same products as in stores Marketing channel Pathway to customers Advantage of having several marketing channels Reach more customers at less cost Can combine marketing channels Example: in-store online ordering Example: mail catalogs with reference to retailer’s Web site E- Business, Ninth Edition

FIGURE 4-1 Combining marketing channels: Two retailer examples E- Business, Ninth Edition 5

Web Catalog Revenue Models (cont’d.) Books, music, and videos Amazon.com Web-only retailer originally sold books Started with small-ticket commodity items – books. Evolved into a general retailer Barnes & Noble, Blackwell’s, Books-A-Million, Powell’s Books, CDnow Web-only online music store Luxury goods Difficult to sell online E.g., Vera Wang and Versace - Web sites provide information; Shopper purchases at physical store; Heavy use of graphics and animation E- Business, Ninth Edition

Web Catalog Revenue Models (cont’d.) Clothing retailers Display clothing photos categorized by type Prices, sizes, colors, tailoring details Lands’ End online Web shopping assistance Lands’ End Live (1999); Online text chat and call-back feature; Ability to push Web pages to customer’s browser; Personal shopper agent (more recent); Learns preferences and makes suggestions My Virtual Model (customers try clothes) Problem: varying computer monitor color settings Solution: send fabric swatch on request Solution: offer generous return policies E- Business, Ninth Edition

Digital Content Subscription Revenue Models Firms owning written information or rights Embrace the Web as a highly efficient distribution mechanism Use the digital content revenue model Sell subscriptions for access to information they own Examples LexisNexis: offers variety of information services Lexis.com: offers original legal information product ProQuest: digital copies of academic publications Dow Jones newspaper publisher subscriptions E- Business, Ninth Edition

Advertising-Supported Revenue Models Used by United States broadcast network television Provides free programming and advertising messages Supports network operations sufficiently Problem1: measuring and charging site visitor views # of visitors, # of unique visitors, # of click-throughs Stickiness Keeping visitors at site and attracting repeat visitors Exposed to more advertising in a sticky site Problem2: obtaining large advertiser interest Requires demographic information collection Characteristics set used to group visitors E- Business, Ninth Edition

Advertising-Supported Revenue Models (cont’d.) Can obtain large advertiser interest by: Using a specialized information Web site Draw a specialized audience certain advertisers want to reach Examples: The Huffington Post and the Drudge Report HowStuffWorks E- Business, Ninth Edition

FIGURE 4-2 Three strategies for an advertising-supported revenue model E- Business, Ninth Edition 11

Advertising-Supported Revenue Models (cont’d.) Web portals (portal) Site used as a launching point to enter the Web Web directories: Listing of hyperlinks to Web pages Yahoo!: uses search term triggered advertising on each page Portal sites using general interest strategy AOL, Excite, Google, Bing Portal sites not using general interest strategy Help visitors find information within a specific knowledge domain; Advertisers pay more; Example: C-NET E- Business, Ninth Edition 12

Advertising-Supported Revenue Models (cont’d.) Newspaper and magazine publishers Sell advertising to cover Web site costs Targeted classified advertising sites Can command higher rates than general advertising Original version: Newspaper classified advertising Growth of classified advertising Web sites Very bad for newspapers Example: craigslist Web employment advertising Most successful targeted classified advertising category Examples: CareerBuilder.com, The Ladders and Guru.com, Monster.com E- Business, Ninth Edition

Advertising-Subscription Mixed Revenue Models Subscribers pay fee and accept advertising Typically less advertising compared to advertising-supported sites Web sites offer different degrees of success The New York Times (today) Bulk of revenue derived from advertising The Wall Street Journal (mixed model) Subscription revenue weighted more heavily E- Business, Ninth Edition

FIGURE 4-3 Revenue models used by online editions of newspapers and magazines E- Business, Ninth Edition 15

Advertising-Subscription Mixed Revenue Models (cont’d.) ESPN Leverages brand name from cable television business Sells advertising, offers free information Mixed model includes advertising and subscription revenue (collects Insider subscriber revenue) Consumers Union (ConsumerReports.org) Purely a subscription-supported site Not-for-profit organization with no advertising Free information Attracts subscribers and fulfills mission E- Business, Ninth Edition

Fee-for-Transaction Revenue Models Service fee charged Based on transaction number or size Web site offers visitor transaction information Personal service formerly provided by a human agent Value chain Disintermediation Intermediary (human agent) removed Reintermediation New intermediary (fee-for-transaction Web site) introduced E- Business, Ninth Edition

Fee-for-Transaction Revenue Models (cont’d.) Travel Travel agency revenue model: receive fee for facilitating a transaction Computers also good at information consolidation and filtering (Travel agents have long used networked computers: Sabre Travel Network) Web-based travel agencies were new entrants Examples: Travelocity, Expedia, Hotels.com, Hotel Discount Reservations, Orbitz Generate advertising revenue from ads placed on travel information pages Smaller travel agents specialize (cruises, hotels) E- Business, Ninth Edition

Fee-for-Transaction Revenue Models (cont’d.) Insurance brokers Quotesmith offered Internet policy price quotes directly to public (1996) Independent insurance agents: disintermediated Insurance policy information, comparisons, sales sites InsWeb, Answer Financial, Insurance.com Progressive Web site Provides quotes for competitors’ products too The General (General Automobile Insurance Services) Web site Offers comfortable, anonymous experience E- Business, Ninth Edition

Fee-for-Transaction Revenue Models (cont’d.) Online banking and financial services No physical product; Easy to offer on Web Concerns: Trust and reliability of financial institution Solutions Use existing bank’s identification and reputation Start online bank not affiliated with existing bank (First Internet Bank of Indiana) Use different name (Bank One used Wingspan & failed) Barriers preventing a more rapid rate of growth Lack of bill presentment features Lack of account aggregation tools E- Business, Ninth Edition

Fee-for-Service Revenue Models Companies offer Web service Fee based on service value; Not a broker service; Not based on transactions-processed number or size Examples Online games - Sales revenue source Advertising (older concept), pay-to-play for premium games, subscription fees Professional services Limited Web use (e.g., State laws prohibit) Major concern - Patient privacy Physicians’ online consultations For ongoing, established relationship patients E- Business, Ninth Edition

Free for Many, Fee for a Few Economics of manufacturing Different for physical and digital products Unit cost high percentage of physical products Unit cost very small for digital products Leads to a different revenue model Offer basic product to many for free Charge a fee to some for differentiated products Examples: Yahoo e-mail accounts, bakery: free cookies E- Business, Ninth Edition

Revenue Models in Transition Companies must change revenue model To meet needs of new and changing Web users Some companies created e-commerce Web sites Needed many years to grow large enough to become profitable (CNN and ESPN) Some companies changed model or went out of business Due to lengthy unprofitable growth phases See more examples in the book E- Business, Ninth Edition

Revenue Strategy Issues Topics: Web revenue models implementation issues Dealing with the issues E- Business, Ninth Edition

Channel Conflict and Cannibalization Channel conflict (cannibalization) Company Web site sales activities interfere with existing sales outlets Levis Web site and Maytag Web sites no longer sell products Sites now provide product, retail distributor information Eddie Bauer Online purchases returnable at retail stores Required compensation and bonus plans adjustments to support Web site Channel Cooperation made it successful E- Business, Ninth Edition

Strategic Alliances Strategic alliance Two or more companies join forces Undertake activity over long time period Yodlee account aggregation services provider Yodlee concentrates on developing the technology and services Banks provide the customers Amazon.com Joined with Target, CDnow, ToysRUs ToysRUs and Amazon suing each other E- Business, Ninth Edition

Creating an Effective Web Presence Organization’s presence Public image conveyed to stakeholders Usually not important Until growth reaches significant size Stakeholders Customers, suppliers, employees, stockholders, neighbors, general public Effective Web presence Critical even for smallest and newest Web operating firms E- Business, Ninth Edition

Identifying Web Presence Goals (cont’d.) Web business site objectives: Attracting Web site visitors Keeping visitors to stay and explore Convincing visitors to follow site’s links to obtain information Creating an impression consistent with the organization’s desired image Building a trusting relationship with visitors Reinforcing positive images about the organization Encouraging visitors to return to the site E- Business, Ninth Edition

Identifying Web Presence Goals (cont’d.) Making Web presence consistent with brand image Different firms establish different Web presence goals Coca Cola Web site pages Usually include trusted corporate image (Coke bottle) Image: traditional position as a trusted classic Pepsi Web site pages Usually filled with hyperlinks to activities and product-related promotions Image: upstart product favored by younger generation E- Business, Ninth Edition 29

Web Site Usability Current Web presences Few businesses accomplish all goals Most fail to provide visitors sufficient interactive contact opportunities Improving Web presence Make site accessible to more people Make site easier to use Make site encourage visitors’ trust Make site develop feelings of loyalty toward the organization E- Business, Ninth Edition

How the Web Is Different Simple mid-1990s Web sites Conveyed basic business information No market research conducted Web objectives achievement Failed due to no understanding for Web presence-building media Web sites designed to create an organization’s presence: Contain links to standard information set Success dependent on how this information offered E- Business, Ninth Edition

Trust and Loyalty Creates relationship value Good service leads to seller trust Delivery, order handling, help selecting product, after-sale support Satisfactory service builds customer loyalty Customer service in electronic commerce sites Problem Lack integration between call centers and Web sites Poor e-mail responsiveness E- Business, Ninth Edition

Rating Electronic Commerce Web Sites Companies routinely review electronic commerce Web sites for: Usability, customer service, other factors Sell the gathered information directly to the companies operating the Web sites Include suggestions for improvements BizRate.com posts ratings Provides comparison shopping service Compiles ratings by conducting surveys of sites’ customers E- Business, Ninth Edition

Usability Testing Importance Helps meet Web site goals Avoids Web site frustration Customers leave site without buying anything Simple site usability changes Include telephone contact information Staff a call center Learn about visitor needs by conducting focus groups Usability testing cost Low compared to Web site design costs Usability testing methods E- Business, Ninth Edition