ELC 498 Day 9

2 DAY 8 Agenda Today October 6 –Intro to Online Content Providers -Tony –Boston.com - Steve –Midterm exam Posted in WebCT Due Oct 13 at 11AM –Still missing completed grade sheets October 13 –Midterm Exam Due –CNET Jeff October 17 –BET.com – Donnie October 20 –BMG Entertainment - Kristin –Recap of Online Content Providers –Intro to Online retailers October 24 –Staples.com -Anup October 27 –Petstore.com -Steve

3 Case study Proposed –iVillage Kristin –Monster Donnie –Napster Jeff –Paypal –Steve –eBay - Anup

internet business models text and cases tom eisenmann

Online Content Providers Chapter Three

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-6 Content on the Web Greater Value to Consumer –24/7 Availability –Greater depth (‘click for more’; backlist/catalog)

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-7 Categories of Providers How and why the content will be used –News –Information –Entertainment How long is the content relevant? –Quickly obsolete News, stock quotes, weather –Longer Books, music –Instantly perishable Live events

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-8 Categories of Providers Who pays? –Indirect Advertising –For each use Time based gaming –Outright purchase Music e-books –Subscription Wall street Journal online Bandwidth require –Media type

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-9 Value proposition(s) 1.Produce once, distribute widely 2.24/ Information Capacity 4.Personalization 5.“un” bundling 6.Connectivity based Network effects 7.Digital Piracy

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved Economics New Economics Change the Game –Infinite costless copying –“Blown to Bits”: Artists decoupled from labels; bundled content decoupled from physical carrier (e.g., newspapers) –Marginal cost → $0 as user base increases –Advertising revenue grows faster than cost for producing it

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved Cost Categories Content development Website development G&A Cost of Ad sales Customer Acquisitions Costs

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved “Get Big Fast” Payoff Depends On... Network effects? –Connectivity based –Software Based –“Tipping” Scale Economies –Variable contribution margin >85% –Advertisers pay premium for reach Increasing Returns on Demand Side –Follows from user-generated content Retention –Web content not subscription-based, so ability to track limited to registration or cookies

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved Payoff From Targeting Ads Impact of Registration –Double CPMs –Reduce traffic by one-half –It’s a “wash”

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved Strategic Issues Should online providers leverage other business models? What about Offline incumbents? –Pure Play versus bricks and clicks –Disintermediation? What about broadband??

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved Content Provider Vertical Portal Vertical Portal –Provides links to third-party content –Profits from lead generation and direct selling, not just advertising BET vs. CNET –BET: news/entertainment/information provides contextual selling opportunities (implies dynamic serving of relevant ads) –CNET: 30/70 split between ‘staying up to date’ and ‘getting things done’; with latter, customers are closer to purchase decision

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved Cross-Platform Linkages Evident on BET and CNET –BET: TV, radio?, print, Internet –CNET: TV, radio, Internet Synergies –Brand exposure –Drive online traffic through offline promotion –Shared content –Packaged ad sales

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved Editors Are Uncomfortable With... User-Generated Content Sponsor-Supplied Content and Other ‘Church/State’ Conflicts Links to Third-Party Information Sources 24/7 Schedules –scoops Web-Friendly Writing Styles