1. Electronic Commerce Eighth Edition
Chapter 3 Selling on the Web: Revenue Models and Building a Web Presence 1

2. Learning Objectives In this chapter, you will learn about:
Revenue models
How some companies move from one revenue model to another to achieve success
Revenue strategy issues that companies face when selling on the Web
Creating an effective business presence on the Web
Web site usability
Communicating effectively with customers on the Web
Electronic Commerce, Eighth Edition

3. 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 work with one Web site, separate sites, or separate pages
Electronic Commerce, Eighth Edition

4. Web Catalog Revenue Models
Adapted from traditional catalog-based model
Seller established brand image
Sold through printed information
Mailed to prospective buyers
Web sites expand traditional model
Replace or supplement print catalogs
Offer flexibility
Order through Web site or telephone
Payment though Web site, telephone, or mail
Creates additional sales outlet
Electronic Commerce, Eighth Edition

5. Web Catalog Revenue Models (cont’d.)
Computers and consumer electronics
Apple, Dell, Gateway, Hewlett-Packard, IBM, Sun Microsystems
Sell full range of products
Dell
Allows product configuration; creates value
Crutchfield and The Sharper Image
Successful mail order expansion includes Web sites
Best Buy, Circuit City, J&R Music World, Radio Shack
Successful retail store presence expansion
Sell same products
Electronic Commerce, Eighth Edition

6. Electronic Commerce, Eighth Edition

7. Web Catalog Revenue Models (cont’d.)
Books, music, and videos
Most visible electronic commerce examples
Amazon.com Web-only retailer
Originally sold only books
Barnes & Noble, Blackwell’s, Books-A-Million, Powell’s Books
Well-established physical book stores
CDnow Web-only online music store
Tower Records, Sam Goody retail stores
Created Web sites to compete with CDnow
CD Universe copied CDnow approach
Electronic Commerce, Eighth Edition

8. Electronic Commerce, Eighth Edition

9. Web Catalog Revenue Models (cont’d.)
Luxury goods
Clientele reluctant to buy through Web
Vera Wang and Versace
Web sites provide information
Shopper purchases at physical store
Heavy use of graphics and animation
Evian
Uses flash animation
Tiffany & Co
Graphics and animation require broadband connection
Electronic Commerce, Eighth Edition

10. Web Catalog Revenue Models (cont’d.)
Clothing retailers
Adapt catalog sales model to Web
Display clothing photos
Prices, sizes, colors, tailoring details
Customers examine clothing online
Place orders through Web site
Lands’ End online Web shopping assistance
Lands’ End Live (1999)
Text chat and call-back features
Lands’ End personal shopper agent (more recent)
Learns preferences and makes suggestions
Electronic Commerce, Eighth Edition

11. Web Catalog Revenue Models (cont’d.)
Clothing retailers (cont’d.)
My Virtual Model (customers try clothes)
Graphic image built from customer measurements
Lands’ End
Two shoppers using different computers
Simultaneously browse Web site together
Online overstocks stores
Reaches more people than physical store
Problem with varying computer monitor color settings
Send fabric swatch on request
Offer generous return policies
Electronic Commerce, Eighth Edition

12. Web Catalog Revenue Models (cont’d.)
Flowers and gifts (gift retailers)
1-800-Flowers
Online extension to successful telephone business
Competes with online-only florists
Godiva
Offers business gift plans
Hickory Farms and Mrs. Fields Cookies
Offer familiar name brands on Web
Harry and David
Original Web site for informational purposes
Promoted catalog business
Added online ordering feature
Electronic Commerce, Eighth Edition

13. Web Catalog Revenue Models (cont’d.)
General discounters (completely new businesses)
Buy.Com
Borrowed Wal-Mart and discount club sales model
Many sites sold advertising (originally)
Subsidized extremely low prices
Most sites now out of business
Rely on volume purchasing strategy (now)
Keeps prices low
Fiercely competitive (thin margins: little profits)
Traditional discount retailers
Costco, Kmart, Target, Wal-Mart
Slow to introduce electronic commerce Web sites
Electronic Commerce, Eighth Edition

14. Digital Content Revenue Models
Highly efficient distribution mechanism
Firms own written information or information rights
LexisNexis: variety of information services
Lexis.com: traditional research product
ProQuest: sells published documents’ digital copies
Dow Jones newspaper publisher subscriptions
Digitized newspaper, magazine, and journal content
Association for Computer Machinery: digital library
Sellers of adult digital content
Pioneered online credit card payment processing
Electronic Commerce, Eighth Edition

15. Advertising-Supported Revenue Models
United States network television
Provides free programming and advertising messages
Supports network operations sufficiently
Site visitor views problem (measuring and charging)
Stickiness
Keeping visitors at site and attracting repeat visitors
Exposed to more advertising in sticky site
Obtaining large advertiser problem
Demographic information
Characteristics set used to group visitors
Electronic Commerce, Eighth Edition

16. Advertising-Supported Revenue Models (cont’d.)
Successful sites attract specific groups
About.com, HowStuffWorks, Drudge Report
Web portals
Yahoo!
First Web directory
Search engine results presented on separate page
Search term triggered advertising
Main portal sites (AOL, Excite, Google, MSN)
Smaller general-interest sites (refdesk.com)
More difficulty attracting advertisers
C-NET (offers items to a specialized group)
Electronic Commerce, Eighth Edition

17. Advertising-Supported Revenue Models (cont’d.)
Newspaper publishers
Publish print content on Web
Internet Public Library Online Newspapers page
Links to worldwide newspaper sites
Newspaper’s Web presence
Provides greater exposure and advertising audience
Print edition sales loss (difficult to measure)
Operating costs not covered by advertising revenue
Electronic Commerce, Eighth Edition

18. Advertising-Supported Revenue Models (cont’d.)
Targeted classified advertising sites
More successful at generating adverting revenue
Web site profit potential
Specialize in classified advertising
Web employment advertising (CareerBuilder.com)
Web directory and search engine advertising approach
Topics of interest; short articles (increases stickiness)
Monster.com
Electronic Commerce, Eighth Edition

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20. Advertising-Supported Revenue Models (cont’d.)
Targeted classified advertising sites (cont’d.)
Used vehicle sites
AutoTrader.com, CycleTrader.com, BoatTrader.com
Accepts paid advertising and charge listing fee
Seller ad options: Web site only, print version inclusion
Dedicated following product sites (VetteFinders)
Caters to small audiences
Product sites useful to buyer after use
Musicians Buy-Line, ComicLink.com, The Golf Classifieds
Electronic Commerce, Eighth Edition

21. 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
Print edition and online editions
Different model versions
Electronic Commerce, Eighth Edition

22. Advertising-Subscription Mixed Revenue Models (cont’d.)
The Washington Post , Los Angeles Times
Mixed revenue model variation
No subscription fee charges
Current stories free
Pay for archived articles
Business Week
Free content at online site
Requires paid subscription to print magazine
Archived article additional charge (over five years old)
Electronic Commerce, Eighth Edition

23. Advertising-Subscription Mixed Revenue Models (cont’d.)
ESPN
Leverages brand name from cable television business
Sells advertising, offers free information
Collects Insider subscriber revenue
Consumers Union (ConsumerReports.org)
Subscriptions and charitable donations
Not-for-profit organization
No advertising
Free information
Attracts subscribers and fulfills mission
Electronic Commerce, Eighth Edition

24. Fee-for-Transaction Revenue Models
Service fee based on transaction number or size
Web site offers visitor personal service
Formerly, human agents provided service
Value chain
Disintermediation
Intermediary (human agent) removed
Reintermediation
New intermediary (fee-for-transaction Web site) introduced
Electronic Commerce, Eighth Edition

25. Fee-for-Transaction Revenue Models (cont’d.)
Travel agents
Receive fee for initiating transaction
Replaced by computers
Online travel agents
Saber system (Travelocity)
Expedia, Hotels.com, Hotel Discount Reservations
All profitable
Orbitz
Five major U.S. airlines consortium
Generates advertising revenue
Electronic Commerce, Eighth Edition

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27. Fee-for-Transaction Revenue Models (cont’d.)
Travel agents (cont’d.)
Traditional travel agents being squeezed out
Reduced or eliminated fees
Smaller travel agents specializing (cruises, hotels)
Reintermediation strategy
Travel agents focus on groups
Cruise Web sites
VacationsToGo.com, Cruise Specialists
Group travel Web sites
WaveHunters.com, WannaSurf
Electronic Commerce, Eighth Edition

28. Fee-for-Transaction Revenue Models (cont’d.)
Automobile sales
Web site removes salesperson negotiation
Reduces costs
Provides buyers information service
CarsDirect.com model
Customers select specific car, site determines price and finds local dealer
Autoweb.com and Autobytel model
Site locates local dealers, car sells at small premium over dealer’s nominal cost
Car salesperson disintermediated
Web site: new intermediary (reintermediation)
Electronic Commerce, Eighth Edition

29. Fee-for-Transaction Revenue Models (cont’d.)
Stockbrokers
Charge customers trade execution commission
Web-based brokerage firms (E*TRADE and Datek)
Offer investment advice, fast trade execution
Creates competition
Discount brokers and full-line brokers
Web sites opened for stock trading and information
Transaction cost reductions (like online auto buying)
Stockbrokers disintermediated
Electronic Commerce, Eighth Edition

30. Fee-for-Transaction Revenue Models (cont’d.)
Insurance brokers
Quotesmith
Internet policy price quotes direct to public (1996)
Independent insurance agents disintermediated
Insurance policy information, comparisons, sales sites
InsWeb, Answer Financial, Insurance.com, YouDecide.com
Progressive Web site
Provides quotes for competitors’ products too
Major insurance company Web sites
Offer information or policies for sale
Electronic Commerce, Eighth Edition

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32. Fee-for-Transaction Revenue Models (cont’d.)
Event tickets
Event promoters use Web
Ticketmaster, Tickets.com, TicketWeb
Sell original tickets
Customers reside anywhere worldwide
Secondary market tickets
StubHub, TicketsNow
Operate as brokers
Connect ticket owners with buyers
Reduce transaction costs
Electronic Commerce, Eighth Edition

33. Fee-for-Transaction Revenue Models (cont’d.)
Real estate and mortgage loan brokers
Web sites provide all traditional broker services
Coldwell Banker, Prudential
National Association of Realtors Web site
Realtor.com
IndyMac Bank Home Lending
Offers online credit review, decision in minutes, printing approval letter
Successful Web mortgage brokers
Ditech and E-LOAN
Electronic Commerce, Eighth Edition

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35. Fee-for-Transaction Revenue Models (cont’d.)
Online banking and financial services
No physical product
Easy to offer on Web
Web financial transactions concerns
Trust and reliability of financial institution
Solutions
Use existing bank’s identification and reputation (Citibank Online)
Start online bank not affiliated with existing bank (First Internet Bank of Indiana)
Use different name (Bank One used Wingspan)
Electronic Commerce, Eighth Edition

36. Fee-for-Transaction Revenue Models (cont’d.)
Online music
Amazon MP3, Apple’s iTunes, eMusic, Microsoft’s MSN Music, Napster, Rhapsody, Yahoo!, Walmart.com Music Downloads
Sell single songs (tracks) and albums
Sales revenue source
Fee-for-transaction model
Some sites offer subscription plans
Electronic Commerce, Eighth Edition

37. Fee-for-Transaction Revenue Models (cont’d.)
Online music (cont’d.)
Problems
Digital products easily copied
Stores promote own music file format
Buyers required to download and install software
Software limits number of audio file copies
Software does not prevent illegal copying
Solution
Adopting one standard file format
No copying restrictions
DRM-free MP3 format (Amazon)
Electronic Commerce, Eighth Edition

38. Online Video Copying control Three issues hampering sales
Use DRM software
Three issues hampering sales
Large file size
Reduced by higher Internet connection speeds
Fear of online sales impairing other sales types
Potential serial release pattern impact
Inability to play on variety of devices
DRM not platform compatible
Electronic Commerce, Eighth Edition

39. Fee-for-Service Revenue Models
Companies offer Web service
Fee based on service value
Not broker service
Not based on transactions-processed number or size
Online games
Sales revenue source
Advertising (older concept)
Pay-to-play premium games
Subscriptions
Frequent player demographics
40% over age 35
Electronic Commerce, Eighth Edition

40. Fee-for-Service Revenue Models (cont’d.)
Professional services
Limited Web use
State laws prohibit extension of practice
Patients may set appointments
Major concern
Patient privacy
Significant barrier
Patient diagnosis difficult without physical examination
Electronic Commerce, Eighth Edition

41. Revenue Models in Transition
Need to change revenue model
When Web users’ needs change
Conditions after 2000
Funding became scarce
Unprofitable growth phase
Change model or go out of business
Electronic Commerce, Eighth Edition

42. Subscription to Advertising-Supported Model
Slate magazine (e-zine)
Upscale news and current events
Success expectations were high
Experienced writers and editors
Acclaim for incisive reporting and excellent writing
Initial revenue source
Annual subscription
Did not cover operating costs
Now an advertising-supported site
Part of MSN portal
Increases stickiness
Electronic Commerce, Eighth Edition

43. Advertising-Supported to Advertising-Subscription Mixed Model
Salon.com
Acclaim for innovative content
Initial revenue source
Advertising-supported site
Needed additional money to continue operations
Investors did not provide
Now offers optional subscription version
Annual fee for Salon premium
Free of advertising
Downloadable content
Additional content
Electronic Commerce, Eighth Edition

44. Advertising-Supported to Fee-for-Services Model
Xdrive Technologies
Free disk storage
Initial revenue source (1999)
Advertising-supported
Pages contained advertising
Targeted advertising
Did not cover operating costs
Now subscription-supported service
Monthly fee dropping
Other similar companies (IBackup and Kela)
Electronic Commerce, Eighth Edition

45. Advertising-Supported to Subscription Model
Northern Light
Search engine (includes own database)
Results include Web site links and abstracts
Initial revenue source
Combination (advertising-supported and fee-based)
Individual article payment
Search results page advertising
Did not cover operating costs
Now subscription model
Annual, large clients
Electronic Commerce, Eighth Edition

46. Multiple Transitions Encyclopedia Britannica Initial revenue source
Initial Web offerings
Britannica Internet Guide
Encyclopedia Britannica Online
Initial revenue source
Paid subscription site
Low subscription sales
Converted to free advertiser-supported site
Sold educational and scientific products
Returned to mixed model
Subscription plan and free content
Electronic Commerce, Eighth Edition

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48. Revenue Strategy Issues
Implementations issues
Channel conflict and cannibalization
Strategic alliances and channel distribution management
Mobile commerce
Electronic Commerce, Eighth Edition

49. Channel Conflict and Cannibalization
Channel conflict (cannibalization)
Company Web site sales activities interfere with existing sales outlets
Retail distribution partner issues
Levis: stopped selling products on company Web site
Site now provides product information
Maytag: incorporated online partners into Web site
Eddie Bauer
Online purchases returnable at retail stores
Required compensation and bonus plans adjustments to support Web site
Electronic Commerce, Eighth Edition

50. Strategic Alliances and Channel Distribution Management
Two or more companies join forces
Undertake activity over long time period
Joining Web sites with channel distribution management firms
Yodlee
Relationship with portal site clients
Amazon.com
Joined with Target, Borders, CDnow, ToyRUs
Handleman Company
Manages music inventories (Walmart, KMart)
Electronic Commerce, Eighth Edition

51. Mobile Commerce
Few companies successful generating significant revenues
NTT’s DoCoMo I-Mode service (Japan cell phone)
Send short messages, play games, obtain weather forecasts
AvantGo (United States)
Offers channels of information as PDA downloads
Mobile commerce: $400 billion by 2012
Requires larger memory, easier-to-use interfaces, higher screen resolutions
, telephone, Web access, entertainment services convergence
Electronic Commerce, Eighth Edition

52. 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
Electronic Commerce, Eighth Edition

53. Identifying Web Presence Goals
Business physical space
Focus on very specific objectives
Not image driven
Must satisfy many business needs
Fails to convey good presence
Web business site intentionally creates distinctive presence
Good Web site design
Provides effective image-creation features
Provides effective image-enhancing features
Serves as sales brochure, product showroom, financial report, employment ad, customer contact point
Electronic Commerce, Eighth Edition

54. Identifying Web Presence Goals (cont’d.)
Making Web presence consistent with brand image
Different firms establish different Web presence goals
Coca Cola pages
Usually include trusted corporate image (Coke bottle)
Traditional position as a trusted classic
Pepsi pages
Usually filled with hyperlinks to activities and product-related promotions
Upstart product favored by younger generation
Electronic Commerce, Eighth Edition

55. Achieving Web Presence Goals
Effective site creates attractive presence
Meets business or organization objectives
Objectives
Attract visitors to the Web site
Make site interesting
Convince visitors to follow site’s links
Create impression consistent with organization’s desired image
Build trusting relationship with visitors
Reinforce positive image
Encourage visitors to return
Electronic Commerce, Eighth Edition

56. Achieving Web Presence Goals (cont’d.)
Profit-driven organizations
Toyota
Good example of effective Web presence
Presence consistent with corporate goal
Quaker Oats older Web site
Offered little sense of corporate presence
Quaker Oats current Web site
Much better
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60. Achieving Web Presence Goals (cont’d.)
Not-for-profit organizations
Web presence effort goals
Image-enhancement capability
Provide information dissemination
Successful site key elements
Integrate information dissemination with fund-raising
Provide two-way contact channel
American Civil Liberties Union (ACLU)
Serves many different constituencies
Political party Web sites
Electronic Commerce, Eighth Edition

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62. Web Site Usability Current Web presences
Few businesses accomplish all goals
Most fail to provide visitors sufficient interactive contact opportunities
Improve Web presence
Make site accessible to more people
Make site easier to use
Make site encourage visitors’ trust
Develop feelings of loyalty toward organization
Electronic Commerce, Eighth Edition

63. How the Web Is Different
Simple mid-1990s Web sites
Conveyed basic businesses information
No market research conducted
Web objectives achievement failure
Not understanding Web presence-building media
Web objective achievement success
Sites create organization’s presence
Sites contain standard information set
History, objectives, mission, product information, financial information, two-way meaningful communication
Electronic Commerce, Eighth Edition

64. Meeting the Needs of Web Site Visitors
Successful Web businesses:
Realize every visitor is a potential customer (partner)
Crafting Web presence is an important concern
Know visitor characteristic variations
Visitor at site for a reason
Electronic Commerce, Eighth Edition

65. Meeting the Needs of Web Site Visitors (cont’d.)
Web site visitor motivations
Learning about company products or services
Buying products or services
Obtaining warranty, service, repair policy information
Obtaining general company information
Obtaining financial information
Identifying people
Obtaining contact information
Visitors have:
Various needs, experience, expectations, technology
Electronic Commerce, Eighth Edition

66. Meeting the Needs of Web Site Visitors (cont’d.)
Making Web sites accessible
Build interface flexibility
Optional to use frames
Offer text-only version
Option to select smaller graphic images
Option to specify streaming media connection type
Option to choose among information attributes
Controversial Web site design
Animated graphics software use
Some tasks lend themselves to animated Web pages
Electronic Commerce, Eighth Edition

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68. Meeting the Needs of Web Site Visitors (cont’d.)
Making Web sites accessible (cont’d.)
Offer multiple information formats
Web site constructions goals
Offer easily accessible organization facts
Allow different visitor experiences
Provide meaningful, two-way communication link
Sustain visitor attention and encourage return visits
Offer easily accessible information about products, services, and their use
Electronic Commerce, Eighth Edition

69. 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 responsiveness
Unlikely to recover money spent to attract customers
Electronic Commerce, Eighth Edition

70. Rating Electronic Commerce Web Sites
Review electronic commerce Web sites
Usability, customer service, other factors
Gomez.com
No longer publishes most scorecards
BizRate.com
Comparison shopping service
Links to low price and good service ratings sites
Electronic Commerce, Eighth Edition

71. Rating Electronic Commerce Web Site (cont’d.)
Usability testing
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
Electronic Commerce, Eighth Edition

72. Rating Electronic Commerce Web Site (cont’d.)
Customer-centric Web site design
Important part of successful electronic business operation
Focus on meeting all site visitors’ needs
Putting customer at center of all site designs
Follow guidelines and recommendations
Make visitors’ Web experiences more efficient, effective, memorable
Usability
Important element of creating effective Web presence
Electronic Commerce, Eighth Edition

73. Connecting with Customers
Important element of a corporate Web presence
Identify and reach out to customers
Electronic Commerce, Eighth Edition

74. Connecting with Customers (cont’d.)
Nature of Web communication
Personal contact (prospecting)
Employees individually search for, qualify, contact potential customers
Mass media
Deliver messages by broadcasting
Addressable media
Advertising efforts directed to known addressee
Internet medium
Occupies central space in medium choice continuum
Electronic Commerce, Eighth Edition

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76. Summary Six main approaches to generate Web revenue
Models work differently
Different business types use different models
Learn more about customers, business environment
Change models
Channel conflict and cannibalization challenges
Form strategic alliances with other companies
Contract with channel distribution managers
B2C mobile commerce not widely successful
Create effective Web presence to deliver value
Must understand Web communication
Electronic Commerce, Eighth Edition