1. Md Mahbubul Alam, PhD Associate Professor
MIS 205: E-Business Lecture 3: E-Business Revenue Models (Book chapter 4)
Md Mahbubul Alam, PhD
Associate Professor

2. Intended Learning Outcomes
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
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Md. Mahbubul Alam, PhD

3. Revenue Model
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Md. Mahbubul Alam, PhD

4. Revenue Models (Web business)
Web Catalog/ mail order
Digital content
Advertising-supported
Advertising-subscription mixed
Fee-based
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Md. Mahbubul Alam, PhD

5. 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
e.g., J.C. Penney, LL Bean
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
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Md. Mahbubul Alam, PhD

6. Web Catalog Revenue Models (cont’d.)
Marketing channel
Pathway to customers
Multiple Marketing Channels
More than one way to reach customer
Reach more customers at less cost
Can combine marketing channels
In-store online ordering
Mail catalogs with reference to retailer’s Web site
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Md. Mahbubul Alam, PhD

7. Combining marketing channels: Two retailer examples
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Md. Mahbubul Alam, PhD

8. Web Catalog Revenue Models (cont’d.)
Personal Touch
Chat Window, stimulate the experience of having a helpful salesperson
ShopTogether (from DecisionStep), two shoppers browse the Website together; only one can buy
Personal shopper, an intelligent agent program that learns the customer’s preference and makes suggestions
Virtual Model (from My Virtual Model), a graphic image built from customer measurements and description on which customer can try clothes.
Fabric swatch, gives the customer a sense of fabric’s texture
Video communication, e.g., ITSRx, an online pharmacy
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Md. Mahbubul Alam, PhD

9. Digital Content Subscription Revenue Models
Firms owning written information or information rights
Embrace the web as a highly efficient distribution mechanism
Use the digital content revenue model
Sell subscriptions or individual access rights to customers
Legal content, e.g., LexisNexis, Lexis.com
Academic content, e.g., ProQuest, EBSCO
Business content, e.g., WSJ, Barron, Dow Jones (Factiva, online content management and integration service)
Technical content, e.g., Association for Computer Machinery (ACM): digital library
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Md. Mahbubul Alam, PhD

10. Digital Content Subscription Revenue Models (Cont’d.)
Electronic books, e.g., Amazon.com’s Kindle products, Barnes & Noble’s Nook products, Google’s eBookStore
Audible and Books-on-Tape, digital audio editions of books
Online Music, e.g., Amazon MP3, Apple’s iTunes, eMusic, Google Music
DRM (Digital Rights Management), limits the number of copies that can be made of each audio file
Online Video, e.g., Amazon, Blockbuster, Netflix, Apple’s iTunes, Hulu, TV.com
Sold or rented online as either a file download or as a streaming video
DRM, limits the no. of copies that can be made, devices on which the video can be installed, restrictions on how long the video remains available for watching
Theater -> in-flight showings & premium cable channels (HBO or Starz) -> DVD -> cable TV channels
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Md. Mahbubul Alam, PhD

11. Advertising-Supported Revenue Models
Used by broadcast network television
Provides free programming along with advertising messages
Supports network operations sufficiently
Challenges
Measuring and charging site visitor views
No. of visitors, no. of unique visitors, no. of click-through
Stickiness, Keeping visitors at site and attracting repeat visitors
Obtaining large advertiser interest
Few website have large numbers of visitors
Requires demographic information collection
Use of Specialized Information Web Site, e.g., The Huffington Post, Drudge Report, HOwStuffWorks (suggest how things work)
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Md. Mahbubul Alam, PhD

12. Three strategies for an advertising-supported revenue model
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Md. Mahbubul Alam, PhD

13. Advertising-Supported Revenue Models (cont’d.)
Web portals (portal)
Site used as a launching point to enter the Web
Almost always includes a Web directory or search engine
Often includes other features
Web directories
Listing of hyperlinks to Web pages
Yahoo!: one of the first
Presents search term triggered advertising on each page
Specific interest strategy
Help visitors find information within a specific knowledge domain
Advertisers pay more
Example: C-NET, Kayak (travel portal)
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Md. Mahbubul Alam, PhD

14. Advertising-Supported Revenue Models (cont’d.)
Advertising-supported Online Classified Ad Sites
Rental classification, e.g., craigslist
Web Employment site, e.g., CareerBuilder.com, The Ladders, Monster.com
Vehicle site, e.g., AutoTrader.com
Advertising-Subscription Mixed Revenue Models
Subscribers pay fee and accept advertising
The New York Times
Bulk of revenue derived from advertising
The Wall Street Journal, ESPN (mixed model)
Subscription revenue weighted more heavily
Consumers Union (ConsumerReport.org)
Purely relies on subscriptions
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Md. Mahbubul Alam, PhD

15. Fee-for-Transaction Revenue Model
Stock Brokerage firms, commission-based sales, e.g., E*Trade Financial, TD Ameritrade
Insurance Brokers, e.g., Quotesmith, InsWeb, Insurance.com
Event Tickets, e.g., Ticketmaster, StubHub, TicketsNow
Online Banking and Financial Services, reduces operating cost, bill presentment, account aggregation (obtain information from multiple sites and display in one location)
Travel, e.g., Travelocity, Expedia, TripAdvisor, Orbitz
Automobile Sales, e.g., Autobytel, Edmunds.com
Real Estate and Mortgage Loans, bring buyers and sellers together, e.g., Realtor.com, GMAC Mortgage, E-LOAN
Service fee-> based on no or size of transactions.
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Md. Mahbubul Alam, PhD

16. 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
Online gamesf
Sales revenue source
Advertising (older concept), pay-to-play for premium games, subscription fees
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Md. Mahbubul Alam, PhD

17. Fee-for-Service Revenue Models (cont’d.)
Professional services
Limited Web use
State laws prohibit extension of practice
Patients may set appointments, receive online consultation
Major concern: Privacy
Law on the Web site
Legal consultations to United Kingdom residents
Martindale.com
Online version of Martindale-Hubbell lawyer directory
CPA Directory
United States accounting professionals site
General health information
RealAge, Dr. Andrew Weil’s Self Healing, WebMD
Significant barrier
Patient diagnosis difficult without physical examination
Some physicians beginning to offer online consultations
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Md. Mahbubul Alam, PhD

18. 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 enhanced, specialized or otherwise differentiated products
Examples: Yahoo accounts, bakery: free cookies
Q. Economic of digital products are quite different from the economics of physical products. Why?
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Md. Mahbubul Alam, PhD

19. Changing Strategies Revenue Models in Transition
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Md. Mahbubul Alam, PhD

20. 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
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Md. Mahbubul Alam, PhD

21. Revenue Models in Transition (Cont’d.)
Subscription to Advertising-Supported Model, e.g., Slate magazine from Microsoft
Advertising-Supported to Advertising-Subscription Mixed Model, e.g., Salon.com to Salon Core (premium service, free from advertisements)
Adverting-Supported to Fee-for-Services Model, “free for many, fee for a few”, e.g., Xdrive, Dropbox, Google Drive
Advertising-Supported to Subscription Model, e.g., Northern Light, search engine for journal articles, annual subscription to large corporate clients
Multiple Changes to Revenue Models, e.g., Encyclopedia Britannica
Mixed model: free online access to summarizes articles BUT full texts are only available to subscribers
Pay Wall: Free access up to a certain limit, fees imposed after a certainl level of usage, e.g., The New York Times
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Md. Mahbubul Alam, PhD

22. Revenue Strategy Issues for Online Businesses
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Md. Mahbubul Alam, PhD

23. Revenue Strategy 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
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Md. Mahbubul Alam, PhD

24. Revenue Strategy (Cont’d.)
Strategic Alliances
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
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Md. Mahbubul Alam, PhD

25. Revenue Strategy (Cont’d.)
Luxury Goods Strategies
Luxury goods are difficult to sell online
Customers have the tendency to see in person or touch
e.g., Lilly Pulitzer, Calvin Klein, Chanel
Blue Nile and Ice.com highly successful online jewelry stores
“No Questions Asked” return policies.
Overstock Sales Strategies
Overstock, products that did not sell as well as hoped.
Web site includes a link to separate sections for overstocks or clearance sales or end-of- season merchandise.
e.g., Lands’ End
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Md. Mahbubul Alam, PhD

26. Creating an Effective Business Presence Online
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Md. Mahbubul Alam, PhD

27. Identifying Web Presence Goals
Objectives
Strategies
Attracting Web site visitors
Include links to the Web site in marketing s
Making the site interesting enough that visitors stay and explore
Product reviews, comparison features, how to use information
Convincing visitors to follow site’s links to obtain information
Clearly labeled links that include a hint of the information to be obtained by following them
Creating an impression consistent with the organization’s desired image
Using established branding elements such as logos, characters used in other advertising media, slogans
Building a trusting relationship with visitors
Ensuring the validity and objectivity of information presented on the site
Reinforcing positive images about the organization
Presenting testimonials, information about awards, links to external reviews,
Encouraging visitors to return to the site
Regularly update the information
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Md. Mahbubul Alam, PhD

28. Making Web Presence Consistent with Brand Image
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
Volkswagen of America site
Accomplishes important functions for the company
Provides links to detailed Volkswagen model information, links to a dealer locator page, links to information about the company, a link to a set of shopping tools
Meets the needs of most visitors quickly and effectively
Volkswagen site enhances company image by providing useful information to customers online
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Md. Mahbubul Alam, PhD

29. Not-for-Profit Organizations
Key goals of Web presence
Image enhancement capability
Central resources for communication
Information dissemination
Successful site key elements
Integrate information dissemination with fund-raising
Provide two-way contact channel
e.g., American Civil Liberties Union (ACLU)
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Md. Mahbubul Alam, PhD

30. Web Site Usability
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Md. Mahbubul Alam, PhD

31. Web Site Usability Current Web presences Improving Web presence
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
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Md. Mahbubul Alam, PhD

32. Web Site Usability (Cont’d.)
Meeting the Needs of Web Site Visitors
Realize every visitor is a potential customer (partner)
Know visitor characteristic variations
Understand that the visitor is at the site for a reason
Varied motivations of Web site visitors
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
Following a link into the site while searching for information about a related product, service, or topic.
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Md. Mahbubul Alam, PhD

33. Web Site Usability (Cont’d.)
Making Web sites accessible
Build interface flexibility options:
Frame use
Text-only version
Selection of smaller graphic images
Specification of streaming media connection type
Choice among information attributes
Goals for business Web sites
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Md. Mahbubul Alam, PhD

34. Web Site Usability (Cont’d.)
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
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Md. Mahbubul Alam, PhD

35. Web Site Usability (Cont’d.)
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
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Md. Mahbubul Alam, PhD

36. Web Site Usability (Cont’d.)
Customer-Centric Web Site Design
Important part of successful electronic business operation
Focus on meeting all site visitors’ needs
Customer-centric approach
Putting customer at center of all site designs
Follow guidelines and recommendations
Make visitors’ Web experiences more efficient, effective, memorable
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Md. Mahbubul Alam, PhD

37. Connecting with Customer using Web
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Md. Mahbubul Alam, PhD

38. The Nature of Communication on the Web
Communication modes
Personal contact (prospecting) model
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
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Md. Mahbubul Alam, PhD

39. Business communication modes
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Md. Mahbubul Alam, PhD

40. Summary Six main Web revenue models
Models work differently
Different business types use different models
Companies change models as they learn more about:
Customers, business environment
Channel conflict and cannibalization challenges
One approach: channel cooperation
Effective Web presence delivers customer value
Web site visitors arrive with a variety of expectations, prior knowledge, skill levels, technology
Web communication fits in between personal contact and mass media
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Md. Mahbubul Alam, PhD

41. Question Please ? Acknowledgement:
“E-Business” by Gary Schneider, International Edition