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

2. 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

3. 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

4. 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

5. FIGURE 4-1 Combining marketing channels: Two retailer examples
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6. 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

7. 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

8. 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

9. 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

10. 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

11. FIGURE 4-2 Three strategies for an advertising-supported revenue model
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12. 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
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13. 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

14. 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

15. FIGURE 4-3 Revenue models used by online editions of newspapers and magazines
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16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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 accounts, bakery: free cookies
E- Business, Ninth Edition

23. 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

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

25. 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

26. 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

27. 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

28. 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

29. 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
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30. 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

31. 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

32. 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
E- Business, Ninth Edition

33. 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

34. 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