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

2. Electronic Commerce, Seventh Edition 2 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

3. Electronic Commerce, Seventh Edition 3 Objectives (continued) Creating an effective business presence on the Web Web site usability Communicating effectively with customers on the Web

4. REVENUE MODELS How do e-commerce sites make money? $$$ Web Catalog Digital Content Advertising-Supported Advertising-Subscription mixed Fee-for-transaction Fee-for-service

5. Electronic Commerce, Seventh Edition 5 CATALOG REVENUE MODEL Mail order or catalog model –Proven to be successful for a wide variety of consumer items First catalogs: Montgomery Ward, SearsMontgomery WardSears Web catalog revenue model –Taking the catalog model to the Web

6. Types of businesses using the Web catalog revenue model

7. Electronic Commerce, Seventh Edition 7 Computers and Consumer Electronics Apple, Dell, Gateway, and Sun Microsystems have had great success selling on the Web –Dell created value by designing its entire business around offering a high degree of configuration flexibility to its customers Crutchfield and The Sharper Image expanded their successful mail order catalog to include Web sites.The Sharper Image Radio ShackRadio Shack, Best Buy and others had strong retail presences and opened Web sites too.

8. Electronic Commerce, Seventh Edition 8 Books, Music, and Videos Retailers use the Web catalog model to sell books, music, and videos –Among the most visible examples of electronic commerce Jeff Bezos –Formed Amazon.com Jason and Matthew Olim –Formed an online music store they called CDnowCDnow –Used the Web catalog revenue model

9. Electronic Commerce, Seventh Edition 9 Luxury Goods People are still reluctant to buy luxury goods through a Web siteluxury goods Web sites of Vera Wang and VersaceVera Wang –Constructed to provide information to shoppers, not to generate revenue Web site of EvianEvian –Designed for a select, affluent group of customers

10. Electronic Commerce, Seventh Edition 10 Clothing Retailers Clothing Retailers Lands’ End –Pioneered the idea of online Web shopping assistance with its Lands’ End Live feature in 1999Lands’ End Live Personal shopper –Intelligent agent program that learns customer’s preferences and makes suggestions Virtual model –Graphic image built from customer measurements

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12. Electronic Commerce, Seventh Edition 12 Flowers and Gifts 1-800-Flowers –Created an online extension to its telephone order business Chocolatier Godiva –Offers business gift plans on its site General Discounters Web-based deep discounters – Buy.com –Usually run on thin margins due to fierce competition Kmart, Wal-Mart, Costco – were slow to introduce e- commerce on their Web sites

13. DIGITAL CONTENT REVENUE MODELS

14. Electronic Commerce, Seventh Edition 14 DIGITAL CONTENT REVENUE MODELS Firms that own intellectual property have embraced the Web as a new and highly efficient distribution mechanism –Some charge hundreds or thousands $/yr to break even due to low number of subscribers –Lexis.com Provides full-text search of court cases, laws, patent databases, and tax regulations –ProQuest Sells digital copies of published documents –ACM Digital LibraryACM Digital Library

15. ADVERTISING-SUPPORTED REVENUE MODELS Used by US Broadcasters (TV and Radio stations) provide free programming to an audience along with advertising messages

16. Electronic Commerce, Seventh Edition 16 ADVERTISING-SUPPORTED REVENUE MODELS Advertising Revenue Statistics: 1994-1998 – grew from $0 to $ 2 billion 2000-2002 – flat or declining 2003- now – growing, but a lower rate –Recent statistics ClickZ.comClickZ.com WHY???

17. Electronic Commerce, Seventh Edition 17 ADVERTISING-SUPPORTED REVENUE MODELS Success of Web advertising is held back by –No consensus on how to measure and charge for site visitor views Stickiness of a Web site: the ability to keep visitors and attract repeat visitors –Very few Web sites have sufficient visitors to interest large advertisers Most successful advertising is targeted using demographic information –Very difficult to determine on the Web

18. Types of Web sites using ADVERTISING-SUPPORTED REVENUE MODELS

19. Electronic Commerce, Seventh Edition 19 Web Portals Portal or Web portal –Site used as a launching point to enter the Web –Almost always includes a Web directory and search engine –Examples: Yahoo!, AOL, AltaVista, ExciteExcite Information Sites Attract specific group of visitors to which advertisers can direct specific messages –HowStuffWorks, About.com, Grudge ReportHowStuffWorks

20. Advertising-Subscription Mixed Revenue Models

21. Electronic Commerce, Seventh Edition 21 Advertising-Subscription Mixed Revenue Models Subscribers –Pay a fee and accept some level of advertising –Typically are subjected to much less advertising Used by –The New York Times and The Wall Street JournalThe New York Times

22. Electronic Commerce, Seventh Edition 22 Advertising-Subscription Mixed Revenue Models (continued) Business Week –Offers some free content at its Business Week online site –Requires visitors to buy a subscription to the Business Week print magazine Business Week

23. Fee-for-Transaction Revenue Models

24. Electronic Commerce, Seventh Edition 24 Fee-for-Transaction Revenue Models Businesses offer services and charge a fee based on the number or size of transactions processed –Intermediary is removed here (disintermediation) –Web site becomes a new intermediary (reintermediation) Examples: –Travel Agents (Cheaptickets, Expedia, Travelocity, Priceline…) –Online Music (iTunes, MSN Music, Napster, RealPlayer Music Store, Walmart.com Music Downloads, Sony’s Connect, etc. –Automobile Sales (CarsDirect.com, MSN Autos, Autobytel, etc.) –Stockbrokers (E*Trade, Ameritrade, Charles Schwab) –Event Tickets (Ticketmaster, etc.)

25. Fee-for-Service Revenue Models

26. Electronic Commerce, Seventh Edition 26 Fee-for-Service Revenue Models Fee based on the value of a service provided Services range from games and entertainment to financial advice Online games (users spent over $10 billion/year in US) –Growing number of sites include premium games in their offerings –Site visitors must pay to play these premium games (subscriptions or purchase) Station.com by Sony, MSN Zone.com

27. Electronic Commerce, Seventh Edition 27 Fee-for-Service Revenue Models (continued) Concerts and films –As more households obtain broadband access to the Internet, companies are providing streaming video of concerts and films to paying subscribers RealOne SuperPass, Movielink, etc. Professional Services –State laws are one of the main forces preventing U.S. professionals from extending their practices to the Web (lawyers, accountants, physicians, engineers, etc.) HIPA Law

28. Revenue Models in Transition 5 examples of companies that faced changes in their revenue models

29. Electronic Commerce, Seventh Edition 29 Subscription to Advertising-Supported model Microsoft founded its Slate magazine Web siteSlate –An upscale news and current events publication –Charged an annual subscription fee after a limited free introductory period –Was unable to draw sufficient number of paid subscribers –Now operated as an advertising-supported site

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31. Electronic Commerce, Seventh Edition 31 Advertising-Supported to Advertising-Subscription Mixed Model Salon.com –Operated for several years as an advertising- supported site –Now offers an optional subscription version of its site –Subscription offering was motivated by the company’s inability to raise additional money from investors

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33. Electronic Commerce, Seventh Edition 33 Advertising-Supported to Fee-for- Services Model Xdrive Technologies –Opened its original advertising-supported Web site in 1999 –Offered free disk storage space online to users –After two years, it was unable to pay the costs of providing the service with the advertising revenue generated –Later switched to a subscription-supported model

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35. Electronic Commerce, Seventh Edition 35 Advertising-Supported to Subscription Model Northern Light –Founded in August 1997 as a search engine with a twist –Revenue model Combination of advertising-supported model plus a fee-based information access service –January 2002 Converted to a new revenue model that was primarily subscription supported

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37. Electronic Commerce, Seventh Edition 37 Multiple Transitions Encyclopædia Britannica –Original offerings The Britannica Internet Guide –Free Web navigation aid Encyclopædia Britannica Online –Available for a subscription fee or as part of a CD package –1999 Converted to a free, advertiser-supported site –2001 Returned to a mixed model

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39. Local web sites (Puerto Rico) Visit each web site on the list and browse it Identify which revenue model or models the web site uses at the moment. Explain why do you think so. Would you like to do business with this e- commerce site? Explain. Submit a double-spaced report. Make sure you include the complete URL of the site visited. 39 Electronic Commerce, Seventh Edition

40. Revenue Strategy Issues

41. Electronic Commerce, Seventh Edition 41 Revenue Strategy Issues Channel conflict or cannibalization –Occurs whenever sales activities on a company’s Web site interfere with existing sales outlets –Levi’s Web site now offers product info onlyLevi’s Web site –Maytag stopped from selling on their Web site Channel cooperation –Giving customers access to the company’s products through a coordinated presence in all distribution channels

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43. Electronic Commerce, Seventh Edition 43 Strategic Alliances Strategic alliance –When two or more companies join forces to undertake an activity over a long period of time Amazon Amazon is a great example –Look for partners at the bottom of the Home page