1. E-Business Eighth Edition Chapter 3 Selling on the Web: Revenue Models and Building a Web Presence

2. E-Business, Eighth Edition2 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

3. E-Business, Eighth Edition3 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

4. E-Business, Eighth Edition4 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

5. E-Business, Eighth Edition5 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

6. E-Business, Eighth Edition6

7. 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

8. E-Business, Eighth Edition8

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 E-Business, Eighth Edition9

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 E-Business, Eighth Edition10

11. E-Business, Eighth Edition11 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

12. E-Business, Eighth Edition12 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

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 E-Business, Eighth Edition13

14. E-Business, Eighth Edition14 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

15. E-Business, Eighth Edition15 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

16. E-Business, Eighth Edition16 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)

17. E-Business, Eighth Edition17 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

18. E-Business, Eighth Edition18 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

19. E-Business, Eighth Edition19

20. E-Business, Eighth Edition20 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

21. E-Business, Eighth Edition21 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

22. E-Business, Eighth Edition22 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 –Mixed revenue model variation Free content at online site Requires paid subscription to print magazine Archived article additional charge (over five years old)

23. E-Business, Eighth Edition23 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

24. E-Business, Eighth Edition24 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

25. E-Business, Eighth Edition25 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

26. E-Business, Eighth Edition26

27. E-Business, Eighth Edition27 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

28. E-Business, Eighth Edition28 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)

29. E-Business, Eighth Edition29 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

30. E-Business, Eighth Edition30 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

31. E-Business, Eighth Edition31

32. E-Business, Eighth Edition32 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

33. E-Business, Eighth Edition33 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

34. E-Business, Eighth Edition34

35. E-Business, Eighth Edition35 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)

36. E-Business, Eighth Edition36 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

37. E-Business, Eighth Edition37 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)

38. E-Business, Eighth Edition38 Online Video Copying control –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

39. E-Business, Eighth Edition39 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

40. E-Business, Eighth Edition40 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

41. E-Business, Eighth Edition41 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

42. E-Business, Eighth Edition42 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

43. E-Business, Eighth Edition43 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

44. E-Business, Eighth Edition44 Advertising-Supported to Fee-for- Services Model Xdrive Technologies –Free disk storage Initial revenue source (1999) –Advertising-supported Pages contained advertising Targeted e-mail advertising Did not cover operating costs Now subscription-supported service –Monthly fee dropping Other similar companies (IBackup and Kela)

45. E-Business, Eighth Edition45 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

46. E-Business, Eighth Edition46 Multiple Transitions Encyclopedia Britannica –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

47. E-Business, Eighth Edition47

48. E-Business, Eighth Edition48 Revenue Strategy Issues Implementations issues –Channel conflict and cannibalization –Strategic alliances and channel distribution management –Mobile commerce

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 Site now provides product information –Eddie Bauer Online purchases returnable at retail stores Required compensation and bonus plans adjustments to support Web site E-Business, Eighth Edition49

50. E-Business, Eighth Edition50 Strategic Alliances and Channel Distribution Management Strategic alliance –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)

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 E-mail, telephone, Web access, entertainment services convergence E-Business, Eighth Edition51

52. E-Business, Eighth Edition52 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

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 E-Business, Eighth Edition53

54. E-Business, Eighth Edition54 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

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 E-Business, Eighth Edition55

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 E-Business, Eighth Edition56

57. E-Business, Eighth Edition57

58. E-Business, Eighth Edition58

59. E-Business, Eighth Edition59

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 E-Business, Eighth Edition60

61. E-Business, Eighth Edition61

62. E-Business, Eighth Edition62 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

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 E-Business, Eighth Edition63

64. E-Business, Eighth Edition64 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

65. E-Business, Eighth Edition65 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

66. E-Business, Eighth Edition66 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

67. E-Business, Eighth Edition67

68. E-Business, Eighth Edition68 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

69. E-Business, Eighth Edition69 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 e-mail responsiveness –Unlikely to recover money spent to attract customers

70. E-Business, Eighth Edition70 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

71. E-Business, Eighth Edition71 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

72. E-Business, Eighth Edition72 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

73. E-Business, Eighth Edition73 Connecting with Customers Important element of a corporate Web presence Identify and reach out to customers

74. E-Business, Eighth Edition74 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

75. E-Business, Eighth Edition75

76. E-Business, Eighth Edition76 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