Electronic Commerce Eighth Edition

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Electronic CommerceEighth Edition

• Chapter 3Selling on the Web Revenue Models and
  Building a Web Presence

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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

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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

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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

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Web Catalog Revenue Models (contd.)

• 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, JR Music World, Radio
  Shack
• Successful retail store presence expansion
• Sell same products

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Web Catalog Revenue Models (contd.)

• Books, music, and videos
• Most visible electronic commerce examples
• Amazon.com Web-only retailer
• Originally sold only books
• Barnes Noble, Blackwells, Books-A-Million,
  Powells 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

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Web Catalog Revenue Models (contd.)

• 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

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Web Catalog Revenue Models (contd.)

• 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

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Web Catalog Revenue Models (contd.)

• Clothing retailers (contd.)
• 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

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Web Catalog Revenue Models (contd.)

• 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

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Web Catalog Revenue Models (contd.)

• 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

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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

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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

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Advertising-Supported Revenue Models (contd.)

• 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)

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Advertising-Supported Revenue Models (contd.)

• Newspaper publishers
• Publish print content on Web
• Internet Public Library Online Newspapers page
• Links to worldwide newspaper sites
• Newspapers Web presence
• Provides greater exposure and advertising
  audience
• Print edition sales loss (difficult to measure)
• Operating costs not covered by advertising revenue

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Advertising-Supported Revenue Models (contd.)

• 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

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Advertising-Supported Revenue Models (contd.)

• Targeted classified advertising sites (contd.)
• 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

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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

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Advertising-Subscription Mixed Revenue Models
(contd.)

• 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)

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Advertising-Subscription Mixed Revenue Models
(contd.)

• 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

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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

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Fee-for-Transaction Revenue Models (contd.)

• 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

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Fee-for-Transaction Revenue Models (contd.)

• Travel agents (contd.)
• 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

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Fee-for-Transaction Revenue Models (contd.)

• 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 dealers nominal cost
• Car salesperson disintermediated
• Web site new intermediary (reintermediation)

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Fee-for-Transaction Revenue Models (contd.)

• Stockbrokers
• Charge customers trade execution commission
• Web-based brokerage firms (ETRADE 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

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Fee-for-Transaction Revenue Models (contd.)

• 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

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Fee-for-Transaction Revenue Models (contd.)

• 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

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Fee-for-Transaction Revenue Models (contd.)

• 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

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Fee-for-Transaction Revenue Models (contd.)

• 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 banks 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)

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Fee-for-Transaction Revenue Models (contd.)

• Online music
• Amazon MP3, Apples iTunes, eMusic, Microsofts
  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

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Fee-for-Transaction Revenue Models (contd.)

• Online music (contd.)
• 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)

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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

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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

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Fee-for-Service Revenue Models (contd.)

• 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

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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

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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

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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

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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)

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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

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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

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Revenue Strategy Issues

• Implementations issues
• Channel conflict and cannibalization
• Strategic alliances and channel distribution
  management
• Mobile commerce

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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

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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)

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Mobile Commerce

• Few companies successful generating significant
  revenues
• NTTs 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

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Creating an Effective Web Presence

• Organizations 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

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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

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Identifying Web Presence Goals (contd.)

• 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

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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 sites links
• Create impression consistent with organizations
  desired image
• Build trusting relationship with visitors
• Reinforce positive image
• Encourage visitors to return

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Achieving Web Presence Goals (contd.)

• 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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Achieving Web Presence Goals (contd.)

• 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

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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

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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 organizations presence
• Sites contain standard information set
• History, objectives, mission, product
  information, financial information, two-way
  meaningful communication

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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

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Meeting the Needs of Web Site Visitors (contd.)

• 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

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Meeting the Needs of Web Site Visitors (contd.)

• 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

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Meeting the Needs of Web Site Visitors (contd.)

• Making Web sites accessible (contd.)
• 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

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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

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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

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Rating Electronic Commerce Web Site (contd.)

• 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

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Rating Electronic Commerce Web Site (contd.)

• 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

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Connecting with Customers

• Important element of a corporate Web presence
• Identify and reach out to customers

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Connecting with Customers (contd.)

• 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

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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