MIS 207: E-Business Lecture 3: E-Business Revenue Models (Book chapter 4)

1. MIS 207: E-BusinessLecture 3: E-Business Revenue Models (Book chapter 4) MdMahbubulAlam, PhD 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 Md. MahbubulAlam, PhD

3. Revenue Model Md. Mahbubul Alam, PhD

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

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

8. Web Catalog Revenue Models (cont’d.) • Personal Touch • Chat Window, stimulate the experience of having a helpful salesperson • ShopTogether (fromDecisionStep), 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 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 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 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) Md. Mahbubul Alam, PhD

12. Three strategies for an advertising-supported revenue model 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) Md. MahbubulAlam, 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 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 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 games • Sales revenue source • Advertising (older concept), pay-to-play for premium games, subscription fees 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 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 e-mail accounts, bakery: free cookies Md. Mahbubul Alam, PhD

19. Changing StrategiesRevenue Models in Transition 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 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) • Advertising-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 certain level of usage, e.g., The New York Times Md. Mahbubul Alam, PhD

22. Revenue Strategy IssuesforOnline Businesses 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 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 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 Md. Mahbubul Alam, PhD

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

27. Identifying Web Presence Goals 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 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) Md. MahbubulAlam, PhD

30. Web Site Usability Md. Mahbubul Alam, PhD

31. 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 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. 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 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 e-mail responsiveness 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 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 Md. Mahbubul Alam, PhD

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

39. Business communication modes 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 Md. Mahbubul Alam, PhD

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