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

1. Chapter 3:Selling on the Web: Revenue Models and Building a Web Presence

2. Revenue Models Question: How do we generate revenue?? • Web catalog revenue model • Taking the successful mail order catalog model to the Web • Examples • Dell • Amazon • Lands’ End • 1-800-Flowers

3. Digital Content Revenue Models • Firms that own intellectual property have embraced the Web as a new and highly efficient distribution mechanism • Lexis.com • Provides full-text search of court cases, laws, patent databases, and tax regulations • ProQuest • Sells digital copies of published documents

4. Advertising-Supported Revenue Models • Broadcasters provide free programming to an audience along with advertising messages • Success of Web advertising is hampered 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

5. Web Portals • Web directory • A listing of hyperlinks to Web pages • 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!, Google • Exercise • Go to several portals – Yahoo, Google, AOL, CNN etc. • What are the similarities and differences in the homepage? • Which do you rate as the most effective?

6. Advertising-Subscription Mixed Revenue Models • Subscribers pay a fee and accept some level of advertising • Typically are subjected to much less advertising • This model is used by The New York Times (somewhat) and The Wall Street Journal

7. Fee-for-Transaction Revenue Models • Businesses offer services and charge a fee based on the number or size of transactions processed • Disintermediation • Removal of an intermediary from a value chain • Reintermediation • Introduction of a new intermediary

8. Digression: Infomediaries and Cybermedaries: A continuing role for mediating players in the electronic marketplace • How will Internet affect intermediaries • Disintermediation?? • Create new intermediaries?? • Argument for disintermediation: • Manufacturers will internalize activities traditionally performed by intermediaries Sarkar, M. B., Butler, B.A., and Steinfield, C. (1996), Journal Computer Mediated Communication, 1:3

9. Infomediaries and Cybermedaries Transaction Cost Theory (Coase 1937) • Examples: • search and information costs • bargaining and decision costs • policing and enforcement costs • When should a transaction be carried out within the firm or in the market? • Transactions are integrated when the internal cost of exchange is less than the external cost of exchange. • Hierarchical structure – market coordination costs predominate • Market-like relationship w/ external firms – networks reduce transaction costs

10. Week 2: Infomediaries and Cybermedaries Possible Transactions Between Producers, Consumers, and Intermediaries, where P = Producer, C = Consumer, I = Intermediary, and T1, T2, and T3 = Transaction costs • View 1: Internet will reduce transactions costs to 0 • Problematic • Implies networked organization w/ more rather than fewer intermediaries • Suppose T1’= T2’ = T3’ = T* a theoretical minimum • Before T1 > T2 + T3 implies an intermediary • Now: T1’ < T2’ + T3’ implies no intermediary • Question: Is T* the same for all transactions?

11. Infomediaries and Cybermedaries Consumer advantages Search and evaluation Needs assessment and product matching Customer risk management Product distribution Producer advantages Product information dissemination Purchase influence Provision of customer information Producer risk management Transaction economies of scale Intermediaries balance consumer and producer needs

12. Infomediaries and Cybermedaries

13. Infomediaries and Cybermedaries Social and Subjective factors for intermediaries: • Firm may be unable to impose producer-centric structure on its markets • Consumers may choose to use intermediaries because they represent multiple producers • Benefits of social interaction and entertainment • Consumers may inhibit producers form abandoning traditional and on-line intermediaries who serve their needs

14. Fee-for-Service Revenue Models Fee is based on the value of a service provided Services range from games and entertainment to financial advice Online games Growing number of sites include premium games in their offerings Site visitors must pay to play these premium games Examples? Experiences? Concerts and films As more households obtain broadband access to the Internet, companies provide streaming video of concerts & films to paying subscribers Professional services State laws are one of the main forces preventing U.S. professionals from extending their practices to the Web Why??

15. Revenue Models in Transition • Subscription to advertising-supported model • Microsoft founded its Slate magazineWeb site • An upscale news and current events publication • Charged an annual subscription fee after a limited free introductory period • Was unable to draw a sufficient number of paid subscribers • Now operated as an advertising-supported site

16. 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

17. 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 it generated • Later it switched to a subscription-supported model

18. 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

19. Multiple Transitions • Encyclopædia Britannica • Original offerings included: • 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 • Go to site -- http://www.britannica.com/ • Impressions? Why use the vs. Wikipedia?

20. Revenue Strategy Issues Channel conflict Occurs whenever sales activities on a company’s Web site interfere with existing sales outlets Also called cannibalization Examples? Channel cooperation Giving customers access to the company’s products through a coordinated presence in all distribution channels Exercise Go to a Web site of a physical store and see if you can identify examples of channel cooperation. Examples?

21. Strategic Alliances and Channel Distribution Management • Strategic alliance • When two or more companies join forces to undertake an activity over a long period of time • Account aggregation services • Increase the propensity of customers to return to a site • Channel distribution managers • Companies that take over the responsibility for a particular product line within a retail store

22. Creating an Effective Web Presence • An organization’s presence is the public image it conveys to its stakeholders • Stakeholders of a firm include customers, suppliers, employees, stockholders, neighbors, and the general public

23. Achieving Web Presence Goals Objectives of the business include: Attracting visitors to the Web site Making the site interesting enough that visitors stay and explore Convincing visitors to follow the site’s links to obtain information Objectives of the business include: Creating an impression consistent with the organization’s desired image Building a trusting relationship with visitors Reinforcing positive images that the visitor might already have about the organization Encouraging visitors to return to the site

24. Profit-Driven Organizations The Toyota site is a good example of an effective Web presence It provides links to: Detailed information about each vehicle model A dealer locator page Information about the company and the financing services it offers

25. Profit-Driven Organizations (continued) The Quaker Oats Web site does not offer a particularly strong sense of corporate presence Site is a straightforward presentation of links to information about the firm Redesigned site is essentially the same as the previous version but graphically more appealing

27. Not-for-Profit Organizations • Key goal for the Web sites of not-for-profit organizations is information dissemination • Key element on any successful electronic commerce Web site is the combination of information dissemination and a two-way contact channel • Exercise • Go to the Web site of a not-for-profit organization • Does it disseminate information • How – if at all – does it differ from other Web sites you have visited

28. Web Site Usability Motivations of Web site visitors include: Learning about products or services that the company offers Buying products or services that the company offers Obtaining information about warranty, service, or repair policies for products they purchased Obtaining general information about the company or organization Motivations of Web site visitors include: Obtaining financial information for making an investment or credit granting decision Identifying the people who manage the company or organization Obtaining contact information for a person or department in the organization

29. Making Web Sites Accessible • Designers should -- • Build flexibility into the Web site’s interface • Let visitors choose among information attributes • Offer multiple information formats by including links to files in those formats • Goals that should be met when constructing Web sites: • Offer easily accessible facts about the organization • Allow visitors to experience the site in different ways and at different levels • Sustain visitor attention and encourage return visits • Offer easily accessible information

30. Trust and Loyalty • A 5 percent increase in customer loyalty can yield profit increases between 25% and 80% • Repetition of satisfactory service can build customer loyalty • Customer service is a problem for many electronic commerce sites • Why is this so? • Example of site with good customer service? • Examples with bad customer service?

31. Usability Testing • Companies that have done usability tests • Conduct focus groups • Watch how different customers navigate through a series of Web site test designs • Cost of usability testing is low compared to the total cost of a Web site design or overhaul

32. Customer-Centric Web Site Design Put the customer at the center of all site designs Guidelines: Design the site around how visitors will navigate the links Allow visitors to access information quickly Avoid using inflated marketing statements Guidelines: Avoid using business jargon and terms that visitors might not understand Be consistent in use of design features and colors Make sure navigation controls are clearly labeled Test text visibility on smaller monitors Conduct usability tests

33. Connecting With Customers Personal contact model Firm’s employees individually search for, qualify, and contact potential customers Prospecting Personal contact approach to identifying and reaching customers Mass mediaapproach Firms prepare advertising and promotional materials about the firm and its products Addressable media Advertising efforts are directed to a known addressee Also called mass media One-to-many communication model Communication flows from one advertiser to many potential buyers One-to-one communication model Both buyer and seller participate in information exchange

34. Exercise: Web Site design RATE THE SITES Webby Goal that web sites should meet: Company 1 Company 2 Company 3 Company 4 Winner 1. Offer easily accessible facts about he organization 2. Allow visitors to experience the site in different ways at different levels 3. Provide visitors with a meaningful, two-way interactive communication link with the organization 4. Sustain visitor attention and encourage return visits 5. Offer easily accessible information about products & services and how to use them • Page 149 of the text includes a list of things that Web sites can do to meet the needs of visitors. Find three Web sites that meet three or more of the needs in the table below. On a 10 point scale (10 highest) rate how well each site meets the need. You may use the Webby Awards site as a starting point in your search but use other sites besides the Webby winner in your category.

35. Summary Models used to generate revenue on the Web include: Web catalog Digital content sales Advertising-supported Advertising-subscription mixed Fee-for-transaction and fee-for-service Companies undertaking electronic commerce initiatives sometimes: Form strategic alliances Contract with channel distribution managers Firms must understand how the Web differs from other media Enlisting the help of users when building test versions of the Web site is a good way to create a site that represents the organization well Firms must also understand the nature of communication on the Web