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

1. Chapter 3:Selling on the Web: Revenue Models and Building a Web PresencePart 1 Electronic Commerce Sixth 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 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 Electronic Commerce, Seventh Edition

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

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

6. Types of businesses using theWeb catalog revenue model

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. • Radio Shack, Best Buy and others had strong retail presences and opened Web sites too. 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 CDnow • Used the Web catalog revenue model Electronic Commerce, Seventh Edition

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

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

11. 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 Electronic Commerce, Seventh Edition

13. DIGITAL CONTENT REVENUE MODELS

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 Library Electronic Commerce, Seventh Edition

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

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.com • WHY??? 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 havesufficient visitors to interest large advertisers • Most successful advertising is targeted using demographic information • Very difficult to determine on the Web Electronic Commerce, Seventh Edition

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

19. Web Portals Information Sites • Attract specific group of visitors to which advertisers can direct specific messages • HowStuffWorks, About.com, Grudge Report • 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, Excite Electronic Commerce, Seventh Edition

20. Advertising-Subscription Mixed Revenue Models

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 Timesand The Wall Street Journal Electronic Commerce, Seventh Edition

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

23. Fee-for-Transaction Revenue Models

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.) Electronic Commerce, Seventh Edition

25. Fee-for-Service Revenue Models

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 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 Electronic Commerce, Seventh Edition

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

29. Subscription to Advertising-Supported model • Microsoft founded its SlatemagazineWeb site • 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 Electronic Commerce, Seventh Edition

30. 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 Electronic Commerce, Seventh Edition

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33. Advertising-Supported to Fee-for-Services Model • XdriveTechnologies • 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 Electronic Commerce, Seventh Edition

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35. Advertising-Supported to Subscription Model • NorthernLight • 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 Electronic Commerce, Seventh Edition

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37. Multiple Transitions • EncyclopædiaBritannica • 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 Electronic Commerce, Seventh Edition

38. Electronic Commerce, Seventh Edition

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. Electronic Commerce, Seventh Edition

40. Revenue Strategy Issues

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 only • 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 Electronic Commerce, Seventh Edition

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