Midterm Tuesday October 18th

1. Midterm � Tuesday October 18th Closed book test. During normal class time 30 short questions. (Multiple-choice, short answer, definitions etc) (30 marks) 4 Mini-Essay Questions (20 marks) 8 questions will be provided ahead of time (later this week). 5 of those questions will be on the paper

2. The midterm will cover: Required reading materials listed on the course website (Weeks 1 � 6) Material covered in lectures (your own notes plus the ppt slides) Theoretical material covered in labs (not practical techniques � these will be tested in the lab assignment on November 7th) Review of the mini-essay questions (posted on the course website last week)

3. Internet Business and Revenue Models MGMT 230

4. Internet Business and Revenue Models - after this class you will be able to: Define an internet business / revenue model Explain the main ways in which businesses generate revenue on the Internet Give examples of each of the main Internet business models Explain some of the main problems related to doing business on the Internet

5. What is an Internet business / revenue model? How does a company sustain itself in the long term? that is, generate revenue and profit An Internet business model is the method by which a company plans to make money long term by taking advantage of the unique properties of the Internet. Two types Pure-Play businesses - internet only BAM hybrid - combination of traditional �bricks and mortar� business and internet model Can be either B2B or B2C (or a combination) Ask yourself �where is the money coming from? Firms often have more than one revenue model Source: Electronic Commerce 7th ed. Schneider. Thompson. 2006

6. What kind of businesses are most suited to eCommerce?

7. Major categories of business model � ways of generating revenue Most businesses use a combination of revenue models Categories will vary � some common models (based on Michael Rappa�s taxonomy) Brokerage Advertising Infomediary Merchant Manufacturer(Direct) Affiliate Community Subscription Utility (Net services)

8. Brokerage Model Brokers bring buyers and sellers together by creating markets and facilitating transactions. (B2B, B2C, C2C) Revenue usually comes from fees or commissions charged to either buyers or sellers (or both) for each transaction Examples: auction sites such as eBay (relies on the �network effect�) transaction broker � PayPal

9. Advertising Model: display advertising and search advertising Web site provides content to users at no (or lower) direct cost in exchange for the viewing of, or interacting with, advertising messages of various types. How does Google actually make money? Often used in combination with other models What is the biggest challenge for advertisers?

10. Advertising: classifieds Classifieds � a subset of the advertising model, where typically a listing fee is charged Examples: Monster.com, Craigslist.com This shift of classifieds to the web has threatened which traditional industry?

11. Infomediary Model Businesses that collect and provide information - typically data about user behaviour and preferences that is sold to interested parties Revenues come from sales of data about consumers that they collect by various means Examples: advertising networks such as DoubleClick, and audience measurement and market research agencies such as Nielsen//Netratings

12. Merchant Model Retailers and wholesalers of goods and/or services. Make money from the profit margin on sale of goods or services Very commonly used business method on the internet May be: Pure-play (virtual merchant) eg. Amazon.com BAM hybrid (Click and Mortar) eg. Future Shop Bit vendor - deals in purely digital products (software, music, images, video) eg Steam, iTunes Catalog merchant � eg. Lands� End, MEC

13. Possible problems for merchants operating both online and in B&M stores Problem: Channel conflict or cannibalization. Solution: Web sites provide product information only � no ecommerce capability - directs customers to physical stores eg. Canadian Tire What is the problem with this strategy?

14. Problem: Goods purchased on company website can be returned to physical store (customers like this � retailers don�t) Solution: Channel cooperation: Retail stores are credited with inventory and labor costs for each Web site return they handle. Possible problems for merchants operating both online and in B&M stores (2)

15. Manufacturer (Direct) The manufacturer or "direct model� is based on the power of the web to allow a manufacturer (i.e., a company that creates a product or service) to reach buyers directly This compresses (shortens) the distribution channel. Advantages: efficiency, improved customer service, and a better understanding of customer preferences. eg. Dell

16. Affiliate Model An affiliate get paid for sending customers to other sites � by providing purchase opportunities wherever people may be Pay-for-performance model Incentives offered to third parties to sell from their web sites (no sale, no affiliate commission) The affiliated sites provide a click-through link to the merchant site in exchange for a percentage of revenue Very well suited to the nature of the web Nicholas Carr � Amazon affiliate With widgets, the experience can be very engaging

17. Strategic Alliances When two or more companies join forces to undertake an activity over a long period of time Business activities are complementary rather than competitive Example: Google has partnered with Yellow Pages Group to create Google Local Probably use some form of revenue sharing model

18. Community Model Relies on user loyalty, social networking and user-generated content (UGC) Relies heavily on the �network effect� Users are often also contributors of content and knowledge eg. Music (jamendo.com), book reviews (amazon.com), events listings (mec.ca), photographs (flickr.com), Facebook Free content! Free information about users (market intelligence) Attractive to advertisers Good for not-for-profit ventures eg. wikipedia.org (where does wikipedia�s revenue come from?)

19. Subscription Model Goods or services available by subscription (all you can eat model) Eg. Netflix, Globe and Mail Users are charged a periodic -- daily, monthly or annual -- fee to subscribe to a service. Subscription fees are incurred irrespective of actual usage rates. Subscription and advertising models are frequently combined.

20. �Freemium� It is quite common for sites to combine free content with "premium" (i.e., subscriber- or member-only) content � also called �freemium� Basic service available for free Chris Anderson talking about �Free� (5 minutes) Users of the web site or internet service are charged for �premium� content or service Newspapers, magazines, music, video, games etc, eg Shockwave.com Photosharing on Flickr

21. Utility (Net services) The utility or "on-demand" model is based on metering usage, or a "pay as you go" approach. Unlike subscriber services, metered services are based on actual usage rates. Amazon Web Services (AWS) � �cloud computing� services

22. Revenue Models in Transition Several companies have changed their revenue models � experimenting with mixed-models Advertising-Supported to Advertising-Subscription Mixed Model � eg. Globe and Mail and the Vancouver Sun

23. Multiple Business Model Transitions Encyclopedia Britannica Print publisher to Advertising-Supported model to Advertising-Subscription Mixed Model

24. Business models on the web - recap There are many variants of these models, and each of them relies in some part on the unique properties of the Internet As bandwidth increases and high-speed access becomes the norm in homes and offices, we will see even more opportunity

25. Small group discussion Where does the money come from?