Social Networks, Auctions, and Portals

1. Social Networks,Auctions, and Portals Chapter 11

2. Learning Objectives • Describe the major types of auctions, their benefits and costs, and how they operate • Understand when to use auctions in a business • Recognize the potential for auction abuse and fraud • Describe the major types of Internet portals • Understand the business models of portals • Explain the difference between a traditional social network and an online social network • Understand how a social network differs from a portal • Describe the different types of social networks and online communities and their business models

3. Online Auctions • Online auction sites are among the most popular consumer-to-consumer (C2C) e-commerce sites on the Internet, although the popularity of auctions and their growth rates have slowed in recent years due to customers’ preferences for a “buy-now” fixed-price model • The market leader in C2C auctions is eBay, which has 130 million active users in the US and over 350 million items listed on any given day within 18,000 categories • In the US alone, there are several hundred auction sites, some specializing in unique collectible products, and others have adopting a more generalist approach • Increasingly, established portals and online retail stores – from Yahoo and MSN to JCPenney and Sam’s Club – are adding auctions to their sites

4. Auctions • Auctions are markets in which prices are variable and based on the competition among participants who are buying and selling products (dynamic pricing) • Auctions are useful in situations where the price of an item is not known because it is rare, unique, or subject to wide fluctuations in demand or supply • The purpose of an auction is to identify reservation prices – the lowest price a seller is willing to accept, or the highest price a buying is willing to pay • There are several auction types that each attempt to efficiently identify the participant’s reservation prices

5. Auction Types • Price taking (fixed pricing) • English auction • Dutch auction • Name your own price • Sealed bid • First price • Second price • Double auction

6. Newer Forms of Dynamic Pricing • Trigger pricing • Used in m-commerce, adjusts prices based on the location of the consumer • Utilization pricing • Adjusts prices based on utilization of the product • Personalization pricing • Adjusts prices based on the merchant’s estimate of how much the customer truly values the product

7. Benefits of Auctions • Liquidity • Convert unique items to cash • Price discovery and market efficiency • Efficiently match supply and demand to find market value for an item • Price transparency • Participants can monitor auctions as they occur • Lower transaction costs • Consumer aggregation and network effects • Large auction markets are more valuable to participants

8. Risks and Costs of Auctions for Consumers and Businesses • Delayed consumption costs • Monitoring costs • Can be reduced by watch lists, proxy bidding, etc. • Equipment costs • Trust risks • Fulfillment costs

10. Fraud and Abuse in Online Auctions • Online and offline auction markets are particularly prone to fraud • According to the Internet Crime Complaint Center (IC3), Internet auction fraud was one of the top 10 types of fraud, but in 2012 it represented only 10% of total Internet fraud because other Internet crimes had grown so rapidly

11. E-Commerce Portals • Portals are the most frequently visited sites on the Web if only because they typically are the first page to which many users point their browser on startup • The top portals such as Yahoo, MSN, and AOL have hundreds of millions of unique visitors worldwide each month • Web portals are gateways to the more than 100 billion Web pages available on the Internet • Millions of users have set Facebook a their home page, choosing to start their sessions with news from friends • Perhaps the most important service provided by portals is that of helping people find the information they are looking for on the Web

12. E-Commerce Portals (cont.) • Early portals were primarily search engines, but portals have evolved into much more complex websites that provide news, entertainment, maps, images, social networks, in-depth information, and education • Portals today seek to be a sticky destination site, not merely a gateway through which visitors pass • Portals also serve important functions within a business or organization • Enterprise portals help employees or members navigate to important content, such as HR information, corporate news, or organizational announcements • blueView is an enterprise portal

15. Portal Value • Because the value of portals to advertisers and content owners is largely a function of the size of the audience each portal reaches, and the length of time visitors stay on the site, portals compete with one another on reach and unique visitors • Reach is defined as the percentage of the Web audience that visits the site in a month • Unique visitors is defined as the number of uniquely identified individuals who visit in a month • Portals are inevitably subject to the network effect • How does this affect their business strategy?

17. Social Networks and Online Communities (Past) • From the beginning, the Internet was intended to be a community-building technology that would allow scientists to share data, knowledge, and opinions in a real-time online environment • The early online communities involved a relatively small number of Internet aficionados, and users with intense interests in technology, politics, literature, and ideas • The technology was largely limited to posting text messages on bulletin boards sponsored by the community, and one-to-one or sending one-to-many e-mails

18. Social Networks and Online Communities (Present) • By 2002, the nature of online communities had begun to change • User-created blogs became inexpensive and easy to set up without any technical expertise • Photo sites enabled convenient sharing of photos • Beginning in 2007, the growth of mobile devices enabled sharing of riche media such as photos, music, and videos • Suddenly there was a much wider audience for sharing interests and activities, and much more to share

19. Social Networks and Online Communities (Present) • A new culture emerged as well • Online communities broadened to include a much wider set of people and tastes, especially pre-teen, teens, and college students who were the fastest to adopt many of these new technologies • The new social network culture is very personal and “me” centered, displaying photos and broadcasting personal activities, interests, hobbies, and relationships on social network profiles • Today’s social networks are as much a sociological phenomenon as they are a technology phenomenon • Currently, social network participation is one of the most common usages of the Internet (about two-thirds of all Internet users in the US, 163 million people)

20. What is an online social network? • Social networks involve: • A group of people • Shared social interaction • Common ties among members • People who share an area for some period of time • Online social networks are a variation of traditional social networks facilitated by the Internet with some differing characteristics including the removal of geographic and time limitations

23. The Future of Social Networks • Social networking in 2013 is one of the most popular online activities • Will it stay that way or grow even more popular? • Will the industry become more concentrated (Facebook increasing their market share), or become less concentrated? • Many young users report “network fatigue” • The financial future of social networks is to become advertising and sales platforms, but they are not yet proven advertising platforms that drive sales • The relationship between “like” and sales is not clear yet • As social networks attempt to monetize their huge audiences, user resentment grows • Use of users private information also creates feelings of betrayal and fear