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E-Commerce. Marketing and E-Commerce subject at the International Master in Industrial Management.
Guest speaker: Francisco Hernández Marcos
Universidad Politécnica de Madrid
Politecnico di Milano
Kungliga Tekniska högskolan

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  1. 1. E-CommerceMarketing and E-CommerceInternational Master in Industrial ManagementFrancisco Hernández Marcosfran.meMadrid, 19th January 2012
  2. 2. About me SHAMELESS SELF-PROMOTIONEducation:Universidad Politécnica de Madrid, UNED, LondonBusiness School, University of ChicagoFirms I worked for full-time :Abengoa, McKinsey&Co, ABN AMRO, Real Madrid C.F.Entrepreneurship: CrisaliaConsulting requests (Social Media & Internet):francisco_hernandez@11goals.comFull profile:linkedin.com/in/franciscohm
  3. 3. Agenda  Introduction  Market analysis  E-Comm website features  E-Business models  M-Commerce
  4. 4. Definition of E-Commerce “Electronic commerce, commonly known as e-commerce, ecommerce or e-comm, refers to the buying and selling of products or services over electronic systems such as the Internet and other computer networks. However, the term may refer to more than just buying and selling products online. It also includes the entire online process of developing, marketing, selling, delivering, servicing and paying for products and services.” We will focus on the InternetSource: Wikipedia
  5. 5. E-Commerce timeline Netscape browser & 1st Internet purchase (netmarket.com) “Dot Com” Amazon buys Online shopping burst Zappos.com concept 1st Browser Amazon ->Diapers.com Alibaba.com eBay -> GSI Commerce CERN 1984 1995 2010 1979 1990 1994 1998 2000 2009 2011 1st Electronic Mall Amazon.com Groupon rejects CompuServe eBay.com Google offer Highly-funded startups Small-funded startups Tech&Concept development (KSF: Tech) (KSF: Biz Model) Jeff Bezos: “I am more worried about 2 guys in a garage than about Barnes&Noble ”
  6. 6. Types of E-Commerce/E-Business1 of 2  Not easy to classify  Many real models fall into multiple categories B2B B2C B2G Business to Business Business to Consumer Business to Government •PayPal (and B2C, “B2B2C”) •Amazon “E-Procurement” •Optize (and B2C) •FreshDirect •Alibaba Group •Zynga (and C2C) C2B C2C C2G Consumer to Business Consumer to Consumer Citizen to Government •Zonzoo •Prosper (“P2P”) •Agencia Tributaria (Tax agency •Fotolia •eBay online) •Google Adsense •Facebook G2B G2C G2G Government to Business Government to Citizen Government to Government “E-Government” “E-Government” •Government Gateway •AEPM •eDNI •Schengen Information System •Certificado Digital •USA.gov (also G2B)
  7. 7. Types of E-Commerce2 of 2 B2E Non-Internet “Business 2 Employee” E-Commerce Social Mobile Commerce Commerce Social Mobile Commerce
  8. 8. Agenda  Introduction  Market analysis  E-Comm website features  E-Business models  M-Commerce
  9. 9. Global and European online population About one fourth of World’s population is onlineSource: Internet Retailer, Forrester Research , comScore
  10. 10. E-Commerce takes off in a country when broadbandbecomes widely available. Total number of broadband subscribers Broadband subscribers added in Q2 2011 Millions MillionsSource: Point Topic Ltd., World Broadband Statistics: Short Report Q2 2011
  11. 11. Who buys online? In the U.S. people of about all ages buy onlineSource: Internet Retailer, Forrester Research
  12. 12. E-Commerce sales are very large and grow strongly 19%Source: Internet Retailer, Goldman Sachs
  13. 13. Where are the largest E-Commerce markets? E-Commerce sales by region % of online consumers who in 2010 made a web purchase in 2009Source: Internet Retailer, Goldman Sachs, Forrester Research
  14. 14. What markets are expected to grow more?E-retail sales CAGR U.S.A. EU 17 Brazil 10% 10% 18% In 2015 it would account 11% of retail sales in the USASource: Internet Retailer, Forrester ResearchGAGR= Compounded Annual Growth Rate
  15. 15. Who are the top E-Commerce players?Source: Internet Retailer , comScore
  16. 16. How do E-Comm companies perform?Source: Internet Retailer
  17. 17. Agenda  Introduction  Market analysis  E-Comm website features  E-Business models  M-Commerce
  18. 18. Frontend E-Commerce features 1. Catalogue navigation (categories, 10.Payment system tags, etc.) 11.Integrated Shipping & Tracking 2. Search engine (box, advanced) system 3. Ratings & Reviews 12.Customer accounts 4. Recommendations & Referrals 13.SEO friendly 5. Up-selling & Cross-selling 14.Social Media integration 6. Whish list & Purchase-later list 15.Customer service (Live chat, 7. Shopping cart automatic robot, etc.) 8. Gift certificates 16.Forums & Communities 9. Checkout 17.….
  19. 19. E-Commerce is more than the act of buying online,it’s the whole system of information andreputation, which makes it a highly social activity Social ShoppingSource: Internet Retailer, Forrester Research
  20. 20. Agenda  Introduction  Market analysis  E-Comm website features  E-Business models  M-Commerce
  21. 21. Two key questions when doing E-Business How do I make money from my website? How can I market my website? (Online MKT, day 2; Social MKT, day 3)
  22. 22. Business models on the web (Professor Michael Rappa)Page 1 of 2 1. Brokerage: 3. Infomediary: • Marketplace Exchange [Orbitz, ChemConnect] • Advertising Networks [DoubleClick] • Buy/Sell Fulfillment [CarsDirect, Respond.com] • Audience Measurement Services [Nielsen//Netratings] • Demand Collection System [Priceline.com] • Incentive Marketing [Coolsavings] • Auction Broker [eBay] • Metamediary [Edmunds] • Transaction Broker [PayPal, Escrow.com] • Distributor 4. Merchant: • Search Agent • Virtual Merchant [Amazon.com] • Virtual Marketplace [Amazon.com] • Catalog Merchant [Lands End] • Click and Mortar [Barnes & Noble] 2. Advertising: • Bit Vendor [Apple iTunes Music Store] • Portal [Yahoo!] • Classifieds [Monster.com, Craigslist] 5. Manufacturer (Direct): • User Registration [NYTimes] • Purchase [Dell Computer] • Query-based Paid Placement [Google, Overture] • Lease • Contextual Advertising / Behavioral Marketing • License • Content-Targeted Advertising [Google] • Brand Integrated Content • Intromercials [CBS MarketWatch] • Ultramercials [Salon]Source: Michael Rappa, http://digitalenterprise.org/models/models.html
  23. 23. Business models on the web (Professor Michael Rappa)Page 2 of 2 6. Affiliate: • Banner Exchange • Pay-per-click Check out detailed • Revenue Sharing descriptions here 7. Community: • Open Source [Red Hat] • Open Content [Wikipedia] • Classifying is difficult, on Internet is • Public Broadcasting [The Classical Station (WCPE.org)] even more difficult. • Social Networking Services [Flickr, Friendster, Orkut] • Some companies fall into multiple categories. Real business companies 8. Subscription: can have traits of several models. • Content Services [Listen.com, Netflix] • Person-to-Person Networking Services [Classmates] • Trust Services [Truste] • Internet Services Providers [America Online] 9. Utility: • Metered Usage • Metered Subscriptions [Slashdot]Source: Michael Rappa, http://digitalenterprise.org/models/models.html
  24. 24. Amazon.comVirtual Merchant / Marketplace / Bit vendor • Founded: 1994 as a “Long tail ”concept • Revenue model: margin/fee on seller • Sales (2010): ~USD 34 billion (#1 E-retailer) • Books → CDs → All types of physical goods → Amazon Web Services → eBooks (Kindle) • 8 regional websites • Heavy investment in CRM (ej. Recommendation system). • First profit year in 2003 • Evolved from reseller into E- Commerce platform (like e-Bay’s) • Heavy acquirer: CD Now, Joyo.com, Zappos (USD 1.2 bill.), Diapers (USD 550 mill.), BuyVIP (EUR 70 mill), etc. www.amazon.com
  25. 25. Long-Tail business concept ILUSTRATIVE“Selling many marginal products in small quantities ”The sum can be much higher than the sum of few top-selling products, and nobrick-and-mortar shop can offer such a broad catalogue on their shelves. Q Top sellers HEAD → Brick-and-mortar sellers’ focus Weird products TAIL Products A market in itself + a way to attract a customer at some point of time
  26. 26. Weirdest items sold on Amazon Uranium Ore Wolf Urine Dagobert Wooden Toilet Throne Fat replica demonstration models
  27. 27. Amazon’s performance, comparedSource: Internet Retailer
  28. 28. eBay.comAuction Broker / Virtual Marketplace • Founded: 1995 as “2-sided auction network” concept • Revenue model: fee on seller • Sales (2010): ~USD 9 billion • 37 regional websites (integrated and not integrated) • Heavy investment in fraud detection. • PR for cheap, smart marketing • Evolved from individual’s auction site into biz E- Commerce platform (like Amazon’s) • Heavy acquirer: PayPal (USD 1.6 bill.), Skype (USD 2.6 bill.), BillMeLater (USD 1.2 bill.), GSI Commerce (USD 2.4 bill.) etc. www.ebay.com
  29. 29. iTunes Store & App StoreBit vendor (Merchant), Virtual Marketplace • Launched in 2003 (iTunes) and 2008 (App) based on a hardware&software, closed ecosystem (iPod, iPhone, iPad, iTV?) • Revenue model: fee on content sales • Music → Podcasts → TV Shows → Movies (rent&buy) → Games → Apps → Books • Ping in 2010 • iCloud in 2011 • iTunes: • ~20 mill. songs (10 bill. songs sold) • ~3.000 TV shows • ~2.500 movies • AppStore: • >500.000 apps (<140.000 for iPad) • ~74% paid apps (70% for author) • >18 bill. downloads
  30. 30. SpotifySubscription → Freemium • Founded in 2006 in Sweden as a music streaming service. • “Open Music Model” • Revenue model: Ads + subscription – fee to content providers based on usage • 15 mill. songs • Available in 13 countries (USA in 2011) • Social playlists • 2011: Close integration with new Facebook social APIs • Desktop → Mobile www.spotify.com
  31. 31. SpotifySubscription → Freemium In the past there was also a 1-day pass (unlimited for 24 hours)Source: http://www.spotify.com/se/get-spotify/overview/
  32. 32. Freemium model ILUSTRATIVEVenture Capital favourite’s modelFREEMIUM = FREE + PREMIUM“Attract audience with free versions of the product, introduce them to paying with affordable versions of the product, and monetize them with premium versions of the product” Examples: FREE •Spotify: •Free: Listen with ads •Cheap: 1 day pass/Unlimited •Premium: monthly subscription •Social games: •Free: Play •Cheap/Premium: Virtual goods CHEAP •Most Open-Source Software (Affordable) •Free: base software •Cheap: modules, extensions PREMIUM •Premium: professional services •Adult content
  33. 33. Is this Freemium? • Free: 2 Paragraphs • Premium: rest of the article • “Coitus-interruptus user experience” is not good for the user nor for the brand. • Smartest Freemium models do not compromise between user experience and monetizing. Otherwise you may stop attracting users, and therefore monetizing them. • Every time you think there is such a tradeoff, test, retest, and retest again the model with a sample of users before implementing it. www.wsj.com
  34. 34. ExpediaTravel agent • Founded in 1996 as a Microsoft division. • Expedia Inc. operates Expedia.com, Hotels.com & Hotwire.com • More than 60 countries, 1000s affiliates • Revenue model: margin on sales • Revenue: ~ USD 3.3 bill./yr • Largest online travel agent www.expedia.com
  35. 35. Plenty Of FishInfomediary / Advertising • Founded in Canada by Markus Frind and girlfriend in 2003 as a free online dating website • “free version” of Match.com, Meetic • Revenue model: advertising • >38 mill. registered users • ~3,000 mill. pageviews/month • Estimated revenue: > USD 10 mill /yr www.pof.com
  36. 36. easyJet, "The Webs Favourite Airline"Manufacturer (Direct) • Founded in 1995 after European skies became partially liberalized. • 1998: First to implement online real time booking in Europe • ~99% of booking is online • ~55 mill. Passenger/year • It took only 6 months in Europe for Low- Cost carriers to penetrate in the market because of Internet, while in the USA it took 10 years in the 70s because they had to convince brick-and-mortar travel agents. www.easyjet.com
  37. 37. Vente PriveeGroup buying – Private shopping club • Founded in France in 2001, invented the model which was later going to be followed by copycat websites. • Brands at discount prices (up to 70%), for a limited period of time. • First it served to sell season leftovers. Later it is used as a low cost marketing model for branded goods. • Revenue model: margin on sales. • Negative financial working capital. • ~13 mill. members in Europe • Revenues: ~ EUR 970 mill. (2010) www.vente-privee.com
  38. 38. Groupon www.groupon.comGroup buying – Deal coupons • Founded in 2008 in Chicago • City-based deals-of-the-day, by daily email to members. • Revenue model: margin on coupon’s value • 500 markets in 44 countries • 85 mill. subscribers • Rejected USD 6 bill. offer from Google • >500 copycats, including Google offers. Groupon sort of well protected itself. • Revenues: USD 760 mill. • IPO in Nov 2011 (5% float on NASDAQ) • Value: ~ USD 12 bill. • Value proposition to providers: client acquisition through aggressive discount. • Retailers: Use with caution!
  39. 39. Farmville | Zynga www.zynga.comCommunity • Zynga was founded in San Francisco in 2007 by serial entrepreneur Mark Pincus • 232 mill. monthly active users • Revenue model: virtual goods • Revenue: USD 600 mill. (2010) • Main games: Farmville, Frontierville, Zynga Poker, Castleville, Mafia Wars, etc. • IPO: Dec 2011 (14% float on NASDAQ) • Value: ~ USD 6 bill.
  40. 40. Virtual goods Virtual Goods Market 2011: USA: USD 2.2 bill. (+38%) China: USD 6.8 bill. (+32%) Virtual gifts Game decoration Avatars 0,00 – 3,99 $ 2.500 pts. 100,00 $ (5,00 $) • Identification • Identification • Socialise • Self-Expression • Self-Expression • Interact • Thank Virtual collections Game functionality Game energy 5-20 coins 5000 coins 175 cafe cash (0,50-2,00 $) (? $) (0,03 $) • Self-Expression • Time-Saving • Time-Saving • Improved game Each virtual good has an specific utility for the users
  41. 41. Monetizing a social game [on Facebook] ILUSTRATIVE No Ads Revenues Advertising (10%) Few Ads Many Ads Virtual goods (90%) Virtual goods buyers 100% Users try the Sporadic Frequent players 1-3 % game players Key success factors • Ads. • Critical player • Improved game • Usefulness of Freemium again! base based on virtual goods. • Virality analytics and (harder on • Game user tests. FB). concept. • Cross • Growth promotion. speed.Source: “Inside Virtual Goods. The future of social gaming 2010”; Facebook Inc; insidefacebook.com;
  42. 42. SkypeUtility – Metered usage and subscription + Freemium • Founded in 2003 by Swedish and Danish partners, as a P2P VoIP service provider. • Headquartered in Luxembourg, developed in Estonia. • Freemium (Free service is mainly computer-to-computer calls and videoconferencing). • Revenue model: pay for premium service (e.g. call to telephone); subscription for extra features (e.g. multi-person videoconference, telephone number, business console, etc.). • >650 mill. registered users. • 13% of international calls • Revenues: ~USD 800 mill./yr. • TelCOs accuse Skype of piggybacking. • 2005: eBay buys for USD 2.6-3.1 bill. Piggybacking? • 2011: Microsoft buys for USD 8.5 bill. www.skype.com
  43. 43. The 6 dimensions to social commerce success accordingto SyzygySocial Commerce : Sharing your purchase experience before, during, and after buying. •Twitter.com/Dell •Groupon •My Starbucks Idea SCARCITY •Blendetc Less is more (perceived value) •Vente-privee.com •Twitter.com/Dell AFFINITY CONSISTENCY Shop with like- One step at a time minded people •Adidas Social Coupons AUTHORITY •Starbucks @ 4S Follow the leader RECIPROCITY Payback favours (experts) POPULARITY Follow the crowd •Vente-privee.com •Apple Expert Forums •Facebook.com/1800flowersSource: The 6 Dimensions of Social Commerce - Mark Ellis, Syzygy
  44. 44. Agenda  Introduction  Market analysis  E-Comm website features  E-Business models  M-Commerce
  45. 45. Some interesting data about mobile and e-commerce % of mobile phone users who regularly use Main mobile shopping activities (U.S.A.) the mobile web Type of products purchased over mobile Reasons why consumers buy on Mobile (U.S.A.) Internet (U.S.A.)Source: Internet Retailer, Pew Research Center, comScore
  46. 46. Smartphones taking over 700.000 Android activations/day ~ 200.000 iPhones/day > 40 mill. iPadsSource: Internet Retailer, Pew Research Center, comScore, The Nielsen Co., Yankee Group Research
  47. 47. M-Commerce taking-off right now in the USA In 2015 it would account more than 10% of E-CommSource: Internet Retailer, eMarketer, Forrester Research
  48. 48. Key questions about M-Commerce • Will it really take off as projected? Faster? Slower? • Mobile payments development: revenue models, M-wallet, etc. • Programming & browsing standards: HTML5… • Adaptation of website business models? (App versions of a website) • New business models? Based on GPS, accelerometer, touch screen, etc. • Social M-Commerce? Will Foursquare monetize? • Any examples? Information services, Tickets, Banking, Media, Physical goods (Amazon)
  49. 49. Agenda  Introduction  Market analysis  E-Comm website features  E-Business models  M-Commerce
  50. 50. Today’s main takeaways ¶ E-Commerce, E-Business… difficult to define and classify. Do not waste much time in figure-out where your model fits. ¶ 17-year history but still growing strong, now specially on emerging markets (broadband penetration, purchasing power), but maybe on mobile channels soon. ¶ E-Commerce is an intrinsically social activity. It evolved to the social space even before the social media phenomenon started. ¶ Generic types of business models on the web. ¶ Technology not a problem anymore; success is many times driven by innovative business models, sometimes easily copycatted if one does not protect oneself. ¶ 6 dimensions to social E-Commerce success. ¶ Takes time to refine an innovative business model. Test and error based on analytics is the best way to refine a model. Be patient, imaginative, and analytical. ¶ Long tail concept ¶ Freemium concept ¶ “Piggyback” concept
  51. 51. Thanks!Francisco Hernández Marcosfran.me@franciscohm