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PPT ch03

  1. 1. Electronic Commerce Eighth Edition Chapter 3Selling on the Web: Revenue Models and Building a Web Presence
  2. 2. Learning ObjectivesIn 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• Creating an effective business presence on the Web• Web site usability• Communicating effectively with customers on the WebElectronic Commerce, Eighth Edition 2
  3. 3. Revenue Models• Web business revenue generating models – Web catalog – Digital content – Advertising-supported – Advertising-subscription mixed – Fee-based• Can work for both sale types – Business-to-consumer (B2C) – Business-to-business (B2B)• Can work with one Web site, separate sites, or separate pagesElectronic Commerce, Eighth Edition 3
  4. 4. Web Catalog Revenue Models• Adapted from traditional catalog-based model – Seller established brand image – Sold through printed information • Mailed to prospective buyers• Web sites expand traditional model – Replace or supplement print catalogs – Offer flexibility • Order through Web site or telephone • Payment though Web site, telephone, or mail• Creates additional sales outletElectronic Commerce, Eighth Edition 4
  5. 5. Web Catalog Revenue Models (cont’d.)• Computers and consumer electronics – Apple, Dell, Gateway, Hewlett-Packard, IBM, Sun Microsystems • Sell full range of products – Dell • Allows product configuration; creates value – Crutchfield and The Sharper Image • Successful mail order expansion includes Web sites – Best Buy, Circuit City, J&R Music World, Radio Shack • Successful retail store presence expansion • Sell same productsElectronic Commerce, Eighth Edition 5
  6. 6. Electronic Commerce, Eighth Edition 6
  7. 7. Web Catalog Revenue Models (cont’d.)• Books, music, and videos – Most visible electronic commerce examples – Web-only retailer • Originally sold only books – Barnes & Noble, Blackwell’s, Books-A-Million, Powell’s Books • Well-established physical book stores – CDnow Web-only online music store – Tower Records, Sam Goody retail stores • Created Web sites to compete with CDnow – CD Universe copied CDnow approachElectronic Commerce, Eighth Edition 7
  8. 8. Electronic Commerce, Eighth Edition 8
  9. 9. Web Catalog Revenue Models (cont’d.)• Luxury goods – Clientele reluctant to buy through Web – Vera Wang and Versace • Web sites provide information • Shopper purchases at physical store • Heavy use of graphics and animation – Evian • Uses flash animation – Tiffany & Co • Graphics and animation require broadband connectionElectronic Commerce, Eighth Edition 9
  10. 10. Web Catalog Revenue Models (cont’d.)• Clothing retailers – Adapt catalog sales model to Web – Display clothing photos • Prices, sizes, colors, tailoring details – Customers examine clothing online • Place orders through Web site – Lands’ End online Web shopping assistance • Lands’ End Live (1999) – Text chat and call-back features – Lands’ End personal shopper agent (more recent) • Learns preferences and makes suggestionsElectronic Commerce, Eighth Edition 10
  11. 11. Web Catalog Revenue Models (cont’d.)• Clothing retailers (cont’d.) – My Virtual Model (customers try clothes) • Graphic image built from customer measurements – Lands’ End • Two shoppers using different computers • Simultaneously browse Web site together – Online overstocks stores • Reaches more people than physical store – Problem with varying computer monitor color settings • Send fabric swatch on request • Offer generous return policiesElectronic Commerce, Eighth Edition 11
  12. 12. Web Catalog Revenue Models (cont’d.)• Flowers and gifts (gift retailers) – 1-800-Flowers • Online extension to successful telephone business • Competes with online-only florists – Godiva • Offers business gift plans – Hickory Farms and Mrs. Fields Cookies • Offer familiar name brands on Web – Harry and David • Original Web site for informational purposes • Promoted catalog business • Added online ordering featureElectronic Commerce, Eighth Edition 12
  13. 13. Web Catalog Revenue Models (cont’d.)• General discounters (completely new businesses) – Buy.Com • Borrowed Wal-Mart and discount club sales model – Many sites sold advertising (originally) • Subsidized extremely low prices • Most sites now out of business – Rely on volume purchasing strategy (now) • Keeps prices low – Fiercely competitive (thin margins: little profits) – Traditional discount retailers • Costco, Kmart, Target, Wal-Mart • Slow to introduce electronic commerce Web sitesElectronic Commerce, Eighth Edition 13
  14. 14. Digital Content Revenue Models• Highly efficient distribution mechanism – Firms own written information or information rights• LexisNexis: variety of information services• traditional research product• ProQuest: sells published documents’ digital copies• Dow Jones newspaper publisher subscriptions – Digitized newspaper, magazine, and journal content• Association for Computer Machinery: digital library• Sellers of adult digital content – Pioneered online credit card payment processingElectronic Commerce, Eighth Edition 14
  15. 15. Advertising-Supported Revenue Models• United States network television – Provides free programming and advertising messages • Supports network operations sufficiently• Site visitor views problem (measuring and charging) – Stickiness • Keeping visitors at site and attracting repeat visitors • Exposed to more advertising in sticky site• Obtaining large advertiser problem – Demographic information • Characteristics set used to group visitorsElectronic Commerce, Eighth Edition 15
  16. 16. Advertising-Supported Revenue Models (cont’d.)• Successful sites attract specific groups –, HowStuffWorks, Drudge Report• Web portals – Yahoo! • First Web directory • Search engine results presented on separate page • Search term triggered advertising – Main portal sites (AOL, Excite, Google, MSN) – Smaller general-interest sites ( • More difficulty attracting advertisers • C-NET (offers items to a specialized group)Electronic Commerce, Eighth Edition 16
  17. 17. Advertising-Supported Revenue Models (cont’d.)• Newspaper publishers – Publish print content on Web – Internet Public Library Online Newspapers page • Links to worldwide newspaper sites – Newspaper’s Web presence • Provides greater exposure and advertising audience • Print edition sales loss (difficult to measure) • Operating costs not covered by advertising revenueElectronic Commerce, Eighth Edition 17
  18. 18. Advertising-Supported Revenue Models (cont’d.)• Targeted classified advertising sites – More successful at generating adverting revenue – Web site profit potential • Specialize in classified advertising – Web employment advertising ( • Web directory and search engine advertising approach • Topics of interest; short articles (increases stickiness) • Monster.comElectronic Commerce, Eighth Edition 18
  19. 19. Electronic Commerce, Eighth Edition 19
  20. 20. Advertising-Supported Revenue Models (cont’d.)• Targeted classified advertising sites (cont’d.) – Used vehicle sites •,, • Accepts paid advertising and charge listing fee • Seller ad options: Web site only, print version inclusion – Dedicated following product sites (VetteFinders) • Caters to small audiences – Product sites useful to buyer after use • Musicians Buy-Line,, The Golf ClassifiedsElectronic Commerce, Eighth Edition 20
  21. 21. Advertising-Subscription Mixed Revenue Models• Subscribers – Pay fee and accept advertising – Typically less advertising • Compared to advertising-supported sites• Web sites offer different degrees of success – The New York Times (today) • Bulk of revenue derived from advertising – The Wall Street Journal (mixed model) • Subscription revenue weighted more heavily – Print edition and online editions • Different model versionsElectronic Commerce, Eighth Edition 21
  22. 22. Advertising-Subscription Mixed Revenue Models (cont’d.)• The Washington Post , Los Angeles Times – Mixed revenue model variation • No subscription fee charges • Current stories free • Pay for archived articles• Business Week – Mixed revenue model variation • Free content at online site • Requires paid subscription to print magazine • Archived article additional charge (over five years old)Electronic Commerce, Eighth Edition 22
  23. 23. Advertising-Subscription Mixed Revenue Models (cont’d.)• ESPN – Leverages brand name from cable television business – Sells advertising, offers free information – Collects Insider subscriber revenue• Consumers Union ( – Subscriptions and charitable donations – Not-for-profit organization • No advertising – Free information • Attracts subscribers and fulfills missionElectronic Commerce, Eighth Edition 23
  24. 24. Fee-for-Transaction Revenue Models• Service fee based on transaction number or size• Web site offers visitor personal service – Formerly, human agents provided service• Value chain – Disintermediation • Intermediary (human agent) removed – Reintermediation • New intermediary (fee-for-transaction Web site) introducedElectronic Commerce, Eighth Edition 24
  25. 25. Fee-for-Transaction Revenue Models (cont’d.)• Travel agents – Receive fee for initiating transaction – Replaced by computers• Online travel agents – Saber system (Travelocity) – Expedia,, Hotel Discount Reservations • All profitable – Orbitz • Five major U.S. airlines consortium • Generates advertising revenueElectronic Commerce, Eighth Edition 25
  26. 26. Electronic Commerce, Eighth Edition 26
  27. 27. Fee-for-Transaction Revenue Models (cont’d.)• Travel agents (cont’d.) – Traditional travel agents being squeezed out • Reduced or eliminated fees – Smaller travel agents specializing (cruises, hotels) – Reintermediation strategy • Travel agents focus on groups – Cruise Web sites •, Cruise Specialists – Group travel Web sites •, WannaSurfElectronic Commerce, Eighth Edition 27
  28. 28. Fee-for-Transaction Revenue Models (cont’d.)• Automobile sales – Web site removes salesperson negotiation • Reduces costs • Provides buyers information service – model • Customers select specific car, site determines price and finds local dealer – and Autobytel model • Site locates local dealers, car sells at small premium over dealer’s nominal cost – Car salesperson disintermediated – Web site: new intermediary (reintermediation)Electronic Commerce, Eighth Edition 28
  29. 29. Fee-for-Transaction Revenue Models (cont’d.)• Stockbrokers – Charge customers trade execution commission – Web-based brokerage firms (E*TRADE and Datek) • Offer investment advice, fast trade execution • Creates competition – Discount brokers and full-line brokers • Web sites opened for stock trading and information • Transaction cost reductions (like online auto buying) • Stockbrokers disintermediatedElectronic Commerce, Eighth Edition 29
  30. 30. Fee-for-Transaction Revenue Models (cont’d.)• Insurance brokers – Quotesmith • Internet policy price quotes direct to public (1996) • Independent insurance agents disintermediated – Insurance policy information, comparisons, sales sites • InsWeb, Answer Financial,, – Progressive Web site • Provides quotes for competitors’ products too – Major insurance company Web sites • Offer information or policies for saleElectronic Commerce, Eighth Edition 30
  31. 31. Electronic Commerce, Eighth Edition 31
  32. 32. Fee-for-Transaction Revenue Models (cont’d.)• Event tickets – Event promoters use Web • Ticketmaster,, TicketWeb • Sell original tickets • Customers reside anywhere worldwide – Secondary market tickets • StubHub, TicketsNow • Operate as brokers • Connect ticket owners with buyers • Reduce transaction costsElectronic Commerce, Eighth Edition 32
  33. 33. Fee-for-Transaction Revenue Models (cont’d.)• Real estate and mortgage loan brokers – Web sites provide all traditional broker services • Coldwell Banker, Prudential – National Association of Realtors Web site • – IndyMac Bank Home Lending • Offers online credit review, decision in minutes, printing approval letter – Successful Web mortgage brokers • Ditech and E-LOANElectronic Commerce, Eighth Edition 33
  34. 34. Electronic Commerce, Eighth Edition 34
  35. 35. Fee-for-Transaction Revenue Models (cont’d.)• Online banking and financial services – No physical product • Easy to offer on Web – Web financial transactions concerns • Trust and reliability of financial institution – Solutions • Use existing bank’s identification and reputation (Citibank Online) • Start online bank not affiliated with existing bank (First Internet Bank of Indiana) • Use different name (Bank One used Wingspan)Electronic Commerce, Eighth Edition 35
  36. 36. Fee-for-Transaction Revenue Models (cont’d.)• Online music – Amazon MP3, Apple’s iTunes, eMusic, Microsoft’s MSN Music, Napster, Rhapsody, Yahoo!, Music Downloads – Sell single songs (tracks) and albums – Sales revenue source • Fee-for-transaction model • Some sites offer subscription plansElectronic Commerce, Eighth Edition 36
  37. 37. Fee-for-Transaction Revenue Models (cont’d.)• Online music (cont’d.) – Problems • Digital products easily copied • Stores promote own music file format • Buyers required to download and install software • Software limits number of audio file copies • Software does not prevent illegal copying – Solution • Adopting one standard file format • No copying restrictions • DRM-free MP3 format (Amazon)Electronic Commerce, Eighth Edition 37
  38. 38. Online Video• Copying control – Use DRM software• Three issues hampering sales – Large file size • Reduced by higher Internet connection speeds – Fear of online sales impairing other sales types • Potential serial release pattern impact – Inability to play on variety of devices • DRM not platform compatibleElectronic Commerce, Eighth Edition 38
  39. 39. Fee-for-Service Revenue Models• Companies offer Web service – Fee based on service value • Not broker service • Not based on transactions-processed number or size• Online games – Sales revenue source • Advertising (older concept) • Pay-to-play premium games • Subscriptions – Frequent player demographics • 40% over age 35Electronic Commerce, Eighth Edition 39
  40. 40. Fee-for-Service Revenue Models (cont’d.)• Professional services – Limited Web use • State laws prohibit extension of practice • Patients may set appointments – Major concern • Patient privacy – Significant barrier • Patient diagnosis difficult without physical examinationElectronic Commerce, Eighth Edition 40
  41. 41. Revenue Models in Transition• Need to change revenue model – When Web users’ needs change• Conditions after 2000 – Funding became scarce • Unprofitable growth phase – Change model or go out of businessElectronic Commerce, Eighth Edition 41
  42. 42. Subscription to Advertising-Supported Model• Slate magazine (e-zine) – Upscale news and current events• Success expectations were high – Experienced writers and editors – Acclaim for incisive reporting and excellent writing• Initial revenue source – Annual subscription • Did not cover operating costs• Now an advertising-supported site – Part of MSN portal • Increases stickinessElectronic Commerce, Eighth Edition 42
  43. 43. Advertising-Supported to Advertising- Subscription Mixed Model• – Acclaim for innovative content• Initial revenue source – Advertising-supported site – Needed additional money to continue operations • Investors did not provide• Now offers optional subscription version – Annual fee for Salon premium • Free of advertising • Downloadable content • Additional contentElectronic Commerce, Eighth Edition 43
  44. 44. Advertising-Supported to Fee-for- Services Model• Xdrive Technologies – Free disk storage• Initial revenue source (1999) – Advertising-supported • Pages contained advertising • Targeted e-mail advertising • Did not cover operating costs• Now subscription-supported service – Monthly fee dropping• Other similar companies (IBackup and Kela)Electronic Commerce, Eighth Edition 44
  45. 45. Advertising-Supported to Subscription Model• Northern Light – Search engine (includes own database) • Results include Web site links and abstracts• Initial revenue source – Combination (advertising-supported and fee-based) • Individual article payment • Search results page advertising – Did not cover operating costs• Now subscription model – Annual, large clientsElectronic Commerce, Eighth Edition 45
  46. 46. Multiple Transitions• Encyclopedia Britannica – Initial Web offerings • Britannica Internet Guide • Encyclopedia Britannica Online• Initial revenue source – Paid subscription site • Low subscription sales – Converted to free advertiser-supported site • Sold educational and scientific products• Returned to mixed model – Subscription plan and free contentElectronic Commerce, Eighth Edition 46
  47. 47. Electronic Commerce, Eighth Edition 47
  48. 48. Revenue Strategy Issues• Implementations issues – Channel conflict and cannibalization – Strategic alliances and channel distribution management – Mobile commerceElectronic Commerce, Eighth Edition 48
  49. 49. Channel Conflict and Cannibalization• Channel conflict (cannibalization) – Company Web site sales activities interfere with existing sales outlets• Retail distribution partner issues – Levis: stopped selling products on company Web site • Site now provides product information – Maytag: incorporated online partners into Web site • Site now provides product information – Eddie Bauer • Online purchases returnable at retail stores • Required compensation and bonus plans adjustments to support Web siteElectronic Commerce, Eighth Edition 49
  50. 50. Strategic Alliances and Channel Distribution Management• Strategic alliance – Two or more companies join forces • Undertake activity over long time period – Joining Web sites with channel distribution management firms• Yodlee – Relationship with portal site clients• – Joined with Target, Borders, CDnow, ToyRUs• Handleman Company – Manages music inventories (Walmart, KMart)Electronic Commerce, Eighth Edition 50
  51. 51. Mobile Commerce• Few companies successful generating significant revenues – NTT’s DoCoMo I-Mode service (Japan cell phone) • Send short messages, play games, obtain weather forecasts – AvantGo (United States) • Offers channels of information as PDA downloads• Mobile commerce: $400 billion by 2012 – Requires larger memory, easier-to-use interfaces, higher screen resolutions • E-mail, telephone, Web access, entertainment services convergenceElectronic Commerce, Eighth Edition 51
  52. 52. Creating an Effective Web Presence• Organization’s presence – Public image conveyed to stakeholders – Usually not important • Until growth reaches significant size – Stakeholders • Customers, suppliers, employees, stockholders, neighbors, general public• Effective Web presence – Critical • Even for smallest and newest Web operating firmsElectronic Commerce, Eighth Edition 52
  53. 53. Identifying Web Presence Goals• Business physical space – Focus on very specific objectives • Not image driven • Must satisfy many business needs • Fails to convey good presence• Web business site intentionally creates distinctive presence• Good Web site design – Provides effective image-creation features – Provides effective image-enhancing features • Serves as sales brochure, product showroom, financial report, employment ad, customer contact pointElectronic Commerce, Eighth Edition 53
  54. 54. Identifying Web Presence Goals (cont’d.)• Making Web presence consistent with brand image – Different firms establish different Web presence goals – Coca Cola pages • Usually include trusted corporate image (Coke bottle) • Traditional position as a trusted classic – Pepsi pages • Usually filled with hyperlinks to activities and product- related promotions • Upstart product favored by younger generationElectronic Commerce, Eighth Edition 54
  55. 55. Achieving Web Presence Goals• Effective site creates attractive presence – Meets business or organization objectives• Objectives – Attract visitors to the Web site – Make site interesting – Convince visitors to follow site’s links – Create impression consistent with organization’s desired image – Build trusting relationship with visitors – Reinforce positive image – Encourage visitors to returnElectronic Commerce, Eighth Edition 55
  56. 56. Achieving Web Presence Goals (cont’d.)• Profit-driven organizations – Toyota • Good example of effective Web presence • Presence consistent with corporate goal – Quaker Oats older Web site • Offered little sense of corporate presence – Quaker Oats current Web site • Much betterElectronic Commerce, Eighth Edition 56
  57. 57. Electronic Commerce, Eighth Edition 57
  58. 58. Electronic Commerce, Eighth Edition 58
  59. 59. Electronic Commerce, Eighth Edition 59
  60. 60. Achieving Web Presence Goals (cont’d.)• Not-for-profit organizations – Web presence effort goals • Image-enhancement capability • Provide information dissemination – Successful site key elements • Integrate information dissemination with fund-raising • Provide two-way contact channel – American Civil Liberties Union (ACLU) • Serves many different constituencies – Political party Web sitesElectronic Commerce, Eighth Edition 60
  61. 61. Electronic Commerce, Eighth Edition 61
  62. 62. Web Site Usability• Current Web presences – Few businesses accomplish all goals – Most fail to provide visitors sufficient interactive contact opportunities – Improve Web presence • Make site accessible to more people • Make site easier to use • Make site encourage visitors’ trust • Develop feelings of loyalty toward organizationElectronic Commerce, Eighth Edition 62
  63. 63. How the Web Is Different• Simple mid-1990s Web sites – Conveyed basic businesses information – No market research conducted• Web objectives achievement failure – Not understanding Web presence-building media• Web objective achievement success – Sites create organization’s presence – Sites contain standard information set • History, objectives, mission, product information, financial information, two-way meaningful communicationElectronic Commerce, Eighth Edition 63
  64. 64. Meeting the Needs of Web Site Visitors• Successful Web businesses: – Realize every visitor is a potential customer (partner)• Crafting Web presence is an important concern – Know visitor characteristic variations• Visitor at site for a reasonElectronic Commerce, Eighth Edition 64
  65. 65. Meeting the Needs of Web Site Visitors (cont’d.)• Web site visitor motivations – Learning about company products or services – Buying products or services – Obtaining warranty, service, repair policy information – Obtaining general company information – Obtaining financial information – Identifying people – Obtaining contact information• Visitors have: – Various needs, experience, expectations, technologyElectronic Commerce, Eighth Edition 65
  66. 66. Meeting the Needs of Web Site Visitors (cont’d.)• Making Web sites accessible – Build interface flexibility • Optional to use frames • Offer text-only version • Option to select smaller graphic images • Option to specify streaming media connection type • Option to choose among information attributes – Controversial Web site design • Animated graphics software use • Some tasks lend themselves to animated Web pagesElectronic Commerce, Eighth Edition 66
  67. 67. Electronic Commerce, Eighth Edition 67
  68. 68. Meeting the Needs of Web Site Visitors (cont’d.)• Making Web sites accessible (cont’d.) – Offer multiple information formats – Web site constructions goals • Offer easily accessible organization facts • Allow different visitor experiences • Provide meaningful, two-way communication link • Sustain visitor attention and encourage return visits • Offer easily accessible information about products, services, and their useElectronic Commerce, Eighth Edition 68
  69. 69. Trust and Loyalty• Creates relationship value• Good service leads to seller trust – Delivery, order handling, help selecting product, after- sale support• Satisfactory service builds customer loyalty• Customer service in electronic commerce sites – Problem • Lack integration between call centers and Web sites • Poor e-mail responsiveness – Unlikely to recover money spent to attract customersElectronic Commerce, Eighth Edition 69
  70. 70. Rating Electronic Commerce Web Sites• Review electronic commerce Web sites – Usability, customer service, other factors – • No longer publishes most scorecards – • Comparison shopping service • Links to low price and good service ratings sitesElectronic Commerce, Eighth Edition 70
  71. 71. Rating Electronic Commerce Web Site (cont’d.)• Usability testing – Helps meet Web site goals – Avoids Web site frustration • Customers leave site without buying anything – Simple site usability changes • Include telephone contact information • Staff a call center – Learn about visitor needs by conducting focus groups – Usability testing cost • Low compared to Web site design costsElectronic Commerce, Eighth Edition 71
  72. 72. Rating Electronic Commerce Web Site (cont’d.)• Customer-centric Web site design – Important part of successful electronic business operation – Focus on meeting all site visitors’ needs – Putting customer at center of all site designs • Follow guidelines and recommendations • Make visitors’ Web experiences more efficient, effective, memorable – Usability • Important element of creating effective Web presenceElectronic Commerce, Eighth Edition 72
  73. 73. Connecting with Customers• Important element of a corporate Web presence• Identify and reach out to customersElectronic Commerce, Eighth Edition 73
  74. 74. Connecting with Customers (cont’d.)• Nature of Web communication – Personal contact (prospecting) • Employees individually search for, qualify, contact potential customers – Mass media • Deliver messages by broadcasting – Addressable media • Advertising efforts directed to known addressee – Internet medium • Occupies central space in medium choice continuumElectronic Commerce, Eighth Edition 74
  75. 75. Electronic Commerce, Eighth Edition 75
  76. 76. Summary• Six main approaches to generate Web revenue – Models work differently – Different business types use different models – Learn more about customers, business environment • Change models• Channel conflict and cannibalization challenges – Form strategic alliances with other companies – Contract with channel distribution managers• B2C mobile commerce not widely successful• Create effective Web presence to deliver value• Must understand Web communicationElectronic Commerce, Eighth Edition 76