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SimplySeven Workshop_General Assembly_ Dreamstake

  1. 1. SimplySeven Dr. Niko WaescheNot for distribution - Personal copy only for participants of the workshop.SimplySeven - Seven Ways to Create a Sustainable Internet BusinessWorkshop at General Assembly, London, 19.02.12Who buys what and how.
  2. 2. SimplySeven Dr. Niko WaescheBusiness models are not the most important thing in your business,but it makes sense to systematically look at them all.Creating a sustainable internet business“SimplySeven.”•  Seven models – a finite number, but far more than most internet entrepreneurs and managers consider for their business.•  “Who buys what and how.”•  Business models are a deep part of customer experience.“Evolution, not revolution.”•  It is about systematically evaluating all the options, continually.•  War stories and business model design… Measurement, experimentation and continuous development along seven paths.Never forget “People Power.”•  “Free” means to give back and cherish the contribution of the users.>> Today’s workshop: Discuss, protest, complain, participate << Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  3. 3. SimplySeven Dr. Niko WaescheSimplySeven is the product of many joint brainstorming sessionsby an entrepreneur, an academic and an investor.SimplySeven authorsThe Entrepreneur Jörg Rheinboldt: Founder of eBay Germany, Founder internet design company, Co-Initiator and Board, Founder M-10, active angel and entrepreneur.The Marketing Professor Erik Schlie: Associate Dean and Professor of Marketing and General Management and Associate Dean of MBA Programs at IE Business School, Madrid.The Investor Niko Waesche: Founder GMPVC, media for equity investment pool. Previously Partner at global tech firm, VP at US VC fund, angel in Alando (acquired by eBay), Triphunter (acquired by Brands4Friends), Dealvertise and Previous book: “Internet Entrepreneurship in Europe.” Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  4. 4. SimplySeven Dr. Niko WaescheOne reason why SimplySeven framework is useful is that it’sfinite, people like models they understand from real world.Introducing the (finite) SimplySeven# Model Description Flagship Common mistake1 Services A onetime charge for a service Skype Not being able to scale provided directly2 Subscription Collecting a recurring payment Blizzard/ Believing that people like to stream from your customers Thomson be held captive Reuters3 Retail Selling real goods in an Treating online like offline internet shop4 Commission Taking a cut on a transaction eBay Thinking your clients won’t between a buyer and a seller deal behind your back5 Advertising Collecting a fee for an Google Invading peoples screen advertisement or referral space or their privacy.6 Licence Selling digital goods in an Apple Going it alone sales internet shop7 Financial risk Making money with financial Emerging, too Ignoring additional risks such management risk positions. early as fraud and regulators. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  5. 5. SimplySeven Dr. Niko Waesche While the seven basic business models have remained, but the rate of evolution within these models is astonishing. Types of business models and their rapid evolution Ideo USWeb (1991) Kabel (1995) iXL new New (1996) Denkwerk Skillberry Skype Gazelle Services Razorfish Media Lava (1998) (2001) (2003) (2007) Pixelpark (2004) (1996) (1991) (1994) Linden Blizzard AOL Celera Jamba Lab 2nd Spotify Subscription (1985) (1998) (2000) WOW Life Xing (2008) Bloomber (2000) (2003) (2003) g (1981) Doc Vente Amazon Priveé Retail ABC (1994) (1998) Morris (2000) (2004) Telebuch Stumbleu MySpace (1992) craigslist pon (2003) MyVideo Netscape (1995) Google (2002) LinkedIn YouTube (2006) Advertising (1994) m (1997) (1998) (2002) (2005) Twitter Facebook Friends (2005) PayPal Alando Commis- (2005) United eBay (1998) (1999) sion Smaava Plastic Groupon Commissions (1995) eLance LastMinut Questico (2000) Junction (2005) Jungle (2007/08) (1998) e (1998) (2000) (2004) (2006) Macro- Microsoft media Blizzard RealPlay (1975) Oracle Intershop iTunes License Sales (1996) Ent er Store AppsStor Adobe (1977) (1997) (2003) (1991) (2004) e (2006) (1982) Party- ING Prosper.c Financial Risk Direct Gaming Weather- om(2006) Management (1997) (2000) bill (2006)Source: Internet research 1995 2001 Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  6. 6. SimplySeven Dr. Niko Waesche As an entrepreneur, you need five things to get started (courtesy of Guy Kawasaki). The right business model is important – but it is definitely not everything This is what entrepreneurs Make meaning should do 80% of 1 (Something that inspires you, not the idea to make their time… 2 Make mantra money or gain power) (Guidance for your company – every day) 3 Get going (You should always be selling, not Define your strategizing about selling) 4 business model (You must know how you will make money, but you don’t need to be original) Project management skills are important for 5 Weave a MAT survival in every single (Define milestones, This is the core of the workshop. career – I don’t know assumptions, tasks) Be able to identify and analyze any exception. business models continually helps you make the right choicesSource: Guy Kawasaki, “The Art of the Start,” 2004, pages 3 -26. in a changing world. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  7. 7. SimplySeven Dr. Niko WaescheSuccess in digital business depends on mixing the right cocktailcontaining business model, skills, finance and organization.Getting the cocktail right Fit with skill set? Fit with location of company? What skills do you have? Which skills do Is the organization Maturity of business model? you need to source effective? Do you have to Financing from cash Barriers to entry? Growth externally? How do you reinvent the wheel each flow? Expansion opportunities? Positioning in upgrade your skills? time? Are you scalable? constraints? value chain? Can you plug new hires in Involvement with easily? Ability to financiers? internationalize? Organization Financing Resources and model Business Model and skills processes Competition Customers Partners Are my competitors Do I have the most demanding customers Am I dependent on my helping me to define my in the world? Are my customers resilient partners? Are they market? Or are they to mistakes? Is my customer base dependent on me? eating my lunch? growing? Can my customer afford me? What is the legal framework? Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  8. 8. SimplySeven Dr. Niko WaescheEvery company has its own approach to business success factors.Here, the 37Signals way, as presented in the book “Rework.”An “intentionally small company” making software for small companies and threemillion people Start a business, not a Good enough is fine startup Do it yourself first Hire when it hurts Don’t be a hero Why grow? Building to flip is building to flop Forget about formal Meetings are toxicOutside money is Plan Z education Send people home at five Organization Financing Resources and model Business Model and skills processes Competition Customers Partners Don’t copy Say no by default Welcome obscurity Out teach the competition Build an audience Press releases are spam Underdo the competition Go behind the scenes Start at the epicenter Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  9. 9. SimplySeven Dr. Niko Waesche“Europeans – in particular Germans - don’t innovate, they canonly clone.”The myths and truths of the internet clone machines!  One of the most common criticisms about Europe – in particular Germany - is that no original internet companies exist, only clones.!  Indeed, there have been some spectacular clone stories from the very beginning, for example, eBay clones:   QXL (UK, Poland), Alando (Germany), Ricardo (Germany)   And many, many more…!  This continues today, with Groupon acquiring CityDeal and Google buying DailyDeal in Germany.!  There are several “clone factories,” started by successful serial entrepreneurs: Rocket Internet, Project A Ventures, Team Europe Ventures, White Bear Yards, Rheingau Ventures, FoundFair... They would never call themselves “clone factories.”!  These companies are actually offering “internationalization oursourcing” to US companies. Rocket Interet for Groupon, Springstar for AirBnB.!  However, people also claimed the Japanese could only copy in the 60s and 70s, then they invented the Walkman, without which there would be no iPod.!  Talent and capabilities are being built up in these environments… school for many entrepreneurs.!  Some very unique global internet successes come out of Europe today: SoundCloud, Vente Privee, Research Gate,, Statista, Betterplace, Transferwise… and many more. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  10. 10. SimplySeven Dr. Niko WaescheService Sales Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  11. 11. SimplySeven Dr. Niko WaescheServices sales is a straightforward model – a companyproviding a one-off and direct service over the web.Definition of services sales!  Very straightforward - you can set up a services business on the web tomorrow.!  Services sales have two main characteristics: They are one-off and direct.   One-off means they aren’t subscriptions, for example, through which a service is bought over a longer period of time.   Example: Tax tax return services. Offshore tax return services were the most thought provoking case cited in Thomas Friedman’s 2005 bestseller “The World is Flat.”   Example 2: 23andMe, technology pioneer Esther Dyson’s genome service founded in 2006.   Direct means that services are sold directly by the company or person providing the service. They can be brokered by an agent – but they are using a different business model.!  One of the first internet service businesses was to create web sites for businesses – the interactive agencies.   Much of this business was marketed over the web, but sold in Web-based human translation service person. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  12. 12. SimplySeven Dr. Niko WaescheIt is important to differentiate Services Sales from the ad orcommissions business models.Definition of services sales!  It is important to understand the differences to End customer for what agents and intermediaries do. translation, plumbing!  Agents help sell services too; as aggregators they service create marketplaces connecting providers to buyers of services. Agents make money through the advertising or commissions business Aggegator models… examples ate eLance, Craigslist or (Craigslist, Groupon. They are scalable. eLance, oDesk…)!  On the back of these aggregators, services are Services Sales sold. Services make up a huge part of some economies, for example, 70% of the US economy. Translator or plumber!  Service sales are made by the service provider selling her/ his directly, this can be to an end customer or through service over the an aggregator. internet Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  13. 13. SimplySeven Dr. Niko WaescheMaturity: What did not work initially was the sale of a substantialquantity of e-services over the internet - apart from agency work.The re-invention of eLance!  eLance was founded in 1998 and initially financed in the Dot Com boom with US$60m as an „eBay for outsourcing.“!  It survived the years after 2001 selling B2B software to manage subcontractors for large companies such as American Express, BP, FedEx and GE.!  It sold this software to Click Commerce to refocus on the orginal vision – create a marketplace for freelance projects.!  The services business model applies to the freelancers, whereas eLance or oDesk takes a commission.!  Groupon works in a similar way, matching demand with localized services offers such as Whalewatching. Most of these are offline services, but they don‘t have to be.!  With new initiatives such as Groupon and mobile commerce, the sale of services over the internet will be increased in the next years. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  14. 14. SimplySeven Dr. Niko WaescheCompanies in the “re-commerce” segment buy used media orgoods from consumers and re-sell them for a profit.Services Sales example “Re-commerce”!  Gazelle buys back used electronics.!  SecondSpin buys used media.!  These companies exist because it takes a lot of effort for consumers to sell items on eBay.!  They have inventory risk and require working capital.!  From the Gazelle web site: “To date, more than 100,000 consumers have used the service as a way to clean out closets, get cash and help out a good cause. In addition, Gazelle empowers consumers to avoid time consuming and risky online experiences associated with peer-to-peer selling.“ Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  15. 15. SimplySeven Dr. Niko WaescheOften a problem model, however. Not scalable, high customeracquisition costs and very little lock in.Despite efforts by the agencies, there are few truly scalable services companies!  Yes, services sales are much more straightforward than subscriptions or agent-based models.!  The business model poses several problems, however: It is not recurring, it is not scalable and it does not benefit from aggregation.!  Services sales only makes sense if one or more of these criteria apply: 1.  It is scalable 2.  Customer acquisition costs are low 3.  Customers are somehow “locked in” and keep coming back.!  The communications service Skype manages to tick all these boxes. It is the most successful service sales internet company we know. Its main business model is charging for call services into fixed lines or mobiles. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  16. 16. SimplySeven Dr. Niko WaescheFrom the very beginning, Skype’s scalability was based onthe power of peer-to-peer. It did not have a business model.The search for a business model!  Skype took more than a year to get any funding. 20 different venture capital funds refused to invest in 2003. Mangrove in Luxembourg was one of the few to see the potential.!  It did not help that the founding team was notorious for having founded Kazaa – and was being sued.!  Skype used peer-to-peer technologies for voice over IP. This meant that it could scale massively.!  In fact, Skype proved later that it could add 150,000 new users each day without spending anything on new hardware or connectivity (“The meaning of free speech,” The Economist, 15.09.2005).!  This also meant that Skype had a very low break even point. And it could be a massive threat to the telecommunications industry if it got the technology right.!  It did not have a business model yet, only an idea (which was bad on top of it for this company): “Maybe advertising.” Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  17. 17. SimplySeven Dr. Niko WaescheThe ability to massively scale and virally grow saved Skype: Itdid not need a great business model, just a good enough one.Skype has a severe impact on the telecommunications industry!  The impact of Skype on the telecommunications industry cannot be overstated. Skype has over 500m user accounts. 13% of all long distance phone calls in 2009 were made with Skype, a whopping 54bn minutes, according to the telecommunications analysis company TeleGeography. This makes Skype the largest long distance phone carrier in the world, by far (“International Phone Traffic Growth Slows, while Skype Accelerates,” TeleGeography Press Release, 19.01.2010).!  While internet communication is free, Skype charges for calls to mobiles or fixed lines. There is a subscription, too, but Skype made most of its $551m in 2008 revenue through pre-paid phone credits (“Investor Group to Acquire Majority Stake in Skype,” Skype press release, Menlo Park, CA, 01.09.2009). This is the services sales model.!  Skype has so many users and such a low cost base, that it can afford to make money on only 5% or less of its calls with a basically very challenged business model (one time and not recurring). Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  18. 18. SimplySeven Dr. Niko WaescheA comparison of AT&T and Skype shows that AT&T actuallycannot compete with Skype with its current structure.Snapshot from 2007: Real world vs. the internet AT&T SkypeAge 122 years 4 yearsRevenue $119 billion $382 millionNumber of customers 14 million broadband, 276 million registered 70 million mobile usersEmployees 309,000 700Revenue/ employee $385,000 $546,000Customers/ employee 272 394,286 Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  19. 19. SimplySeven Dr. Niko WaescheSubscriptions Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  20. 20. SimplySeven Dr. Niko WaescheSubscriptions are the heaviest weapon in the arsenal. It is likeasking people if they like to be chained to a wall.A simple sanity check!  Sales people hate subscriptions because they are such a tough sell.!  There normally only is one person who really likes subscriptions: The CFO. In contrast to other business models, subscription creates a constant and predictable revenue stream for the company.!  Potential subscribers actually think deeply about predictability. A simple sanity check is made by most people before signing up: With what certainty will I use the service how many times during the subscription period to justify the price? 1.  Necessity: Utilities, mobile phone services or internet access fit into this category. If there is competition, these services quickyl become a commodity with rock bottom pricing. 2.  Unmatched attractiveness. The service has to be so compelling and one-of-a-kind that your customers will do anything for it, even sign up for a subscription.!  If you happen to offer such a truly compelling service, then you have lucked out. Not only can you offer premium prices, you may actually want to charge more just to underline your status as an exclusive service Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  21. 21. SimplySeven Dr. Niko WaescheIt is difficult to stay in the top box, it is a position manycompanies will envy.Justifications for subscriptions!  It is very hard to hold the premium position forever. Some services move into commodity and were premium previously.!  If services are only a necessity and not compelling or one-of-a-kind they become a commodity…. Rock bottom pricing.!  Although the subscription business model insures some sustainability and is thus loved by CFOs, services are not immune to becoming a commodity and thus loosing value.!  This is what happened to AOL. These services have turned Psychologically, people who want to into commodities. Little subscribe to a unique service differentiation means low usually justify this as being margins. necessary. This box is uninhabited. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  22. 22. SimplySeven Dr. Niko WaescheAn interesting psychological fact is that people whosubscribe to a compelling service also feel it is necessary.Selling subscriptions with the Apple iPhone!  Remember the greyed out box – unique but not necessary. This box is uninhabited.!  Psychologically, people who want to subscribe to a unique service usually justify their subscription as being necessary.!  Some services, such as a golf club membership or an iPhone subscription, however, are not necessities, but when asked, people will say they are. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  23. 23. SimplySeven Dr. Niko WaescheThe subscription model is one of the oldest in the onlinebusiness – it began its life as premium access provision.The beginnings of the subscription model and competition with the ISPs!  Compuserve (founded 1969) was one of the first providers of online access for private businesses.!  AOL was started in 1985.!  Since the 1990s, there was tension between the online service providers and ISPs, or internet service providers.   Online services tried to provide premium services – exclusive forums, AOL Time Warner had content, games – to its users and were late to offer direct internet to conduct a goodwill access. write off resulting in a   ISPs were low-cost providers which offered only internet access - where 2002 loss of $99bn due to the AOL the user-created content was. acquisition.!  The high value of Compuserve and AOL (leading to AOL Finally, in 2009, AOL acquiring Time Warner) was based on the elusive belief in was spun off from Time Warner - as a exclusive content and the sustainability of the subscription shadow of ist former existence. business model. Source: “Kill AOL” number plate found on the internet. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  24. 24. SimplySeven Dr. Niko Waesche Truly exclusive content is very, very difficult to find. Subscription companies discovered that providing exclusive access was the key. Lessons of the survivors of the subscription business model !  Financial Times ( successfully offers a tiered access model with some free and some subscription content – but to a specialist audience. !  Companies such as Bloomberg and Reuters do the same. They need to keep investing to offer timely information specially prepared for investment professionals. !  What keeps financial customers on these services is the understanding that their competitors are using the same information sources. !  In fact, most brokers have both screens from Reuters and Bloomberg! !  It is not really exclusive content – all the content exists elsewhere almost real time as well – but Reuters screen for financial professionals. exclusive access to a place where your You are competing against the market – so competitors are. you need to access the same information place as all other market players have.Source: Reuters Knowledge 2.5. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  25. 25. SimplySeven Dr. Niko Waesche Here come the MMORPGs. Just when all thought subscription was dead, it was reinvented again. The boom of Massively Multiplayer Online Role-Playing Games (MMORPGs) !  About 10m people worldwide play MMORPGs. !  The boom of subscription-based multiplayer online games is not obvious…   There were free multiplayer environments in the internet from the very beginning. The first (text based) Multi-User Domain, MUD, dates from 1978.   There are many licensed games you can put on your computer and you need to pay only once. !  The first graphical MMORPG actually ran on AOL from 1991 to 1997 and cost US$6 per hour. It was too expensive. !  It was the combination of other game participants with the premium content of licensed games that resulted in the rebirth of the subscription model. !  Kids wanted to be in the place where their friends (and competitors) were. Exclusive access with premium content was the key. Heavy guidance and a game objective with your friends online – not user created content - is the !  The model is very similar to, Bloomberg secret of World of Warcraft (WoW). 7m customers and Reuters… the customer wants to be in the play WoW globally. It is the most popular same place as his or her friends and enemies. MMORPG with a market share of over 50%.Image: World of Warcraft, Developer: Blizzard Entertainment, Publisher: Vivendi Universal. Source: Wikipedia entry. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  26. 26. SimplySeven Dr. Niko WaescheThe zombie business model subscription is back: Spotify ischallenging Apple’s licence sales model for music.Music subscription web sites!  After being forsaken as a business model for most internet companies, subscription is back.!  Apple has revolutionised music on the internet by successfully establishing their iTunes store in combination with their hardware iPod sales.!  New contenders such as Spotify, however, are offering “all you can eat” music services based on Spotify on the web and mobile phones advertising and exclusive member subscriptions. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  27. 27. SimplySeven Dr. Niko Waesche The subscription model seemed dead… user created content was better and “free…” The subscription business model developed the “bouncer principle” Access to doctors as (1) People exclusive content need to be where the competition (3) Health The “bouncer is in services principle:” Some financial Software as First experiments The dream of services started to services such as exclusive content Hellohealth participation and exclusive understand that charge a exclusive access to interactivity content a virtual “place” subscription (2) Gaming rate for was more companies doctor (4) Software as successful than understand access a Service trying to develop that kids companies such exclusive content. want to as share their experience use subscription (4) Music successfully services (1m Bouncer principle to such as subscribers) make content more Grooveshark attractive and SpotifyImage of bouncer: Not for commercial use. introducing subscriptions Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  28. 28. SimplySeven Dr. Niko WaescheRetail Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  29. 29. SimplySeven Dr. Niko Waesche The early online pioneers looked for retail categories that could be sold better on the internet than in a shop. Books were ideal. Only a small proportion of books can ever be in a shop !  ABC Bücherdienst – founded in 1992 in Germany on BTX “*TELEBUCH#” - featured 700.000 books in its online database, 200.000 could be sent within 24 hours of ordering. !  Even though the price of books was fixed in Germany, the sheer size of the database as well as free postal service over a purchase price of DM80 made the offering competitive against conventional retail shops. !  Amazon was founded two years after ABC Bücherdienst by Jeff Bezos, an employee of a hedge fund who had researched the different business models of internet ventures. Books seemed perfect because of the impossibility to carry a large book stock in a retail store. !  The average Borders bookstore in the US carries 100.000 titles. Jeff Bezos founded Amazon with the vision of offering a million books. !  Other successful online retail examples exist as well: DocMorris founded an online pharmacy in Holland for the German market, thus bypassing strict German pharmacy regulation.Amazon example: Chris Anderson, „The Long Tail. The New Economics of Culture and Commerce,“ Random House, 2006, p. 48. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  30. 30. SimplySeven Dr. Niko WaescheInternet retail seems straightforward. But there is a lot towatch out for.Internet retail is anything but easy!  At first, internet retail seems straightforward. It is about selling your own inventory in an internet shop. These are real things we can touch. There are a multitude of shops on the internet selling almost everything one can imagine.!  It is far less fancy than its closest relative, digital license sales, because it does not require formats, interfaces or devices.!  However, selling in an internet shop is anything but easy. Retail knowledge is not necessarily sufficient. There are a multitude of aspects which need to be considered unique to internet selling. Some retail categories require detailed In some retail categories, information about items on the web site or return rates can be 70% or even customer service involvement. higher. Discovery of Completion Discovery of Engagement Return of shop on the of check out Shipment item in shop with the item item to shop internet processExposing content directly to Google Process flow in internet retail from customer perspective Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  31. 31. SimplySeven Dr. Niko Waesche Retail start-ups failed if they did not focus systematically on the right product categories, costs and fulfillment. was the most spectacular retail flop ever - RIP May 18, 2000 !  Started by a Swedish model and friends, backed by the luxury goods company LVMH and throwing fantastic parties all over the world. !  The spectacular flop of showed how sexy the internet economy could be – by celebrating it’s own rise and fall. Its story “capture[s] all the fever, glamour and broken dreams of the era” (Malmsten). ! famously spent its way through $120 million during its frequent delays and brief existence from 1998 to 2000. !  The web site actually was online for only half a year. !  A very high number of products returned by the customer… a service that was offered for free, but charged for by their logistics supplier Deutsche Post. founders Patrik Hedelin, Kajsa !  Tristan Louis, Interim CTO of “Boo was the first company to Leander and Ernst launch from the ground up in multiple countries from day one. This Malmsten represented a set of challenges that were previously unaddressed, ranging from technology challenges to more traditional issues in generating a global burned brand. While I was working for Boo, I was in charge of developing the back- through a huge sum of end fulfillment system, a platform that allowed us to handle multiple money making every currencies, multiple languages, on the fly tax calculation, and integration with possible internet retail multiple fulfillment partners.” mistake in the bookTristan Louis‘ web site:; Ernst Malmsten, Erik Portanger, Charles Drazin, „Boo Hoo,“ Random House, 2001, p. vii. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  32. 32. SimplySeven Dr. Niko Waesche Despite its scale advantages, Amazon is systematically reducing inventory cost and risk by allowing Third Parties to sell over the web site. Shifting warehouse costs and risk to suppliers and distributors !  For some of its inventory, Amazon introduced its “Marketplace” program for “ProMerchants” in 1999 for used books where it shifts cost and risk to small suppliers who keep their own stock. This represents about 28% of Amazon’s units sold. ! needs to react to its competitor eBay, which in its original business model carried no fulfillment costs. Wall Street is watching closely which models promise higher growth and better margins. !  eBay, specialized on the commission business model and connecting buyers and sellers of used goods, has also moved into new goods. But it immediately begun with the concept of no warehouse. All of the warehouse costs and risks are held by the supplier partners. Amazon’s partner program !  In cases where rapid delivery is required, warehouse and fulfillment costs may be reduced further by outsourcing the function to distribution experts such as FedEx, UPS or DHL. !  As a consequence, medium sized warehouses are disappearing… either they are very small with a very specialized selection or they are very large to benefit from scale. eBay’s partner programAmazon example: Chris Anderson, „The Long Tail. The New Economics of Culture and Commerce,“ Random House, 2006, p. 92 - 97. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  33. 33. SimplySeven Dr. Niko WaescheDigital books are inspiring internet book retailers. Here is the chance forzero inventory costs and a new license based business model.Forsaking the retail business model and going digital!  Books on demand are becoming cheaper and cheaper to produce. To be economical, it is still a requirement to print more than just one book, but this will be realized soon.!  Amazon owns “Booksurge” a print-on-demand company: “Headquartered in Charleston, South Carolina, BookSurge’s state of the art book manufacturing facility produces one book or 100 books profitably for authors and publishers and fulfills retail book orders in most cases within 24 hours.” Amazon’s Kindle and Fire family!  This is happening in many other areas as well – especially audio and film production. Lower production costs are leading to a participant information culture which further moves away from mainstream.!  In February 2009, Amazon launched the second version of Kindle, its digital book reader.!  Further Kindles and the Fire followed with Amazon investing significantly to capture license revenues and develop its own ecosystem and platform. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  34. 34. SimplySeven Dr. Niko Waesche The internet has become such an important source of product information and brand experience that “bricks and clicks” are a must-have. Creating brand experience through flagship stores and the internet !  Internet sites are a must have for retail:   Research information on products in shops   Search for shop locations   Order in advance   Experience the flavor and culture of the brand !  Many purchasing decisions in shops are researched in advance on the internet. !  This explains the great demand for product information on the internet and is leading to increased sophistication of the consumer in purchasing decisions from cars to olive oil. !  Luxury brands are evolving in their store concepts as well. “The product is not enough.” Brands are moving away from third-party presence in department stores to their own stores. Each global city has their own store look... !  The new Gucci store in Tokyo, Pradas New York store, with its cultural performance space, and Louis Vuittons Champs- Elysees flagship, with its art gallery and bookstore. !  "We think it is the second stage of globalization," says Francois-Henri Pinault, chief executive of PPR, Gucci Groups parent company. "First all stores looked the same, now they are tailored to their local markets.“ !  It is the “desire for experience” (Future Laboratory, a London- based consulting firm) and the “selling ceremony” (Financial Times) which leads to both extravagant flagship stores combined with an extensive experience-based internet presence. Gucci new Ginza Flagship Store and internet SiteImages from the Gucci Japan site:; Vanessa Friedman, „Gucci opens Tokyo flagship store,” Financial Times, 13.11.06, page 9. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  35. 35. SimplySeven Dr. Niko Waesche The early online bookshop founders were the first to understand the benefit of the “long tail” concept. Selling the “long tail” of books – near zero distribution costs !  When online pioneers selected books as their retail category because of the vast selection advantages available on the internet, they had discovered “the long tail.” !  Chris Anderson described the “long tail” as a central concept for internet business in his influential book. !  The thesis of “The Long Tail” is that the reduction of fulfillment costs through the internet resulted in a nearly unlimited demand for specific items far from the mainstream. !  This applies to many categories: Books, music, etc. !  Demand for these specific items surprised most consumer companies. Anderson cites that 98% of all online music tracks are sold at least one time a quarter by an online music company. Hardly any songs in its huge database - 2% - never The demise of hit albums 1957 - 2005 get requested. !  These specific items may be bought only one or two times a year, however, together they result in sales that can surpass the sales figures for mainstream items. !  Anderson declared that the era of mainstream music and mainstream taste is finally over as people are able to cultivate very individualistic and fragmented tastes. A virtuous circle because large availability of variety installs demand for even more specific items. “The Long Tail”Chris Anderson, „The Long Tail. The New Economics of Culture and Commerce,“ Random House, 2006, p. 7, hit album image is on p. 32. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  36. 36. SimplySeven Dr. Niko Waesche How does one find very specific niche products? Smart aggregation and lots of diverse opinions are the answer. Recommendations based on the “wisdom of crowds” !  If you are selling very specialized niche products in the “long tail,” how do you make sure your customers find them? ! tracks purchases of products and makes aggregated recommendations based on the choice of thousands of other consumers. !  This system taps the “wisdom of crowds” (James Surowiecki) Diverse sets of people allowed to make decisions independently can be remarkably intelligent. More than most experts. recommendation for Herbert’s Scale !  While the TV show “Who Wants To Be a Millionaire” is not scientific evidence, the expert opinion is on average 60% right whereas the crowd opinion has a success rate of 91%. !  A diverse group of smart and not-so-smart people is always better than a group made up of just smart people. Diversity erodes group pressure – which leads to wrong choices. !  Large groups require an aggregation mechanism, which Amazon provides. !  We will see more of this when we discuss Google. recommendation for Herbert’s ScaleJames Surowiecki, „The Wisdom of Crowds. Why the Many Are Smarter Than the Few,“ Abacus, 2004, p. 4, 28 - 49. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  37. 37. SimplySeven Dr. Niko WaescheGoogle search and new viral models are enabling new microshops with may be a threat to Amazon.The future of internet retail!  Opening shops is really cheap through Open Source SW. In the 1990s, an e-shop could cost one million US$.!  PayPal and other payment mechanisms are available. Logistics companies such as FedEx, DHL and UPS have developed special services for online retailers, making shipping costs more affordable.!  Through the crowd-powered search mechanism of Google, small, very specialized niche players can today be successful on the internet.!  The new niche players can rely on global reach to create the customer size they require to survive.!  New club-based concepts take niche retail further still into the area of viral marketing. Companies such as Brands for Friends use club concepts to allow manufacturers to sell excess inventory for much lower prices. The club concept allows an artificial separation between the regular retail channels of the manufacturers and the club members. The concept is viral, because these players rely on word of mouth to pass on the advantages of the club.!  We see from these innovative club concepts that innovation in the internet retail model has not ended – on the contrary, new ideas are appearing continuously. Viral club concept vente- – Members have to sign in Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  38. 38. SimplySeven Dr. Niko WaescheIn their quest to improve their margin and reduce inventory costsfurther, online retail is actually transforming its business model…The transformation of online retail… a revolution in inventory costs Fulfillment seeks scale advantages.Bricks and Print on demand Clicks: removesOffline retail Reduced inventory. moves inventory Amazon and eBay online and become the front seeking a distribution end of thousands complete Reduced Moving into costs… production of small shops and consumer from scaleexperience categories costs turn producers-sellers. where to virtual consumers online has goods into immediate “The Long Tail” producer- Selling things advantages sellers Intelligent online to real filters take shops… eg. books advantage Threat for Amazon: of the Emergence of wisdom of independent micro crowds to shops and viral locate niche models products Aggregation and filters are complementing or replacing expert Google has enabled countless small opinion and are enabling further micro shops because they can set up fragmentation and individualistic taste independently from eBay or Amazon. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  39. 39. SimplySeven Dr. Niko WaescheCommissionsSeven Ways to Create a Sustainable Internet Business London, 19.02.12
  40. 40. SimplySeven Dr. Niko WaescheThe upcoming two business models, commissions andadvertising are both agents-based models.Agents-based business models!  Previous business models, services, subscriptions and retail always include two parties, a seller and a buyer.!  The upcoming two business models, commissions and advertising, include at least three parties: A seller, a buyer and an agent.!  Often, there are even four or more different parties. How it works: The agent places a cookie on the Seller Publisher Seller computer of the potential buyer, registering that she/ 70% he saw a product or service described on a publisher site (such as a Marketplace Agent price comparison service). 100% When the person then a Time week later actually buys the product, the agent receives his commission. Buyer 30% Buyer He splits it with the publisher – the publisher getting the higher share.Three party commissions Four party commissions model:model: eBay Commissions Junction Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  41. 41. SimplySeven Dr. Niko WaescheThe two agent-based models share similarities, but also animportant difference.Agents-based business models!  Agents thrive in complex, rich environments (like the internet) with a lack of complete transparency.!  Due to a lack of information, parties which are potentially interested in a transaction cannot find each other. If agents do their job right, they serve as intelligent traffic coordinators through the chaos of the internet.!  Agents working with commissions often serve companies or freelancers working with other internet business models, for example eLance, a marketplace for internet services, or eBay, which is a marketplace for items sold using the internet retail business model.!  Agents have to strike a delicate balance, however. They have to watch out they that are not too obtrusive. At the same time, they have to keep proving to their clients that they are worth their money.!  There is an important difference between the two agent-based models, however.   The commission model only generates cash when the transaction actually is successful, when an item is bought or a service purchased. The sales risk is spread among the agent, the seller and the buyer. The agent accepts this risk because the reward is potentially higher. The higher the value of the sale, the higher the proceeds from the commission.   Advertising models generate cash regardless if the actual sale goes through or not.   Some companies, such as Commissions Junction, offer both models adjusting to the current sales situation.!  Commission models are therefore particularly appropriate when the agent is a significant part in the whole sales process. Agents thrive in complexity Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  42. 42. SimplySeven Dr. Niko Waesche The eBay business model worked instantly… based on three simple concepts: Power of C2C, the fun of auctions, payment model. Birth of the global consumer marketplace in 1995 !  Power of the C2C: Matching consumers with consumers.   Connecting 30m buyers and sellers around the world.   Millions of collectibles, appliances, computers, furniture, equipment, vehicles, and other miscellaneous items are listed, bought, and sold daily.   In many ways, success of C2C marketplaces foreshadowed success of Web 2.0. !  Fun with auctions.   People actually enjoy the competition of auctions, even though they often end up paying more.   The marmalade jar of Axel Ockenfels at the University of Cologne. Students always end up paying more than the !12 on average in the glass jar. web site !  Payment model: The seller pays.   eBay generates revenue from a number of fees. The eBay fee system is quite complex; there are fees to list a product and fees when the product sells, plus several optional fees, all based on various factors and scales.   The U.S.-based takes $0.20 to $80 per listing and 2–8% of the final price (as of 2006).   The business took off from the founding year 1995 – “Unstoppable.” eBay HQ in San Jose, CASource for commission fees in US: Wikipedia. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  43. 43. SimplySeven Dr. Niko Waesche eBay’s C2C business model generated revenues and profits early and its share price was never pushed up and down like its contenders. Does eBay simply have a perfect business model that does not have to evolve? !  eBay was never hyped as much as the other big internet players. !  eBay’s business model was an instant success and required the least refinement – like no other player.   Low cost base due to C2C – Better than or Yahoo!   Monetization intrinsic element – Much like Google AdWords.   Morgan Stanley identifies three crucial drivers for eBay revenue (Gross Merchandise Volume GMV)   listings * average sales prices (ASPs) * conversion rates = GMV !  “For most of its existence, eBay has enjoyed a sort of virtual monopoly. It now commands more than 90 percent of the online auction market, and from 1999 to 2004 it posted at least 40 percent annual profit growth every year, even as strong competitors like Amazon and Yahoo were taking runs at its core business.” !  Raffi Amit of the Wharton School and Christoph Zott of Insead Share price development argue in a recent paper that the internet opened up “opportunities graph from The Economist to be very creative in the design of the business model”.   In e-commerce, they say, most value is created by business models—the way in which firms conduct their affairs with suppliers and partners, as well as customers—rather than (as is largely the case in the offline world) the products or services themselves. !  The eBay business model seemed to be perfect from the very beginning – this is may be a problem for growth.Source: Graph and Amit and Zott mention: „Happy e-Birthdays. After ten years, what has been learnt about succeeding as an e-business?“ The Economist,21.07.05. eBay statistisics auction market: Michael V. Copeland, The Big Guns Next Target: eBay, Business 2.0 Magazine on, 31.01.06.Mary Meeker, David Joseph, “Listings * ASPs * Conversion Rates = GMV eBay US Historical Trends,” Morgan Stanley, 11.01.07. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  44. 44. SimplySeven Dr. Niko Waesche C2C economics only works if abuse is limited to reasonable levels. The most important fraud prevention mechanisms is user feedback. Fraud prevention through user feedback and supported by eBay staff !  Pierre Omidyar began with user feedback as fraud prevention mechanism very early… he could not handle answering all the dispute emails directly himself. !  In general, user feedback works excellently as a fraud prevention mechanism. !  There are only a few potential weak aspects:   Small and large transactions carry the same weight in the feedback summary.   Feedback may be provided by partners of the fraudulent seller.   A user may be reluctant to leave honest feedback out of fear of negative retaliatory feedback (including "negative" in retaliation for "neutral"). !  Without feedback, eBay would not work and collapse under fraud instantly. !  In addition, eBay have a staff of 1,000 people focused on fraud and payment issues. !  Fraud heavily impacts other commissions-based marketplaces, for example freelance platforms providing access to software coders.Source: Adam Cohen, „The Perfect Store,“ Little, Brown and Company, New York, 2002, pages 27 - 29 Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  45. 45. SimplySeven Dr. Niko Waesche Moving off site: The danger every agent faces, is that buyers and sellers carry out their business directly. eBay is threatened by big sellers moving off site, and now from big buyers, too !  In some eBay categories, big sellers are gaining power – they can “go solo” enabled by Google search.   The threat of moving off site is a challenge for eBay. Between 10 and 20 sellers account for 80% of the golfing goods sold via eBay.   Google is using its advertising business model to steer specialist buyers straight to specialist sellers — in effect disintermediating eBay. !  “Big buyers” have emerged, too, using the service business model and buying back standardized items like used media and electronics. The model is called “ReCommerce.”   SecondSpin   Gazelle Even P2P is not an endless source of growth. One third of eBay‘s revenues today already comes from an alternative business model, from PayPal. In 2011, eBay presented a software platform for merchants as a strategic growth area.Source for Golf statistic. Dominic Rushe, „Ebay rivals bid to put the boot in,” The Sunday Times, 05.02.06. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  46. 46. SimplySeven Dr. Niko WaescheIf eBay could be wildly successful with a global virtual fleemarket, what about the same model in hotels and tourism?AirBnB!  AirBnB team founded its company based on an idea having emerged from a couple of design school students offering their apartment as a place to stay.!  The payments system actually became one of the main advantages of the services. Staying at people‘s places was not compromised by awakwardness of payments situation.!  Company growing fast with complete focus on product.!  Internationalization outsourced to Springstar in Berlin. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  47. 47. SimplySeven Dr. Niko Waesche Companies that tried to copy eBay in B2B did not succeed. Some have put a huge amount of effort into search and standardization. The spectacular failures of the B2B marketplaces – Some exceptions !  With the success of eBay, many entrepreneurs thought that the same business model aspects – low costs and intrinsic monetization – could bring them great success in B2B. !  They set up commission-based marketplaces for businesses to buy and sell goods from building supplies (Build Online or http://, engineering supplies and services ( to used machines ( !  Venture capitalists thought success here was obvious and poured money into this category. Companies like Verticalnet were listed on NASDAQ. Verticalnet offers software and !  Most failed miserably. Many of those involved still wonder exactly complete solutions why. The answers are not obvious…   A real large-scale C2C market never existed, whereas companies have been optimizing B2B procurement for decades.   Procurement at companies is part of complex supply chain processes. Optimization of these processes often brings more value than a better B2B marketplace.   Goods procured by businesses are often accompanied by services such as installation or integration services or requires substantial explanation. This limits the number of sellers and makes an open marketplace less useful. !  Today, the focus of B2B market players like Verticalnet is on complete solutions for businesses and on software. !  B2B markets did not entirely disappear, survivors have put a huge amount of work into standardization and search… Mercateo has 4m articles They now enjoy significant barriers to entry. standarized and comparableSource of graphic: Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  48. 48. SimplySeven Dr. Niko WaescheIn China, B2B platforms were highly successful because ofthe transformation to a partially capitalist economy.B2B in China – Right place, right time!  Alibaba – Huge success story as the biggest B2B wholesale marketplace in China!  In the meantime, has launched international versions to facilitate global trade!  The Alibaba founder then also went into other areas:   TaoBao (B2C, C2C)   ZhiFuBao (Electronic Payments, Escrow Services) Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  49. 49. SimplySeven Dr. Niko WaescheGroupon grew in turbo mode by offering daily deals in citiesand taking a 50% commission (but dropping).The star among new commission-based models – but not P2P!  Using a straightforward approach of offering a daily deal in a specific city available to people if a sufficient number is reached, Groupon proves that urban classifieds market can be tapped through innovative schemes.!  The main asset of Groupon is it’s mailing list of millions of consumers.!  Groupon keeps 50% of every deal sold and also benefirs from coupons which are bought but not used (recently dropping to 38% - triggering a cost programme).!  Groupon is offered in 300 local areas in 29 countries.!  Sales may top $500m in 2010. Growth has slowed down somewhat.!  The company requires additional financing because it is powered by sales teams acquiring the daily deals.!  Groupon was founded in November 2008… IPO on Nov 4th, 2011. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  50. 50. SimplySeven Dr. Niko WaescheThe original C2C marketplace model has not evolved since itsconception, attempts to adapt it have mostly failed.The remarkable longevity of the original C2C model – But how to grow? eBay bought StubHub in 2007 for $310m Benefits or synergies between conventional auction house ? C2C Segments Butterfield and Butterfield and eBay New AirBnB did not materialize. specialized C2C Services Conventional auction house C2C markets Services PayPal Payments Business Model eBay Challengers: C2C goods markets Marketplace “ReCommerce” Affiliate Communications system Marketing (Commissions B2B Junction) Marketplace B2C s ? Commissions Use both Corporate procurement is a wide area including consulting services, business processes, software technologies and yes, to a limited extent ? commissions and advertising based business models also internet marketplaces. Success of B2B in China Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  51. 51. SimplySeven Dr. Niko WaescheAdvertising Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  52. 52. SimplySeven Dr. Niko WaescheLike the commissions model, the advertising business modelinvolves at least three different parties.The challenges and opportunities of advertising!  The three parties involved in the advertising business model are: The publisher selling the ads, the advertising client buying the ads and the consumer engaging with the ad.!  Sometimes, the publisher and the agent are separate entities. Now we have four parties: The publisher providing the reach, the agent selling the ads, the advertising client and the end consumer. Client Client Publisher/ Ad Ad Publisher Agent agent Consumer ConsumerThree party advertising Four party advertising model: Google AdSense, DoubleClickmodel: Craigslist, GoogleAdWords, Facebook Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  53. 53. SimplySeven Dr. Niko WaescheThe publisher of the web site and the advertising agent donot carry the risk of sale – as in the commissions model.Seller’s risk and price of an ad!  In the traditional media model, the publisher does not assume sales risk.   For example, TV broadcasters and their agents received money whether the advertisement was successful or not – in the sense that the company advertising a product actually sells more of the product due to the ad.   In part, this is because the success of a TV ad cannot be measured. Proxies are used. Ads are measured with panels reporting on reach and frequency (GRP: Gross Rating Points).!  This difference between the commission and advertising models exists also on the internet – the advertiser does not carry the risk of the sale.   The advertising agent fee is due whether the ad actually is successful or not in the sense that a product actually is sold.   The fee usually is some form of fixed fee related to the value of the ad – not the value of the product (like a commission).   Internet advertising is often sold with some success element, for example, Google AdWords only have to be paid if a consumer clicks on the ad.!  When you think of commissions, think of “selling,” when you think of advertising, think of “information.” Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  54. 54. SimplySeven Dr. Niko WaescheAdvertisers are always in a Catch 22 situation.Catch 22!  To attract more clients and ask for higher prices, publishers and their agents always seek to make their ad space more valuable.!  The more they push their ads on the visitors of their web sites and try to force engagement, the higher the likelihood of achieving the opposite effect.!  People will find the ads horribly annoying or, worse still, an intrusion on their privacy.!  This is not just the case with banner ads. People are very suspicious if their private information is being used for targeting, too. This challenge was faced by Facebook in 2007.!  The best ads are those that are seen as a service by users. People don‘t seem to mind ads on Google, and they actually voluntarily visit sites composed only of ads, for example, Craigslist. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  55. 55. SimplySeven Dr. Niko WaescheIn the beginning, advertising was very much designed as ifwe were still in a traditional print world. Users hated it.The unloved banner ad!  Imagination was missing about the possibilities of being in an interactive space of thousands of clicks.!  Some innovation was present in banner advertising, such as floating, moving and large banners, however, mostly to the annoyance of internet users.!  Google differentiated itself not just in terms of a new advertising business model as we will see, but also in terms of its look and feel, which represented a counter reaction to the banner ad.!  Many did not understand that this simple rebellion against the banner ad itself was a contribution to Google’s success. Banner ad on Spiegel Online Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  56. 56. SimplySeven Dr. Niko Waesche But Google did not just simplify the interface, it perfected search by using the “Wisdom of Crowds.” Using the “Wisdom of Crowds” to improve search !  The power of Google is the power of information aggregation of thousands and millions of links. !  Google PageRank works with complex algorithms:   Links on a page   Anchor text around links   The popularity of pages that link to a page !  When these algorithms are periodically adjusted to reduce click fraud, page rankings are changed, sometimes heavily… this is called the “Google Dance.”   Battelle’s example of Niel Moncrief and the web site… he lost his Search on Google for “big feet” Christmas business 2003.   This is unlikely to happen today, as search algorithms have improved considerably. !  John Battelle describes in his book the search phenomenon as a cultural artifact… how Google mirrors our culture and has built the “Database of Intentions…” “Google knows what our culture wants.” !  Google “Zeitgeist” is a must-see showing the top searches each month in each Google country. !  Google has an incredible market position, for example, in the UK, Google “Zeitgeist” for Germany Google has a market share in search of 78% (Financial Times, October 2006 “Yahoo is starting to think out of the box,” 08.12.06, page 18.)Source: John Battelle, „The Search,“ New York, 2005, 2-3, 20-37, 153-188. Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  57. 57. SimplySeven Dr. Niko Waesche While Google tapped the “Wisdom of Crowds,” had already found another solution against spam… the “Wisdom of Capital.” The true business model innovation in advertising came from !  Bill Gross, the genius behind LA-based IdeaLabs developed “one idea per month” This resulted in many web sites (such as CitySearch,, which required user traffic. !  Gross developed the idea of organizing search results according to who paid the most per click. !  Gross: “The true value of the internet was in its accountability… performance guarantees had to be the model for paying for media.” !  Gross calculated that it took 5-10¢ a click to buy traffic through banner advertising from major web sites. In the beginning he decided to subsidize by selling traffic for 1¢ a click… Gross believed that the cost of acquiring traffic would go down as GoTo would gain popularity and the price for a click would go up… because it was the right traffic! !  When was launched in 1998 it had 15 advertisers, by 1999 it had thousands. !  Gross was right… targeted traffic would be valued at about 50¢ in early 2005. Bill Gross ! realised it could extend its reach by syndication and decided in September 2001 to transform itself into syndication-only… it was renamed Overture. !  Gross met Google founders Larry Page and Sergey Brin in 2001, but they decided to copy and further improve the business model of (Google’s AdWords). !  The well-known venture capitalist Bill Gurley called this business model “the salvation of the internet.” !  Bill Gross is working on his next idea… “SNAP” uses pay on conversionSource: John Battelle, „The Search,“ New York, 2005, 95-121; Image from Fortune web site, “Idealab Reloaded Surprise!.” Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  58. 58. SimplySeven Dr. Niko WaescheWhat is killing the newspapers are online classifieds andespecially the lean operating model they have.Running a top 10 web site with 23 people… craigslist classifieds (Oct 2006) Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  59. 59. SimplySeven Dr. Niko WaescheCan everyone benefit from Google economics? Internet playershave completely different cost structures established competitors.Google economics allows it to pour money into development!  Part of the Google advantage are its fantastic margins.!  Deutsche Telekom has !61.4bn sales with an EBIT margin of 15%.!  Google has revenues of US$7.2bn with an EBIT margin of 50%.!  Google revenue growth 75.8% CAGR (2004A-2007E) compared to DTAG’s 2.3% in the same period.!  Deutsche Telekom has 250,000 Google financials (UBS, “Google Inc,” 07.11.06) employees, Google has 2,600.!  Google invested US$2.8bn in R&D in 2008, DTAG !422m. Everyone is invited to suggest and rate Google product ideas Seven Ways to Create a Sustainable Internet Business London, 19.02.12
  60. 60. SimplySeven Dr. Niko WaescheGoogle has announced that it is expanding into internet andstreaming based TV and interstitial advertising.Interstitial ads in streaming video – Google, Apple TV, Hulu!  The global TV advertising market is $180bn. As TV moves online, will new contenders be able to tap this large market?!  AppleTV has already been very successful in launching its TV device.!  Media players have responded to internet TV by successfully launching Hulu, a service owned by several large media companies and financed by a Private Equity fund.!  Google is also seeking to enter this market, having made an announcement in September 2010.!  Google has discovered that major advertisers will not place their ads next to user generated YouTube content, but they do go for premium content on Hulu.!  It is widely expected that tablet PCs – especially the iPad will accelerate this development. Seven Ways to Create a Sustainable Internet Business London, 19.02.12