10 Social Networks and Communities

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e-commerce
Kenneth C. Laudon
Carol Guercio Traver
business. technology. society.
eighth edition
Copyright © 2012 Pearson Education
Chapter 10
Social Networks, and Communities

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Copyright © 2012 Pearson Education Slide 10-4
Social Network Fever Spreads to the Professions
Class Discussion
 How has the growth of social networking enabled the
creation of more specific niche sites?
 What are some examples of social network sites with a
financial or business focus?
 Describe some common features and activities on these
social networking sites.
 What feature of social networks best explains their
popularity?
 SocialPicks for stock investors, DailyStrength.org for health care professionals, LawLink for
lawyers, Sermo for physicians, Inmobile.org for wireless industry executives, AdGabber for
advertising professionals, LinkedFA for financial advisors
 Encourage members to intensely discuss realities of their professions and practices,
sharing successes and failures, and developing network for career advancement
 Ability to reveal group attitudes and opinions, values, and practices
Class Discussion

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Learning Objectives
 Explain the difference between a traditional social
network and an online social network
 Understand how a social network differs from a portal
 Describe the different types of social networks and online
communities and their business models
 Describe the major types of auctions, their benefits, and
costs, and how they operate
 Understand when to use auctions in a business
 Recognize the potential for auction abuse and fraud
 Describe the major types of Internet portals
 Understand the business models of portals
Social Networks and Online Communities
 Internet began as community building
technology for scientists, researchers to share
data, knowledge, and opinions in a real-time
online environment
 Early communities limited to bulletin boards,
newsgroups; e.g., the Well (first online
community formed in 1985 in San Francisco by a
small group of people)
 Today: Mobile devices; sharing of photos, video;
blogs have created new era of social networks
 Social networks now one of most common
Internet activities

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What Is an Online Social Network?
 Online area where people who share common ties can interact
 Social networks involve:
1. A group of people
2. Shared social interaction
3. Common ties among members
4. People who share an area for some period of time
 Participants do not necessarily share goals, purposes, or
intentions
 Portals and social networks:
 Moving closer together
 Portalsadding social network features, e.g., chat groups, bulletinboards,free Web
site design and hosting
 Community sites, e.g.,iVillage (site devotedto women’s issues), adding portal-like
services
 Searching
 News
 E-commerceservices
The Growth of Social Networks and
Online Communities
 Top 10 social networks account for over 90% social networking
activity (see next Fig.)
 Facebook users: Over 50% are 35+
 Unique audience size:
 Top four U.S. social networks(FB, LinkedIn,Twitter, MySpace): 264
million/month
 Top four portal/searchengines (Google, Yahoo,MSN, AOL): 650 million/month
 Annual advertising revenue
 U.S. social network sites: $3.08 billion
 Top four portal/searchengines (Google, Yahoo,Microsoft, AOL): $19 billion
 Social networking sites fastest growing form of Internet usage,
but still not as powerful as search engines/portals in terms of
unique visitors, overall reach, and ad dollars generated

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Top 10 Social Network Sites, 2011
Figure 10.1, Page 678 SOURCES: Based on data from eMarketer, 2010; Hitwise, 2010.
Turning Social Networks into Businesses
 Early networking sites relied on subscriptions
 Today primarily advertising (see next Fig.)
 Profound impact of social networks on
businesses
 Marketing and branding tool
 Facebook pages, “fans”
 Twitter feeds
 Listening tool
 Monitoringonline reputation
 Extension of CRMS

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Types of Social Networks
and Their Business Models
 General communities:
 Offer opportunities to interact with general audience
organized into general topics, e.g., MySpace, Facebook
 Advertising supported by selling ad space on pages and
videos
 Practice networks:
 Offer focused discussion groups, help, and knowledge
related to area of shared practice, e.g., Linux.org and
LinkedIn (business)
 May be profit or nonprofit; rely on advertising or user
donations

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Types of Social Networks
and Their Business Models (cont.)
 Interest-based social networks:
 Offer focused discussiongroups based on shared interest in some
specific subject, e.g., E-democracy.org and SocialPicks (stock market
site)
 Usuallyadvertising supported
 Affinity communities:
 Offer focused discussionand interaction with other people who share
same affinity (self or group identification), e.g., iVillage and Oxygen
(focusing on women), BlackPlanet (African American community)
 Advertising and revenues from sales of products
 Sponsored communities:
 Created by government, nonprofit, or for-profit organizations for
purposeof various purposes,e.g., increasing information available to
citizens (Westchestergov.com), online auction site (eBay), product site
(Tide.com), sharing knowledge within corporate (IBM, Cisco, HP)

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Online Auctions
 Online auction sites are among the most
popular consumer-to-consumer sites on the
Internet
 eBay: Market leader with 97 million active users
in the US, 200 million items listed each day, $4.8
billion net revenues from its Marketplaces
segment in 2010
 Several hundred different auction sites in
United States alone
 Established portals and online retail sites (from
Yahoo, MSN to JCPenny and Sam’s Club)
increasingly are adding auctions to their sites
Defining and Measuring the Growth of
Auctions and Dynamic Pricing
 Dynamic pricing
 Airline tickets, coupons, college scholarships
 Prices based on demand characteristics of customer and
supply situation of seller
 Many types of dynamic pricing
 Bundling of digital goods – including low-demand products
in a bundle “for free” to increase total revenues
 Trigger pricing – adjust prices based on location of
consumer; used in m-commerce applications
 Utilization pricing– adjust prices based on utilization of
product, e.g., auto and health insurances
 Personalization pricing – adjust prices based on merchant’s
estimate of how much customer values the product, e.g.,
higher prices paid for hard-covered books by fans of writers

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Defining and Measuring the Growth of
Auctions and Dynamic Pricing (cont.)
 Auctions: One form of dynamic pricing
C2C auctions (most widely known)
 Auction house an intermediary market maker,
providing forum where consumers – buyers and
sellers – can discover prices and trade
B2C auctions
 Business owns assets; often used for excess goods
Auctions can be used to
 Sell goods and services
 Allocate resources among independent agents
(bidders), e.g., workers bidding for task assignments

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Benefits of Auctions
 Liquidity– sellers can find willing buyers, and buyers can find
sellers
 Price discovery – buyers and sellers can quickly and efficiently
develop prices for items difficult to assess, where product is rare
 Price transparency – public Internet auctions allow everyone to
see asking and bidding prices for items
 Market efficiency – auctions can lead to reduced prices 
reduced profits for merchants  increasing consumer welfare
(one measure of market efficiency)
 Lower transaction costs – lower cost of selling and buying
products
 Consumer aggregation – sellers benefit from large auction sites’
ability to aggregate large number of consumers
 Network effects – large auction sites with large number of visitors
and products make it likely to find what you want at a good price,
and highly probable to find a buyer for just about anything
Risks and Costs of Auctions for
Consumers and Businesses
 Delayed consumption costs – buyers must wait until
auctions are over, and shipping takes time
 Monitoring costs – requires time to monitor bidding
 Possible solutions include:
 Fixed pricing – clicking on the “Buy It Now” buttonand paying premium
price comparedto regular auctionprice
 Watchlists – permit consumer to monitorcertain auctions of interest
 Proxy bidding– allows consumerto enter maximumprice, and auction
softwareautomaticallybids for goods up to that price in small increments
 Equipment costs – costs of computer system, Internet
access, and learning complex operating system cost
 Trust risks
 Possible solution—rating systems
 Fulfillment costs – buyers pay costs of packing,
shipping, and insurance

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Market-Maker Benefits
 No inventory
 No fulfillment activities
 No warehouses, shipping, or logistical facilities
 eBay makes money from every stage in
auction cycle
 Transaction fees based on amount of sale
 Listing fees for display of goods
 Financial services fees from payment system, e.g.,
PayPal
 Advertising or placement fees where sellers pay extra
for particular display or listing services
Internet Auction Basics
 Different from traditional auctions
 Last much longer (usually a week)
 Variable number of bidders who come and go from
auction arena
 Market power and bias in dynamically priced
markets
 Neutral: Number of buyers and sellers is few or equal
 Seller bias: Few sellers and many buyers
 Buyer bias: Many sellers and few buyers

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Bias in Dynamically Priced Markets
Figure 10.3, Page 694
Internet Auction Basics (cont.)
 Price Allocation Rules – Rules for establishing
winning bids and prices in auctions where there
are multiple units for sale
 Uniform pricing rule: Multiple winners who all pay the same
price
 Discriminatory pricing rule: Winners pay different amount
depending on what they bid, as in uBid.com
 From buyer’s point of view, uniform pricing is better, but
from seller’s point of view, discriminatory pricing is better
 Public vs. private information
 Prices bid may be kept secret
 Bid rigging – bidders communicate prior to submitting their bids,
and rig their bids to ensure lowest price is higher than it might
otherwise be
 Open markets
 Price matching – sellers agree to set floor prices on auctionitems below
which they will not sell

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Types of Auctions
 English auctions (eBay):
 Single item up for sale to single seller
 Highest bidder wins
 Seller bias: single seller and multiple buyers competing against one
another
 Traditional Dutch auction (Dutch flower market):
 Public descending price auction
 Uses a clock that displays starting price
 Clock ticks down price until buyer stops it
 Sellerbias
 Dutch Internet auction (eBay Dutch auction):
 Public ascending price, multiple units
 Final price is lowest successful bid, which sets price for all higher
bidders (uniform price rule)
winners
3

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Types of Auctions (cont.)
 Name Your Own Price Auctions
Pioneered by Priceline
Users specify what they are willing to pay for
goods or services and multiple providers bid for
their business
Prices do not descend and are fixed
 Consumer offer is commitment to buy at that price
e.g., Priceline
Enables sellers to unload unsold excess capacity
 Buyer bias: Multiple sellers compete against one
another

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Types of Auctions (cont.)
 Group buying auctions (demand aggregators)
 Group buying of products at dynamically adjusted discount prices
based on high volume purchases
 Based on two principles
 Sellersmore likelyto offer discounts to buyers purchasing in volume
 Buyers increase their purchases as prices fall
 Buyer bias
 Professional service auctions
 Sealed-bid, dynamic-priced market for freelance professional
services from legal and marketing services to graphics design and
programming
 Sealed bids are submitted and the winner is the low-cost provider
of services
 Buyer bias
 Example: Elance.com, SoloGig

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Table 10.7, p 701

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Seller and Consumer Behavior
at Auctions
 Seller profit: A function of arrival rate, auction length,
and number of units at auction (see next Fig.)
 Auction prices not necessarily the lowest
 Reasons include herd behavior (tendency to gravitate toward, and bid
for, auction listing with one or more existing bids)
 Herd behavior results in consumers paying higher prices than necessary
 Unintended results of participating in auctions:
 Winner’s regret – winner’s feeling after auction that he/she paid too
much for an item
 Seller’s lament – concern that one will never know how much ultimate
winner might have paid, or true value to final winner
 Loser’s lament – feeling of having been too cheap in bidding and failing
to win
 Consumer trust an important motivating factor in
auctions
Auction Profits
Figure 10.4, Page 703 SOURCE: Based on data from Vakrat and Seidmann, 1998.
N = arrival rate at the auction

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When Auction Markets Fail:
Fraud and Abuse in Auctions
 Markets fail to produce socially
desirable outcomes in four situations:
Information asymmetry, monopoly power,
public goods, externalities
 Auction markets prone to fraud
Most common: Failure to deliver, failure to pay
 In 2010, 6% Internet fraud complaints
concern online auctions

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E-commerce Portals
 Most frequently visited sites on Web
 Original portals were search engines
As search sites, attracted huge audiences
 Today provide:
 Navigation of the Web
 Commerce
 Content (owned and others’), e.g., news, entertainment,
maps, images, social networks, in-depth info
 Compete on reach and unique visitors
 Enterprise portals
 Help employees find important organizational content

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Top Five Portal/Search Engines in United States
SOURCE: Based on data from comScore, 2011.Figure 10.5, Page 708
Types of Portals
 General purpose portals:
Attempt to attract very large general audience
Retain audience by providing in-depth vertical
content channels
e.g., Yahoo, MSN
 Vertical market portals:
Attempt to attract highly-focused, loyal
audiences with specific interest in:
 Community (affinity group); e.g., iVillage
 Focused content; e.g., ESPN.com

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Two General Types of Portals:
General Purpose and Vertical Market Portals

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Revenue per Customer and Market Focus

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