Electronic Commerce 10 th Edition Chapter 4 E-Business

Electronic Commerce 10th Edition Chapter 4 E-Business Revenue Models 1 Electronic Business, 10th Edition

Learning Objectives In 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 Web 2 Electronic Business, 10th Edition

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 pages 3 Electronic Business, 10th Edition

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 outlet 4 Electronic Business, 10th Edition

Web Catalog Revenue Models (cont’d.) Computers and consumer electronics Books, music, and videos Luxury goods Clothing retailers Flowers and gifts (gift retailers) General discounters (completely new businesses) 5 Electronic Business, 10th Edition

Digital Content Revenue Models Highly efficient distribution mechanism Firms own written information or information rights LexisNexis: variety of information services Lexis.com: 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 processing 6 Electronic Business, 10th Edition

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 visitors 7 Electronic Business, 10th Edition

Advertising-Supported Revenue Models (cont’d.) Successful sites attract specific groups About.com, 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) 8 Electronic Business, 10th Edition

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 versions 9 Electronic Business, 10th Edition

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) introduced 10 Electronic Business, 10th Edition

Fee-for-Transaction Revenue Models (cont’d.) Travel agents Receive fee for initiating transaction Replaced by computers Online travel agents Saber system (Travelocity) Expedia, Hotels.com, Hotel Discount Reservations All profitable Orbitz Five major U.S. airlines consortium Generates advertising revenue 11 Electronic Business, 10th Edition

Fee-for-Transaction Revenue Models (cont’d.) Automobile sales Web site removes salesperson negotiation Reduces costs Provides buyers information service CarsDirect.com model Customers select specific car, site determines price and finds local dealer Autoweb.com 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) 12 Electronic Business, 10th Edition

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 disintermediated 13 Electronic Business, 10th Edition

Fee-for-Transaction Revenue Models (cont’d.) Online music Amazon MP3, Apple’s iTunes, eMusic, Microsoft’s MSN Music, Napster, Rhapsody, Yahoo!, Walmart.com Music Downloads Sell single songs (tracks) and albums Sales revenue source Fee-for-transaction model Some sites offer subscription plans Electronic Business, 10th Edition 14

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 Business, 10th Edition 15

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 35 Electronic Business, 10th Edition 16

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 examination Electronic Business, 10th Edition 17

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 business Electronic Business, 10th Edition 18

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 stickiness Electronic Business, 10th Edition 19

Advertising-Supported to Advertising-Subscription Mixed Model Salon.com 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 content Electronic Business, 10th Edition 20

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 Business, 10th Edition 21

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 clients Electronic Business, 10th Edition 22

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 content Electronic Business, 10th Edition 23

Revenue Strategy Issues Implementations issues Channel conflict and cannibalization Strategic alliances and channel distribution management Mobile commerce Electronic Business, 10th Edition 24

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 site Electronic Business, 10th Edition 25

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 Electronic Business, 10th Edition 26

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 convergence Electronic Business, 10th Edition 27

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 firms Electronic Business, 10th Edition 28

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 point Electronic Business, 10th Edition 29

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 generation Electronic Business, 10th Edition 30

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 return Electronic Business, 10th Edition 31

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 better Electronic Business, 10th Edition 32

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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 sites Electronic Business, 10th Edition 36

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 organization Electronic Business, 10th Edition 37

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 reason Electronic Business, 10th Edition 38

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, technology Electronic Business, 10th Edition 39

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 pages Electronic Business, 10th Edition 40

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 use Electronic Business, 10th Edition 41

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 customers Electronic Business, 10th Edition 42

Rating Electronic Commerce Web Sites Review electronic commerce Web sites Usability, customer service, other factors BizRate.com Comparison shopping service Links to low price and good service ratings sites Electronic Business, 10th Edition 43

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 costs Electronic Business, 10th Edition 44

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 presence Electronic Business, 10th Edition 45

Connecting with Customers Important element of a corporate Web presence Identify and reach out to customers Electronic Business, 10th Edition 46

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 continuum Electronic Business, 10th Edition 47

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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 communication Electronic Business, 10th Edition 49