E-Business
Eighth Edition
Chapter 3
Selling on the Web: Revenue Models
and Building a Web Presence
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
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Revenue Models
• Web business revenue generating models
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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
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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
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Web Catalog Revenue Models (cont’d.)
• Computers and consumer electronics
– Apple, Dell, Gateway, Hewlett-Packard, IBM, Sun
Microsystems
• Sell full range of products
– Dell
• Allows product configuration; creates value
– Crutchfield and The Sharper Image
• Successful mail order expansion includes Web sites
– Best Buy, Circuit City, J&R Music World, Radio Shack
• Successful retail store presence expansion
• Sell same products
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Web Catalog Revenue Models (cont’d.)
• Books, music, and videos
– Most visible electronic commerce examples
– Amazon.com Web-only retailer
• Originally sold only books
– Barnes & Noble, Blackwell’s, Books-A-Million,
Powell’s Books
• Well-established physical book stores
– CDnow Web-only online music store
– Tower Records, Sam Goody retail stores
• Created Web sites to compete with CDnow
– CD Universe copied CDnow approach
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Web Catalog Revenue Models (cont’d.)
• Luxury goods
– Clientele reluctant to buy through Web
– Vera Wang and Versace
• Web sites provide information
• Shopper purchases at physical store
• Heavy use of graphics and animation
– Evian
• Uses flash animation
– Tiffany & Co
• Graphics and animation require broadband connection
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Web Catalog Revenue Models (cont’d.)
• Clothing retailers
– Adapt catalog sales model to Web
– Display clothing photos
• Prices, sizes, colors, tailoring details
– Customers examine clothing online
• Place orders through Web site
– Lands’ End online Web shopping assistance
• Lands’ End Live (1999)
– Text chat and call-back features
– Lands’ End personal shopper agent (more recent)
• Learns preferences and makes suggestions
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Web Catalog Revenue Models (cont’d.)
• Clothing retailers (cont’d.)
– My Virtual Model (customers try clothes)
• Graphic image built from customer measurements
– Lands’ End
• Two shoppers using different computers
• Simultaneously browse Web site together
– Online overstocks stores
• Reaches more people than physical store
– Problem with varying computer monitor color settings
• Send fabric swatch on request
• Offer generous return policies
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Web Catalog Revenue Models (cont’d.)
• Flowers and gifts (gift retailers)
– 1-800-Flowers
• Online extension to successful telephone business
• Competes with online-only florists
– Godiva
• Offers business gift plans
– Hickory Farms and Mrs. Fields Cookies
• Offer familiar name brands on Web
– Harry and David
• Original Web site for informational purposes
• Promoted catalog business
• Added online ordering feature
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Web Catalog Revenue Models (cont’d.)
• General discounters (completely new businesses)
– Buy.Com
• Borrowed Wal-Mart and discount club sales model
– Many sites sold advertising (originally)
• Subsidized extremely low prices
• Most sites now out of business
– Rely on volume purchasing strategy (now)
• Keeps prices low
– Fiercely competitive (thin margins: little profits)
– Traditional discount retailers
• Costco, Kmart, Target, Wal-Mart
• Slow to introduce electronic commerce Web sites
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Digital Content Revenue Models
• Highly efficient distribution mechanism
– Firms own written information or information rights
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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
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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
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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)
– Smaller general-interest sites (refdesk.com)
• More difficulty attracting advertisers
• C-NET (offers items to a specialized group)
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Advertising-Supported Revenue
Models (cont’d.)
• Newspaper publishers
– Publish print content on Web
– Internet Public Library Online Newspapers page
• Links to worldwide newspaper sites
– Newspaper’s Web presence
• Provides greater exposure and advertising audience
• Print edition sales loss (difficult to measure)
• Operating costs not covered by advertising revenue
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Advertising-Supported Revenue
Models (cont’d.)
• Targeted classified advertising sites
– More successful at generating adverting revenue
– Web site profit potential
• Specialize in classified advertising
– Web employment advertising (CareerBuilder.com)
• Web directory and search engine advertising approach
• Topics of interest; short articles (increases stickiness)
• Monster.com
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Advertising-Supported Revenue
Models (cont’d.)
• Targeted classified advertising sites (cont’d.)
– Used vehicle sites
• AutoTrader.com, CycleTrader.com, BoatTrader.com
• Accepts paid advertising and charge listing fee
• Seller ad options: Web site only, print version inclusion
– Dedicated following product sites (VetteFinders)
• Caters to small audiences
– Product sites useful to buyer after use
• Musicians Buy-Line, ComicLink.com, The Golf
Classifieds
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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
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Advertising-Subscription Mixed
Revenue Models (cont’d.)
• The Washington Post , Los Angeles Times
– Mixed revenue model variation
• No subscription fee charges
• Current stories free
• Pay for archived articles
• Business Week
– Mixed revenue model variation
• Free content at online site
• Requires paid subscription to print magazine
• Archived article additional charge (over five years old)
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Advertising-Subscription Mixed
Revenue Models (cont’d.)
• ESPN
– Leverages brand name from cable television business
– Sells advertising, offers free information
– Collects Insider subscriber revenue
• Consumers Union (ConsumerReports.org)
– Subscriptions and charitable donations
– Not-for-profit organization
• No advertising
– Free information
• Attracts subscribers and fulfills mission
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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
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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
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Fee-for-Transaction Revenue Models
(cont’d.)
• Travel agents (cont’d.)
– Traditional travel agents being squeezed out
• Reduced or eliminated fees
– Smaller travel agents specializing (cruises, hotels)
– Reintermediation strategy
• Travel agents focus on groups
– Cruise Web sites
• VacationsToGo.com, Cruise Specialists
– Group travel Web sites
• WaveHunters.com, WannaSurf
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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)
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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
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Fee-for-Transaction Revenue Models
(cont’d.)
• Insurance brokers
– Quotesmith
• Internet policy price quotes direct to public (1996)
• Independent insurance agents disintermediated
– Insurance policy information, comparisons, sales sites
• InsWeb, Answer Financial, Insurance.com,
YouDecide.com
– Progressive Web site
• Provides quotes for competitors’ products too
– Major insurance company Web sites
• Offer information or policies for sale
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Fee-for-Transaction Revenue Models
(cont’d.)
• Event tickets
– Event promoters use Web
• Ticketmaster, Tickets.com, TicketWeb
• Sell original tickets
• Customers reside anywhere worldwide
– Secondary market tickets
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StubHub, TicketsNow
Operate as brokers
Connect ticket owners with buyers
Reduce transaction costs
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Fee-for-Transaction Revenue Models
(cont’d.)
• Real estate and mortgage loan brokers
– Web sites provide all traditional broker services
• Coldwell Banker, Prudential
– National Association of Realtors Web site
• Realtor.com
– IndyMac Bank Home Lending
• Offers online credit review, decision in minutes, printing
approval letter
– Successful Web mortgage brokers
• Ditech and E-LOAN
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Fee-for-Transaction Revenue Models
(cont’d.)
• Online banking and financial services
– No physical product
• Easy to offer on Web
– Web financial transactions concerns
• Trust and reliability of financial institution
– Solutions
• Use existing bank’s identification and reputation
(Citibank Online)
• Start online bank not affiliated with existing bank (First
Internet Bank of Indiana)
• Use different name (Bank One used Wingspan)
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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
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Fee-for-Transaction Revenue Models
(cont’d.)
• Online music (cont’d.)
– Problems
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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)
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Online Video
• Copying control
– Use DRM software
• Three issues hampering sales
– Large file size
• Reduced by higher Internet connection speeds
– Fear of online sales impairing other sales types
• Potential serial release pattern impact
– Inability to play on variety of devices
• DRM not platform compatible
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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
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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
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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
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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
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Advertising-Supported to AdvertisingSubscription 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
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Advertising-Supported to Fee-forServices 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)
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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
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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
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Revenue Strategy Issues
• Implementations issues
– Channel conflict and cannibalization
– Strategic alliances and channel distribution
management
– Mobile commerce
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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
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Strategic Alliances and Channel
Distribution Management
• Strategic alliance
– Two or more companies join forces
• Undertake activity over long time period
– Joining Web sites with channel distribution
management firms
• Yodlee
– Relationship with portal site clients
• Amazon.com
– Joined with Target, Borders, CDnow, ToyRUs
• Handleman Company
– Manages music inventories (Walmart, KMart)
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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
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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
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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
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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 productrelated promotions
• Upstart product favored by younger generation
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Achieving Web Presence Goals
• Effective site creates attractive presence
– Meets business or organization objectives
• Objectives
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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
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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
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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
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Web Site Usability
• Current Web presences
– Few businesses accomplish all goals
– Most fail to provide visitors sufficient interactive
contact opportunities
– Improve Web presence
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Make site accessible to more people
Make site easier to use
Make site encourage visitors’ trust
Develop feelings of loyalty toward organization
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How the Web Is Different
• Simple mid-1990s Web sites
– Conveyed basic businesses information
– No market research conducted
• Web objectives achievement failure
– Not understanding Web presence-building media
• Web objective achievement success
– Sites create organization’s presence
– Sites contain standard information set
• History, objectives, mission, product information,
financial information, two-way meaningful
communication
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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
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Meeting the Needs of Web Site Visitors
(cont’d.)
• Web site visitor motivations
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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
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Meeting the Needs of Web Site Visitors
(cont’d.)
• Making Web sites accessible
– Build interface flexibility
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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
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Meeting the Needs of Web Site Visitors
(cont’d.)
• Making Web sites accessible (cont’d.)
– Offer multiple information formats
– Web site constructions goals
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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
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Trust and Loyalty
• Creates relationship value
• Good service leads to seller trust
– Delivery, order handling, help selecting product, aftersale 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
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Rating Electronic Commerce Web Sites
• Review electronic commerce Web sites
– Usability, customer service, other factors
– Gomez.com
• No longer publishes most scorecards
– BizRate.com
• Comparison shopping service
• Links to low price and good service ratings sites
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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
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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
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Connecting with Customers
• Important element of a corporate Web presence
• Identify and reach out to customers
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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
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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
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