E- Business
Ninth Edition
Chapter 7
Virtual Communities
1
Virtual Communities
• Virtual community (Web community, online
community)
– Gathering place for people and businesses
• No physical existence
• Early virtual communities
– Bulletin board systems (BBSs)
• Revenue source: monthly fees and selling advertising
– Usenet newsgroups
• Message posting areas on usenets
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Virtual Communities (cont’d.)
• Current forms
– Web chat rooms
– Sites devoted to specific topics or general exchange
of information, photos, videos
– People connect and discuss common issues,
interests
– Considerable social interaction
– Relationship-forming activities
• Similar to physical communities
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Social Networking in the Second Wave
of Online Communities
• As the Internet and Web grew:
– Experience of sharing new online communication
faded
– New phenomenon in online communication began
• Multiple common bonds joined people with all types of
common interests
– Internet became a tool to facilitate communication
• Social networking sites
– Allow individuals to create and publish a profile,
create a list of other users with whom they share a
connection (or connections), control that list, and
monitor
similar lists made by other users
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Ninth Edition
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Social Networking in the Second Wave
of Online Communities (cont’d.)
• Social networking sites
– Six Degrees (1997); Closed in 2000.
– Friendster (2002)
• Had features found in today’s social networking sites
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–
–
–
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LinkedIn: devoted to business connections
Tribe.net
YouTube: popularized video inclusion
MySpace: popular with younger Web users
Twitter
• Users can send short messages to other users who
sign up to follow their messages (tweets)
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Social Networking in the Second Wave
of Online Communities (cont’d.)
• Basic idea behind social networking
– People invited to join by existing members
– Site provides directory
• New members work through friends established in the
community
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FIGURE 7-1 Social networking Web sites
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Social Networking in the Second Wave
of Online Communities (cont’d.)
• Web logs (Blogs)
– Web sites containing individual commentary on
current events or specific issues
– Form of social networking site
• Encourages interaction among people
• Visitors add comments
• Early blogs focused on technology topics
• 2004: blogs used as political networking tool
• 2008: all major candidates using blogs
– Communicating messages, organizing volunteers,
raising money, meetups
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Social Networking in the Second Wave
of Online Communities (cont’d.)
• Retailers embracing blogs to engage site visitors
– Bluefly.com online discount apparel retailer
• Flypaper blog
– Ice.com online jeweler
• Blogs may encourage potential customers to visit online
store
• Business uses
– CNN
• Blog information included in television newscasts
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Social Networking in the Second Wave
of Online Communities (cont’d.)
• Business uses (cont’d.)
– Newspapers
• Inviting information and opinion contributions
• Targeting 18- to 35-year-old generation
– Participatory journalism
• Trend toward having readers help write the online
newspaper
• Blogs can become businesses in themselves
– Must generate financial support (fees, advertising)
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Social Networking in the Second Wave
of Online Communities (cont’d.)
• Social networking Web sites for shoppers
– Social shopping
• Practice of bringing buyers and sellers together in a
social network to facilitate retail sales
– Example: craigslist
• Operated by not-for-profit foundation
• All postings free (except help wanted ads)
– Example: Etsy Web site
• Marketplace for selling handmade items
• We Love Etsy: Etsy buyers, sellers share information
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Social Networking in the Second Wave
of Online Communities (cont’d.)
• Social networking Web sites for shoppers (cont’d.)
– Social networking sites form communities based on
connections among people
– Idea-based virtual communities
• Communities based on connections between ideas
– Idea-based networking
• Participating in idea-based virtual communities
• Examples: del.icio.us site, 43 Things site
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Social Networking in the Second Wave
of Online Communities (cont’d.)
• Web portals
– Combine portal and social networking features
– Typical portal offerings
• Search engines, directories, free e-mail, news stories,
weather reports
– Social networking elements
• Games and chat rooms
• Allow site visitors to interact with each other
– Examples:
• Yahoo!, AOL, MSN
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Revenue Models for Social Networking
Sites
• By late 1990s:
– Revenue created by selling advertising
• Used by virtual communities, search engine sites, Web
directories
• 1998
– Purchases and mergers occurred
– New sites still used advertising-only revenuegeneration model
• Included features offered by virtual community sites,
search engine sites, Web directories, other informationproviding and entertainment sites
– Goal: be every Web surfer’s doorway to the Web
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Revenue Models for Social Networking
Sites (cont’d.)
• Advertising-supported social networking sites
– Smaller sites with specialized appeal
• Can draw enough visitors to generate significant
advertising revenue
• Example: I Can Has Cheezburger site
– Recall from Chapter 3:
• Sites with higher number of visitors can charge more
• Stickiness: important element in site’s attractiveness
– Rough measure of stickiness
• Time user spends at the site
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FIGURE 7-2 Popularity and stickiness of leading Web sites
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Revenue Models for Social Networking
Sites (cont’d.)
• Advertising-supported social networking sites
(cont’d.)
– Social networking sites
• Members provide demographic information
• Potential for targeted marketing: very high
– High visitor counts
• Can yield high advertising rates
– Second-wave advertising fees
• Based less on up-front site sponsorship payments
• Based more on revenue generation from continuing
relationships with people who use the social networking
sites
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Revenue Models for Social Networking
Sites (cont’d.)
• Mixed-revenue and fee-for-service social networking
sites
– Most social networking sites use advertising
– Some charge a fee for some services
• Examples: Yahoo! All-Star Games package, Yahoo!
premium e-mail service
– Monetizing
• Converting site visitors into fee-paying subscribers or
purchasers of services
• Concern: visitor backlash
– More examples: The Motley Fool and TheStreet.com
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Revenue Models for Social Networking
Sites (cont’d.)
• Fee-based social networking
– Google Answers site
• Early attempt to monetize social networking
• Questions answered for a fee
• Google operated service from 2002 to 2006
– Similar free services
• Yahoo! Answers, Amazon (Askville)
– Uclue (paid researchers earn 75 percent of total fee)
• Advocates claim better quality
– Fee-based Web sites can generate revenue by
providing virtual community interaction
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Revenue Models for Social Networking
Sites (cont’d.)
• Microlending sites
– Function as clearinghouses for microlending activity
– Microlending
• Practice of lending very small amounts of money
• Lend to people starting or operating small businesses
(especially in developing countries)
– Microlending key element
• Working within social network of borrowers
• Provide support, element of pressure to repay
– Examples: Kiva and MicroPlace
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Mobile Commerce
• Short messaging service (SMS)
– Allows mobile phone users to send short text
messages to each other
• 2008: United States developments allowing phones
as Web browsers
– High-speed mobile telephone networks grew
dramatically
– Manufacturers offered range of smart phones with
Web browser, operating system, applications
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Mobile Operating Systems and
Applications
• Japan and Southeast Asia mobile commerce
– Much larger online business activity
• Had high-capacity networks early on
– Mobile wallets
• Mobile phones functioning as credit cards
– Japan’s NTT DoCoMo phones combined capabilities
• Generate significant business
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Mobile Operating Systems and
Applications (cont’d.)
• United States mobile commerce capabilities began
in 2008
– Smart phone and high-capacity network introductions
• Mobile commerce smart phone examples
– Apple iPhone, Palm Pre, several BlackBerry models
• Use the Android operating system
• Provide serious U.S. mobile commerce for the first time
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Mobile Operating Systems and
Applications (cont’d.)
• Mobile commerce browser display options
– Wireless Application Protocol (WAP)
• Allows Web pages formatted in HTML to be displayed
on devices with small screens
– Display a normal Web page on the device
• Made possible by increased screen resolution
• Example: Apple iPhone
– Design Web sites to match specific smart phones
• Much more difficult to accomplish
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The Future of Mobile Commerce
• Companies wanting mobile user commerce
– Review Web sites for compatibility
• May create separate Web sites for mobile users
• Mobile phones for online banking
– In early stages in the United States
• Physicians using smart phones
• Phones’ global positioning satellite (GPS) service
capabilities
– Allow mobile business opportunities
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Online Auctions
• Business opportunity perfect for the Web
• Auction site revenue sources
– Charging both buyers and sellers to participate
– Selling advertising
• Targeted advertising opportunities available
• Online auctions capitalize on Internet’s strength
– Bring together geographically dispersed people
sharing narrow interests
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Auction Basics
• From Babylon to the Roman Empire to Buddhists
• Common activity of 17th century England
– Sotheby’s (1744), Christie’s (1766), colonial auctions
• Auction: seller offering item for sale
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–
–
–
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Bids: price potential buyer willing to pay
Bidders: potential buyers
Private valuations: amounts buyer willing to pay
Auctioneer: manages auction process
Shill bidders: work for seller or auctioneer
• May artificially inflate price
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Auction Basics (cont’d.)
• English auctions
– Bidders publicly announce successively higher bids
• Item sold to highest bidder (at bidder’s price)
– Also called ascending-price auction
– Open auction (open-outcry auction)
• Bids publicly announced
– Minimum bid
• Beginning price
• If not met: item removed (not sold)
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Auction Basics (cont’d.)
• English auctions (cont’d.)
– Reserve price (reserve)
• Seller’s minimum acceptable price
• Not announced
• If not exceeded: item withdrawn (not sold)
– Yankee auction
• Multiple item units offered for sale (bidders specify
quantity)
• Highest bidder allotted bid quantity
• Remaining items allocated to next highest bidders until
all items distributed
• Bidders pay lowest successful bidder price
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Auction Basics (cont’d.)
• English auctions (cont’d.)
– Seller drawback
• Small increments of bids  Seller may not obtain
maximum possible price
– Buyer drawback
• Winner’s curse psychological phenomenon
– Bidder gets caught up in competitive bidding excitement
– Bids more than their private valuation
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Auction Basics (cont’d.)
• Dutch auctions
– Open auction
• Bidding starts at a high price
• Drops until bidder accepts price
– Also called descending-price auctions
– Seller offers number of similar items for sale
– Common implementation
• Use a clock (price drops with each tick)
• Bidders stop clock and take items at the given price
• If items remain: clock restarted
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Auction Basics (cont’d.)
• Dutch auctions (cont’d.)
– Often better for the seller
– Quickly move large numbers of commodity items
– Successful examples:
• Google initial public offering stock sale (2004)
• LookSmart stock repurchase
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Auction Basics (cont’d.)
• First-price sealed-bid auctions
– Sealed-bid auctions
• Bidders submit bids independently
• Prohibited from sharing information
– First-price sealed-bid auction
• Highest bidder wins
• If multiple items auctioned: next highest bidders
awarded remaining items at their bid price
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Auction Basics (cont’d.)
• Second-price sealed-bid auction
– Same as first-price sealed-bid auction
– Except highest bidder awarded item at secondhighest bidder price
– Commonly called Vickrey auctions
• William Vickrey: 1996 Nobel Prize in Economics
– Findings:
• Yields higher seller returns
• Encourages all bidders to bid private valuation amounts
• Reduces tendency for bidder collusion
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Auction Basics (cont’d.)
• Open-outcry double auctions
– Example: Chicago Board of Trade auctions of
commodity futures and stock options
– Buy and sell offers shouted by traders in trading pit
• Each commodity, stock option traded in own pit
• Quite frenzied
• Double auctions (either sealed bid or open outcry)
– Good for items of known quality traded in large
quantities
– No item inspection before bidding
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Auction Basics (cont’d.)
• Double auctions
– Buyers, sellers submit combined price-quantity bids
• Auctioneer
– Matches sellers’ offers
• Starts with lowest price and then goes up
– To buyers’ offers
• Starts with highest price and then goes down until all
quantities offered are sold
• Operation format
– Sealed bid or open-outcry
• Example: New York Stock Exchange
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Auction Basics (cont’d.)
• Reverse (seller-bid) auction
– Multiple sellers submit price bids
• Auctioneer represents single buyer
– Bids for given amount of specific item to purchase
– Prices go down as bidding continues:
• Until no seller willing to bid lower
– Occasionally operated for consumers
– Most involve businesses as buyers and sellers
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FIGURE 7-4 Key characteristics of seven major auction types
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Online Auctions and Related
Businesses
• Online auction business: rapidly changing
• Three auction Web site categories
– General consumer auctions
– Specialty consumer auctions
– Business-to-business auctions
• Varying opinions on categorizing consumer auctions
– Business-to-consumer
– Consumer-to-consumer
– Consumer-to-business
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Online Auctions and Related
Businesses (cont’d.)
• General consumer auctions
• eBay: registration required, seller fees, rating
system
– Seller’s risk: stolen credit cards; buyer fails to
conclude transaction
– Buyer’s risk: no item delivery; misrepresented item
– Most common auction format: English auction
•
•
•
•
Seller may set reserve price
Bidders listed: bids not disclosed (until auction end)
Continually updated high bid amount displayed
Private auction option available
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Online Auctions and Related
Businesses (cont’d.)
• General consumer auctions (cont’d.)
– Another eBay auction format: Dutch auction
– Both formats require minimum bid increment
• Amount by which one bid must exceed previous bid
– Proxy bid
• Bidder specifies maximum bid
• May cause bidding to rise rapidly
– eBay stores
• Integrated into auction site
• Sellers generate additional profits
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Online Auctions and Related
Businesses (cont’d.)
• eBay’s success due to unspecified audience
– Also spends $1 billion each year to market and
promote Web site
• Major determinants of Web auction site success
– Attracting enough buyers and sellers
• Yahoo! Auction operation closed in 2007
• Amazon.com with “Auctions Guarantee”
– Offered buyer protection through escrow service
– Closed in 2006
• Overstock.com (still active)
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Online Auctions and Related
Businesses (cont’d.)
• Future challengers to eBay
– Must overcome lock-in effect
• New auction participants inclined to patronize
established marketplaces
– Example: Japanese general consumer auction
• Yahoo! first to enter market
– Now dominates (more than 90% market share)
• eBay maintains low market share (less than 3%)
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Online Auctions and Related
Businesses (cont’d.)
• Specialty consumer auctions
– Identify special-interest market targets
– Create specialized Web auction sites
• No need to compete with eBay
– Examples:
• JustBeads.com, Cigarbid.com, Winebid
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Online Auctions and Related
Businesses (cont’d.)
• Consumer reverse auctions
• Reverse bid
– Visitor describes desired items or services
– Site routes visitor to participating merchants
• Reply to visitor by e-mail
• Offer item at particular price
– Buyer accepts
• Lowest offer
• Offer best matching buyer’s criteria
• All these types of sites now closed
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