E- Business
Ninth Edition
Chapter 4
E-Business Revenue Models
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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 use same revenue model for both types of sales
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Web Catalog Revenue Models
• Adapted from mail-order (catalog) model
– Seller establishes brand image
– Printed information mailed to prospective buyers
• Orders placed by mail or toll-free telephone number
• Expands traditional model
– Replaces or supplements print catalogs
– Offers flexibility
• Orders placed through Web site or telephone
• Payments made though Web site, telephone, or mail
– Creates additional sales outlet for existing companies
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Web Catalog Revenue Models (cont’d.)
• Computers and consumer electronics
– E.g., Dell – product customization; Best Buy – Web
site sells same products as in stores
• Marketing channel
– Pathway to customers
• Advantage of having several marketing channels
– Reach more customers at less cost
• Can combine marketing channels
– Example: in-store online ordering
– Example: mail catalogs with reference to retailer’s
Web site
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FIGURE 4-1 Combining marketing channels: Two retailer examples
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Web Catalog Revenue Models (cont’d.)
• Books, music, and videos
– Amazon.com Web-only retailer originally sold books
• Started with small-ticket commodity items – books.
• Evolved into a general retailer
– Barnes & Noble, Blackwell’s, Books-A-Million,
Powell’s Books, CDnow Web-only online music store
• Luxury goods
– Difficult to sell online
– E.g., Vera Wang and Versace - Web sites provide
information; Shopper purchases at physical store;
Heavy use of graphics and animation
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Web Catalog Revenue Models (cont’d.)
• Clothing retailers
– Display clothing photos categorized by type
• Prices, sizes, colors, tailoring details
– Lands’ End online Web shopping assistance
• Lands’ End Live (1999); Online text chat and call-back
feature; Ability to push Web pages to customer’s
browser; Personal shopper agent (more recent); Learns
preferences and makes suggestions
– My Virtual Model (customers try clothes)
– Problem: varying computer monitor color settings
• Solution: send fabric swatch on request
• Solution: offer generous return policies
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Digital Content Subscription Revenue
Models
• Firms owning written information or rights
– Embrace the Web as a highly efficient distribution
mechanism
– Use the digital content revenue model
• Sell subscriptions for access to information they own
• Examples
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LexisNexis: offers variety of information services
Lexis.com: offers original legal information product
ProQuest: digital copies of academic publications
Dow Jones newspaper publisher subscriptions
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Advertising-Supported Revenue
Models
• Used by United States broadcast network television
– Provides free programming and advertising
messages
• Supports network operations sufficiently
• Problem1: measuring and charging site visitor views
– # of visitors, # of unique visitors, # of click-throughs
– Stickiness
• Keeping visitors at site and attracting repeat visitors
• Exposed to more advertising in a sticky site
• Problem2: obtaining large advertiser interest
– Requires demographic information collection
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Edition
Characteristics
set used to group visitors
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Advertising-Supported Revenue
Models (cont’d.)
• Can obtain large advertiser interest by:
– Using a specialized information Web site
• Draw a specialized audience certain advertisers want to
reach
– Examples:
• The Huffington Post and the Drudge Report
• HowStuffWorks
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FIGURE 4-2 Three strategies for an advertising-supported revenue model
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Advertising-Supported Revenue
Models (cont’d.)
• Web portals (portal)
– Site used as a launching point to enter the Web
– Web directories: Listing of hyperlinks to Web pages
– Yahoo!: uses search term triggered advertising on
each page
• Portal sites using general interest strategy
– AOL, Excite, Google, Bing
• Portal sites not using general interest strategy
– Help visitors find information within a specific
knowledge domain; Advertisers pay more; Example:
C-NET
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Advertising-Supported Revenue
Models (cont’d.)
• Newspaper and magazine publishers
– Sell advertising to cover Web site costs
• Targeted classified advertising sites
– Can command higher rates than general advertising
– Original version: Newspaper classified advertising
– Growth of classified advertising Web sites
• Very bad for newspapers
• Example: craigslist
– Web employment advertising
• Most successful targeted classified advertising category
• Examples: CareerBuilder.com, The Ladders and
Guru.com,
Monster.com
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Advertising-Subscription Mixed
Revenue Models
• Subscribers pay fee and accept advertising
– Typically less advertising compared to advertisingsupported 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
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FIGURE 4-3 Revenue models used by online editions of newspapers and
magazines
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Advertising-Subscription Mixed
Revenue Models (cont’d.)
• ESPN
– Leverages brand name from cable television business
– Sells advertising, offers free information
– Mixed model includes advertising and subscription
revenue (collects Insider subscriber revenue)
• Consumers Union (ConsumerReports.org)
– Purely a subscription-supported site
– Not-for-profit organization with no advertising
– Free information
• Attracts subscribers and fulfills mission
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Fee-for-Transaction Revenue Models
• Service fee charged
– Based on transaction number or size
• Web site offers visitor transaction information
– Personal service formerly provided by a human agent
• 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
– Travel agency revenue model: receive fee for
facilitating a transaction
– Computers also good at information consolidation and
filtering (Travel agents have long used networked
computers: Sabre Travel Network)
– Web-based travel agencies were new entrants
• Examples: Travelocity, Expedia, Hotels.com, Hotel
Discount Reservations, Orbitz
• Generate advertising revenue from ads placed on
travel information pages
– Smaller travel agents specialize (cruises, hotels)
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Fee-for-Transaction Revenue Models
(cont’d.)
• Insurance brokers
– Quotesmith offered Internet policy price quotes
directly to public (1996)
• Independent insurance agents: disintermediated
– Insurance policy information, comparisons, sales sites
• InsWeb, Answer Financial, Insurance.com
– Progressive Web site
• Provides quotes for competitors’ products too
– The General (General Automobile Insurance
Services) Web site
• Offers comfortable, anonymous experience
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Fee-for-Transaction Revenue Models
(cont’d.)
• Online banking and financial services
– No physical product; Easy to offer on Web
– Concerns: Trust and reliability of financial institution
– Solutions
• Use existing bank’s identification and reputation
• Start online bank not affiliated with existing bank (First
Internet Bank of Indiana)
• Use different name (Bank One used Wingspan & failed)
– Barriers preventing a more rapid rate of growth
• Lack of bill presentment features
• Lack of account aggregation tools
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Fee-for-Service Revenue Models
• Companies offer Web service
– Fee based on service value; Not a broker service; Not
based on transactions-processed number or size
• Examples
– Online games - Sales revenue source
• Advertising (older concept), pay-to-play for premium
games, subscription fees
– Professional services
• Limited Web use (e.g., State laws prohibit)
• Major concern - Patient privacy
– Physicians’ online consultations
• For ongoing, established relationship patients
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Free for Many, Fee for a Few
• Economics of manufacturing
– Different for physical and digital products
– Unit cost high percentage of physical products
– Unit cost very small for digital products
• Leads to a different revenue model
– Offer basic product to many for free
– Charge a fee to some for differentiated products
• Examples: Yahoo e-mail accounts, bakery: free cookies
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Revenue Models in Transition
• Companies must change revenue model
– To meet needs of new and changing Web users
• Some companies created e-commerce Web sites
– Needed many years to grow large enough to become
profitable (CNN and ESPN)
• Some companies changed model or went out of
business
– Due to lengthy unprofitable growth phases
• See more examples in the book
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Revenue Strategy Issues
• Topics:
– Web revenue models implementation issues
– Dealing with the issues
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Channel Conflict and Cannibalization
• Channel conflict (cannibalization)
– Company Web site sales activities interfere with
existing sales outlets
– Levis Web site and Maytag
• Web sites no longer sell products
• Sites now provide product, retail distributor information
– Eddie Bauer
• Online purchases returnable at retail stores
• Required compensation and bonus plans adjustments
to support Web site
• Channel Cooperation made it successful
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Strategic Alliances
• Strategic alliance
– Two or more companies join forces
• Undertake activity over long time period
• Yodlee account aggregation services provider
– Yodlee concentrates on developing the technology
and services
– Banks provide the customers
• Amazon.com
– Joined with Target, CDnow, ToysRUs
• ToysRUs and Amazon suing each other
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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
(cont’d.)
• Web business site objectives:
– Attracting Web site visitors
– Keeping visitors to stay and explore
– Convincing visitors to follow site’s links to obtain
information
– Creating an impression consistent with the
organization’s desired image
– Building a trusting relationship with visitors
– Reinforcing positive images about the organization
– Encouraging visitors to return to the site
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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 Web site pages
• Usually include trusted corporate image (Coke bottle)
• Image: traditional position as a trusted classic
– Pepsi Web site pages
• Usually filled with hyperlinks to activities and productrelated promotions
• Image: upstart product favored by younger generation
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Web Site Usability
• Current Web presences
– Few businesses accomplish all goals
– Most fail to provide visitors sufficient interactive
contact opportunities
– Improving Web presence
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Make site accessible to more people
Make site easier to use
Make site encourage visitors’ trust
Make site develop feelings of loyalty toward the
organization
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How the Web Is Different
• Simple mid-1990s Web sites
– Conveyed basic business information
– No market research conducted
• Web objectives achievement
– Failed due to no understanding for Web presencebuilding media
• Web sites designed to create an organization’s
presence:
– Contain links to standard information set
– Success dependent on how this information offered
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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
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Rating Electronic Commerce Web Sites
• Companies routinely review electronic commerce
Web sites for:
– Usability, customer service, other factors
– Sell the gathered information directly to the
companies operating the Web sites
• Include suggestions for improvements
• BizRate.com posts ratings
– Provides comparison shopping service
– Compiles ratings by conducting surveys of sites’
customers
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Usability Testing
• Importance
– 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
– Usability testing methods
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