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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
Electronic Commerce
Eighth Edition
Chapter 3
Selling on the Web: Revenue Models
and Building a Web Presence
Electronic Commerce, Eighth Edition
Revenue Models
Web Catalog Revenue Models
• Web business revenue generating models
–
–
–
–
–
• Adapted from traditional catalog-based model
Web catalog – based on traditional catalog model
Digital content
Advertising-supported
Advertising-subscription mixed
Fee-based
– Seller established brand image
– Sold through printed information
•Mailed to prospective buyers
• Web sites expand traditional model
These last four items will be discussed in more detail later in
this chapter
• Can work for both sale types
– Replace or supplement print catalogs
– Offer flexibility
– Business-to-consumer (B2C)
– Business-to-business (B2B)
• Can work with one Web site for B2C & B2B, separate sites, or
separate pages on same site
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3
•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.)
Web Catalog Revenue Models (cont’
d.)
• Clothing retailers
• Luxury goods
– Adapt catalog sales model to Web
– Display clothing photos
– Clientele reluctant to buy through Web
– Vera Wang and Versace
•Prices, sizes, colors, tailoring details
•Web sites provide information
•Shopper purchases at physical store
•Heavy use of graphics and animation
– Customers examine clothing online
•Place orders through Web site
– Lands’End online Web shopping assistance
– Evian
•Lands’End Live (1999)
•Text chat and call-back features
•Uses flash animation
– Tiffany & Co
– Lands’End personal shopper agent (more recent), a
program which learns preferences and makes
suggestions
•Graphics and animation require broadband connection
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Web Catalog Revenue Models (cont’
d.)
Web Catalog Revenue Models (cont’
d.)
• Clothing retailers (cont’
d.)
• Flowers and gifts (gift retailers)
– My Virtual Model (customers try clothes)
– 1-800-Flowers
•Graphic image built from customer measurements
•Online extension to successful telephone business
•Competes with online-only florists
– Lands’End
•Two shoppers using different computers
•Simultaneously browse Web site together, though only
one can buy at a time
– Online overstocks stores
•Offers business gift plans
– Hickory Farms and Mrs. Fields Cookies
•Offer familiar name brands on Web
•Reaches more people than physical store
– Harry and David – ‘
Fruit-of-the-month’club
– Problem with varying computer monitor color settings
•Send fabric swatch on request
– Offer generous return policies
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– Godiva
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•Original Web site for informational purposes
•Promoted catalog business
•Added online ordering feature
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Web Catalog Revenue Models (cont’
d.)
Digital Content Revenue Models
• General discounters (completely new businesses)
• Highly efficient distribution mechanism
– Buy.Com
– Firms own written information or information rights
•Borrowed Wal-Mart and discount club sales model
• LexisNexis: variety of information services, turned into
website…
• Lexis.com: traditional research product, e.g., legal
information, tax regulations
• ProQuest: sells published documents’digital copies, e.g.,
masters theses
• Dow Jones newspaper publisher subscriptions
– Many sites sold advertising (originally)
•Subsidized extremely low prices
•Most sites now out of business
– Rely on volume purchasing strategy (now)
•Keeps prices low
– Digitized newspaper, magazine, and journal content
– Fiercely competitive (thin margins: little profits)
– Traditional discount retailers
•Costco, Kmart, Target, Wal-Mart (Wal-Mart had some
e-commerce failures until they got it right)
•Slow to introduce electronic commerce Web sites
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• One of the first academic organizations to create electronic
distribution was the Association for Computer Machinery:
digital library of its journals
• Sellers of adult digital content
– Pioneered online credit card payment processing
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Advertising-Supported Revenue
Models
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Advertising-Supported Revenue
Models (cont’
d.)
• United States network television
• Successful sites attract specific groups
– Provides free programming and advertising
messages
– About.com, HowStuffWorks, Drudge Report. Say a user asks
‘
how does a pellet stove work?’
, a good web site will direct a
pellet-stove advertisement to this user
•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 enough visitors is a large advertiser
problem
– Demographic information
• Web portals –a launching point used to enter the web
– 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) - tech portal
•Characteristics set used to group visitors
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Advertising-Supported Revenue
Models (cont’
d.)
Advertising-Supported Revenue
Models (cont’
d.)
• Newspaper publishers
• Targeted classified advertising sites
– Publish print content on Web
– Internet Public Library Online Newspapers page
– More successful at generating adverting revenue
– Web site profit potential
•Links to worldwide newspaper sites
•Specialize in classified advertising –in newspapers,
classifieds are a good money-maker
– Newspaper’
s Web presence
– Web employment advertising (CareerBuilder.com)
•Provides greater exposure and advertising audience
•Print edition sales loss (difficult to measure)
•Operating costs not covered by advertising revenue
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•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 - for
Corvettes)
•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
Advertising-Subscription Mixed
Revenue Models (cont’
d.)
• Subscribers
• The Washington Post , Los Angeles Times
– Pay fee and accept advertising
– Typically less advertising
• Compared to advertising-supported sites
– Mixed revenue model variation
• Web sites offer different degrees of success
– The New York Times (today) –charges for some parts of its site
• 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.)
• Business Week
– Mixed revenue model variation
•Some free content at online site
•Requires paid subscription to print magazine
•Archived article additional charge (over five years old)
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Fee-for-Transaction Revenue Models
• ESPN
– Leverages brand name from cable television business
– Sells advertising, offers free information
– Collects Insider subscriber revenue
• Consumers Union (ConsumerReports.org)
• Service fee based on transaction number or size
• Web site offers visitor personal service
– Formerly, human agents provided service
• Value chain
– Disintermediation means…
– Subscriptions and charitable donations
– Not-for-profit organization
•Intermediary (human agent) removed
– Reintermediation
•No advertising
•New intermediary (fee-for-transaction Web site)
introduced
– Free information
Examples on next slide
•Attracts subscribers and fulfills mission
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•No subscription fee charges
•Current stories free
•Pay for archived articles
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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.)
26
Fee-for-Transaction Revenue Models
(cont’
d.)
• Automobile sales
• Travel agents (cont’
d.)
– Web site removes salesperson negotiation
– Traditional travel agents being squeezed out
•Reduces costs
•Provides buyers information service
•Reduced or eliminated fees
– Smaller travel agents specializing (cruises, hotels)
– Reintermediation strategy
– CarsDirect.com model
•Customers select specific car, site determines price
and finds local dealer willing to sell for that price
•Travel agents focus on groups with specialized needs,
e.g., surfers
– Autoweb.com and Autobytel model
– Cruise Web sites
•Site locates local dealers, car sells at small premium
over dealer’
s nominal cost
•VacationsToGo.com, Cruise Specialists
– Car salesperson disintermediated
– Web site: new intermediary (reintermediation)
– Group travel Web sites
•WaveHunters.com, WannaSurf
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Fee-for-Transaction Revenue Models
(cont’
d.)
Fee-for-Transaction Revenue Models
(cont’
d.)
• Stockbrokers
• Insurance brokers
– Charge customers trade execution commission
– Web-based brokerage firms (E*TRADE and Datek –
bought by TD Ameritrade)
– Quotesmith
•Internet policy price quotes direct to public (1996)
•Independent insurance agents disintermediated
•Offer investment advice, fast trade execution
•Creates competition for discount and full-service
brokers
– Insurance policy information, comparisons, sales sites
•InsWeb, Answer Financial, Insurance.com,
YouDecide.com
– Discount brokers and full-line brokers
– Progressive Web site
•Web sites opened for stock trading and information
•Transaction cost reductions (like online auto buying)
•Stockbrokers disintermediated
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•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
•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, allowing immediate shopping for house
– Successful Web mortgage brokers
•Ditech and E-LOAN
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Fee-for-Transaction Revenue Models
(cont’
d.)
34
Fee-for-Transaction Revenue Models
(cont’
d.)
• Online banking and financial services
• Online music
– 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)
– Some started online banks not affiliated with existing bank (e.g.,
First Internet Bank of Indiana)
– Some used different name (Bank One used Wingspan), but
ended up merging with their main bank sites
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– 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 Video
• Online music (cont’
d.)
– Problems
• Digital products easily copied
• Stores promote own music file format
• Buyers required to download and install software which limits
number of audio file copies
• Software does not prevent illegal copying, but makes it more
difficult
– Solution
• Adopting one standard file format
• No copying restrictions
• DRM-free MP3 format (Amazon) –DRM – Digital rights
management – makes it harder to make more than a certain
number of copies –Apple just implemented something like
this
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– 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 –theatres, then
airplanes & premium cable, released to DVD, then TV
– Inability to play on variety of devices
•DRM not platform compatible
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Fee-for-Service Revenue Models
(cont’
d.)
Fee-for-Service Revenue Models
• Companies offer Web service
• Professional services
– Fee based on service value
– Limited Web use
•Not broker service
•Not based on transactions-processed number or size
•State laws prohibit extension of practice of Dr.’
s,
lawyers, accountants, engineers
•Patients may set appointments
•Practice across state lines, not licensed in other states
• Online games
– Sales revenue source
•Advertising (older concept)
•Pay-to-play premium games
•Subscriptions
– Major concern
•Patient privacy
– Significant barrier
– Frequent player demographics
•Patient diagnosis difficult without physical examination
•40% over age 35
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• Copying control
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Subscription to Advertising-Supported
Model
Revenue Models in Transition
• Slate magazine (e-zine)
• Need to change revenue model
– Upscale news and current events
– When Web users’needs change
• Success expectations were high
• Conditions after 2000
– Experienced writers and editors
– Acclaim for incisive reporting and excellent writing
– Funding became scarce
•Unprofitable growth phase
• Initial revenue source
– Change model or go out of business
– Annual subscription
•Did not cover operating costs
• Now an advertising-supported site
– Part of MSN portal
•Increases stickiness of this portal
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Advertising-Supported to AdvertisingSubscription Mixed Model
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Advertising-Supported to Fee-forServices Model
• Xdrive Technologies
• Salon.com
– Acclaim for innovative content
– Free disk storage
• Initial revenue source
• Initial revenue source (1999)
– Advertising-supported site
– Needed additional money to continue operations
• Investors did not provide
– Advertising-supported
•Pages contained advertising
•Targeted e-mail advertising
•Did not cover operating costs
• Now offers optional subscription version
– Annual fee for Salon premium
• Free of advertising
• Downloadable content
• Additional content such as downloadable music, ebooks
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• Now subscription-supported service
– Monthly fee dropping as cost of disk storage has
dropped
• Other similar companies (IBackup and Kela)
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Advertising-Supported to Subscription
Model
Multiple Transitions
• Encyclopedia Britannica
• Northern Light
– Initial Web offerings
– Search engine (includes own database)
•Britannica Internet Guide –rates and indexes web sites
•Encyclopedia Britannica Online
•Results include Web site links and abstracts
• Initial revenue source
• Initial revenue source
– Combination (advertising-supported and fee-based)
– Paid subscription site
•Individual article payment
•Search results page advertising
•Low subscription sales
– Converted to free advertiser-supported site
– Did not cover operating costs
•Sold educational and scientific products
• Now subscription model
• Returned to mixed model
– Annual, large clients
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– 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
More detail on this in ensuing slides
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Channel Conflict and Cannibalization
Strategic Alliances and Channel
Distribution Management
• Channel conflict (cannibalization)
– Company Web site sales activities interfere with
existing sales outlets
• Strategic alliance
• Retail distribution partner issues
– Levis: stopped selling products on company Web site
•Site now provides product information
• Yodlee
– Maytag: incorporated online partners into Web site
– Relationship with portal site clients
•Site now provides product information
• Amazon.com
– Eddie Bauer
– Joined with Target, Borders, CDnow, ToyRUs
•Online purchases returnable at retail stores
•Required compensation and bonus plans adjustments
to store managers, i.e., an allowance for web
purchases returned to stores. This reduced conflict with
Web site.
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49
Mobile Commerce
• Handleman Company –does channel distribution
management
– Manages music inventories (Walmart, KMart) – since they are
specialists in selling music, the stores make more $.
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Creating an Effective Web Presence
• Few companies successful generating significant
revenues
• Organization’
s presence
– NTT’
s DoCoMo I-Mode service (Japan cell phone)
– Public image conveyed to stakeholders
– Usually not important
•Send short messages, play games, obtain weather
forecasts. Some services not free. Pay $ for internet
access.
•Until growth reaches significant size
– Stakeholders
– AvantGo (United States)
•Customers, suppliers, employees, stockholders,
neighbors, general public
•Offers channels of information as PDA downloads
• Mobile commerce: $400 billion by 2012
• Effective Web presence
– Requires larger memory, easier-to-use interfaces,
higher screen resolutions
– Critical
•E-mail, telephone, Web access, entertainment services
convergence
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– Two or more companies join forces
• Undertake activity over long time period
– Joining Web sites with channel distribution management firms
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•Even for smallest and newest Web operating firms
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Identifying Web Presence Goals
(cont’
d.)
Identifying Web Presence Goals
• Business physical space
– Focus on very specific objectives
•Not image driven until business has grown somewhat
•Must satisfy many business needs, e.g., inventory, cost
of storage space,
•Fails to convey good presence when first starting out
• Web business site intentionally creates distinctive
presence
• Good Web site design
• 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
– 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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Achieving Web Presence Goals
(cont’
d.)
Achieving Web Presence Goals
• Effective site creates attractive presence
• Profit-driven organizations
– Meets business or organization objectives
– Toyota
• Objectives
•Good example of effective Web presence
•Presence consistent with corporate goal
– 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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– Quaker Oats older Web site
•Offered little sense of corporate presence
– Quaker Oats current Web site
•Much better
See ensuing slides
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Electronic Commerce, Eighth Edition
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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 –e.g., for volunteers
and contact with other organizations this organization
may work with
– American Civil Liberties Union (ACLU)
•Serves many different constituencies
– Political party Web sites
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Electronic Commerce, Eighth Edition
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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
•Make site accessible to more people
•Make site easier to use
•Make site encourage visitors’trust
•Develop feelings of loyalty toward organization
These items discussed in more detail on coming slides
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How the Web Is Different
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Meeting the Needs of Web Site Visitors
• Simple mid-1990s Web sites
– Conveyed basic businesses information
– No market research conducted to determine what customers
want from the web site
• Successful Web businesses:
– Realize every visitor is a potential customer (partner)
• Web objectives achievement failure
• Crafting Web presence is an important concern
– Not understanding how Web as a presence-building media is
different from other presence-building media
– Often didn’
t have email links, and even if they did, many sites
didn’
t reply to their emails
– Know visitor characteristic variations
• Visitor at site for a reason
• 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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Electronic Commerce, Eighth Edition
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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
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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 – to load faster
• Option to specify streaming media connection type so that
the streaming media adjusts itself to the bandwidth for that
connection
• Option to choose among information attributes, e.g., you
determine how deep you want to drill re: a product’
s info,
e.g., do you want to see a stereo systems detailed specs?
– Controversial Web site design
• Animated graphics software use, e.g., Flash
• Some tasks lend themselves to animated Web pages
Electronic Commerce, Eighth Edition
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Meeting the Needs of Web Site Visitors
(cont’
d.)
• Making Web sites accessible (cont’
d.)
– Offer multiple information formats –e.g., choose to
use an HTML file, or PDF, or spreadsheet
– Web site constructions goals
•Offer easily accessible organization facts
•Allow different visitor experiences, as visitors have
different reasons for visiting the site
•Provide meaningful, two-way communication link –this
is important to customers
•Sustain visitor attention and encourage return visits
•Offer easily accessible information about products,
services, and their use
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Electronic Commerce, Eighth Edition
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Trust and Loyalty
Rating Electronic Commerce Web Sites
• Creates relationship value
• Good service leads to seller trust
• Review electronic commerce Web sites
– Delivery, order handling, help selecting product, aftersale support
– Usability, customer service, other factors
– Gomez.com
•No longer publishes most scorecards
– BizRate.com
• Satisfactory service builds customer loyalty
• Customer service in electronic commerce sites
•Comparison shopping service
•Links to low price and good service ratings 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 Site
(cont’
d.)
70
Rating Electronic Commerce Web Site
(cont’
d.)
• Customer-centric Web site design
• Usability testing –companies should be doing this
– Important part of successful electronic business
operation
– Focus on meeting all site visitors’needs
– Putting customer at center of all site designs
– Helps meet Web site goals
– Avoids Web site frustration – electronic goods web
sites frustrate 70% of their customers
•Customers leave site without buying anything
•Follow guidelines and recommendations
•Make visitors’Web experiences more efficient,
effective, memorable
– Simple site usability changes
•Include telephone contact information –YES!!!
•Staff a call center –YES!!!
– Usability
– Learn about visitor needs by conducting focus groups
– Usability testing cost is…
•Low compared to Web site design costs
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•Important element of creating effective Web presence
See pages 156, 157 for guidelines on how to create a
customer-centric website
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Connecting with Customers
Connecting with Customers (cont’
d.)
• Nature of Web communication –called ‘
communication
modes’
• Important element of a corporate Web presence
• Identify and reach out to customers
Electronic Commerce, Eighth Edition
– 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 via mail,
telephone, email
– Internet medium
• Occupies central space in medium choice continuum –not
quite a mass medium (arguable?), nor is it a personal contact
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Summary
One
advertisor to
many
potential
buyers à
• Six main approaches to generate Web revenue
– Models work differently
– Different business types use different models
– Learn more about customers, business environment
e.g.,
reviewers or
buyers of
books –are
the ‘
many’
•Change models
• Channel conflict and cannibalization challenges
à
– Form strategic alliances with other companies
– Contract with channel distribution managers
e.g., the
bookseller
is the ‘one’
;
the buyers
are the
‘
many’ à
Electronic Commerce, Eighth Edition
Electronic Commerce, Eighth Edition
• B2C mobile commerce not widely successful
• Create effective Web presence to deliver value
• Must understand Web communication
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