Transcript Document 7253228

Chapter 3:
Selling on the Web: Revenue Models and
Building a Web Presence
Revenue Models
Question: How do we generate revenue??
 Web catalog revenue model
 Taking the successful mail order catalog model to the
Web
 Examples
 Dell
 Amazon
 Lands’ End
 1-800-Flowers
Digital Content Revenue Models
 Firms that own intellectual property have
embraced the Web as a new and highly
efficient distribution mechanism
 Lexis.com
 Provides full-text search of court cases, laws,
patent databases, and tax regulations
 ProQuest
 Sells digital copies of published documents
Advertising-Supported Revenue
Models
 Broadcasters provide free programming to an
audience along with advertising messages
 Success of Web advertising is hampered by:
 No consensus on how to measure and charge for
site visitor views
Stickiness of a Web site: the ability to keep
visitors and attract repeat visitors
 Very few Web sites have sufficient visitors to
interest large advertisers
Web Portals
 Web directory
 A listing of hyperlinks to Web pages
 Portal or Web portal
 Site used as a launching point to enter the Web
 Almost always includes a Web directory and search engine
 Examples: Yahoo!, Google
 Exercise
 Go to several portals – Yahoo, Google, AOL, CNN etc.
 What are the similarities and differences in the homepage?
 Which do you rate as the most effective?
Advertising-Subscription Mixed Revenue
Models
 Subscribers pay a fee and accept some level of
advertising
 Typically are subjected to much less
advertising
 This model is used by The New York Times
(somewhat) and The Wall Street Journal
Fee-for-Transaction Revenue Models
 Businesses offer services and charge a fee based
on the number or size of transactions processed
 Disintermediation
 Removal of an intermediary from a value chain
 Reintermediation
 Introduction of a new intermediary
Digression: Infomediaries and Cybermedaries: A continuing role for
mediating players in the electronic marketplace
 How will Internet affect intermediaries
 Disintermediation??
 Create new intermediaries??
 Argument for disintermediation:
 Manufacturers will internalize activities traditionally
performed by intermediaries
Sarkar, M. B., Butler, B.A., and Steinfield, C. (1996), Journal Computer Mediated
Communication, 1:3
Infomediaries and Cybermedaries
Transaction Cost Theory (Coase 1937)
 Examples:
 search and information costs
 bargaining and decision costs
 policing and enforcement costs
 When should a transaction be carried out within the firm
or in the market?
 Transactions are integrated when the internal cost of
exchange is less than the external cost of exchange.
 Hierarchical structure – market coordination costs
predominate
 Market-like relationship w/ external firms – networks
reduce transaction costs
Week 2: Infomediaries and Cybermedaries
Possible Transactions Between Producers, Consumers, and Intermediaries, where P = Producer, C =
Consumer, I = Intermediary, and T1, T2, and T3 = Transaction costs

View 1: Internet will reduce transactions costs to 0
 Problematic
 Implies networked organization w/ more rather than fewer intermediaries

Suppose T1’= T2’ = T3’ = T* a theoretical minimum

Before T1 > T2 + T3 implies an intermediary

Now: T1’ < T2’ + T3’ implies no intermediary

Question: Is T* the same for all transactions?
Infomediaries and Cybermedaries
Consumer advantages
 Search and evaluation
 Needs assessment and
product matching
 Customer risk management
 Product distribution
Producer advantages
 Product information
dissemination
 Purchase influence
 Provision of customer
information
 Producer risk management
 Transaction economies of
scale
Intermediaries balance consumer and producer needs
Infomediaries and Cybermedaries
Infomediaries and Cybermedaries
Social and Subjective factors for intermediaries:
 Firm may be unable to impose producer-centric structure on its
markets
 Consumers may choose to use intermediaries because they
represent multiple producers
 Benefits of social interaction and entertainment
 Consumers may inhibit producers form abandoning
traditional and on-line intermediaries who serve their needs
Fee-for-Service Revenue Models
 Fee is based on the value of a
service provided
 Services range from games and
entertainment to financial advice
 Online games
 Growing number of sites
include premium games in
their offerings
 Site visitors must pay to play
these premium games
 Examples? Experiences?
 Concerts and films
 As more households obtain
broadband access to the
Internet, companies provide
streaming video of concerts &
films to paying subscribers
 Professional services
 State laws are one of the
main forces preventing U.S.
professionals from extending
their practices to the Web
 Why??
Revenue Models in Transition
 Subscription to advertising-supported model
 Microsoft founded its Slate magazine Web site
An upscale news and current events publication
Charged an annual subscription fee after a limited
free introductory period
Was unable to draw a sufficient number of paid
subscribers
Now operated as an advertising-supported site
Advertising-Supported to
Advertising-Subscription Mixed
Model
 Salon.com
 Operated for several years as an advertisingsupported site
 Now offers an optional subscription version of
its site
 Subscription offering was motivated by the
company’s inability to raise additional money
from investors
Advertising-Supported to Fee-forServices Model
 Xdrive Technologies
 Opened its original advertising-supported Web
site in 1999
 Offered free disk storage space online to users
 After two years, it was unable to pay the costs
of providing the service with the advertising
revenue it generated
 Later it switched to a subscription-supported
model
Advertising-Supported to Subscription
Model
 Northern Light
 Founded in August 1997 as a search engine with
a twist
 Revenue model
Combination of advertising-supported model
plus a fee-based information access service
 January 2002
Converted to a new revenue model that was
primarily subscription supported
Multiple Transitions
 Encyclopædia Britannica
 Original offerings included:
 The Britannica Internet Guide
 Free Web navigation aid
 Encyclopædia Britannica Online
 Available for a subscription fee or as part of a CD package
 1999
 Converted to a free, advertiser-supported site
 2001
 Returned to a mixed model
 Go to site -- http://www.britannica.com/
 Impressions? Why use the vs. Wikipedia?
Revenue Strategy Issues
 Channel conflict
 Occurs whenever sales
activities on a company’s Web
site interfere with existing
sales outlets
 Also called cannibalization
 Examples?
 Channel cooperation
 Giving customers access to
the company’s products
through a coordinated
presence in all distribution
channels
 Exercise
 Go to a Web site of a physical
store and see if you can
identify examples of channel
cooperation.
 Examples?
Strategic Alliances and Channel
Distribution Management
 Strategic alliance
 When two or more companies join forces to
undertake an activity over a long period of time
 Account aggregation services
 Increase the propensity of customers to return
to a site
 Channel distribution managers
 Companies that take over the responsibility for
a particular product line within a retail store
Creating an Effective Web Presence
 An organization’s presence is the public image it
conveys to its stakeholders
 Stakeholders of a firm include customers,
suppliers, employees, stockholders, neighbors, and
the general public
Achieving Web Presence Goals
 Objectives of the business
include:
 Objectives of the business
include:
 Attracting visitors to the
Web site
 Creating an impression
consistent with the
organization’s desired image
 Making the site interesting
enough that visitors stay and
explore
 Building a trusting
relationship with visitors
 Convincing visitors to follow
the site’s links to obtain
information
 Reinforcing positive images
that the visitor might already
have about the organization
 Encouraging visitors to return
to the site
Profit-Driven Organizations
 The Toyota site is a good
example of an effective Web
presence
 It provides links to:
 Detailed information about
each vehicle model
 A dealer locator page
 Information about the
company and the financing
services it offers
Profit-Driven Organizations (continued)
 The Quaker Oats Web site does
not offer a particularly strong
sense of corporate presence
 Site is a straightforward
presentation of links to
information about the firm
 Redesigned site is essentially the
same as the previous version but
graphically more appealing
Not-for-Profit Organizations
 Key goal for the Web sites of not-for-profit organizations is
information dissemination
 Key element on any successful electronic commerce Web site is the
combination of information dissemination and a two-way contact channel
 Exercise
 Go to the Web site of a not-for-profit organization
 Does it disseminate information
 How – if at all – does it differ from other Web sites you have visited
Web Site Usability
 Motivations of Web site visitors
include:
 Learning about products or
services that the company
offers
 Buying products or services
that the company offers
 Obtaining information about
warranty, service, or repair
policies for products they
purchased
 Obtaining general information
about the company or
organization
 Motivations of Web site visitors
include:
 Obtaining financial
information for making an
investment or credit granting
decision
 Identifying the people who
manage the company or
organization
 Obtaining contact information
for a person or department in
the organization
Making Web Sites Accessible
 Designers should - Build flexibility into the Web site’s interface
 Let visitors choose among information attributes
 Offer multiple information formats by including links to
files in those formats
 Goals that should be met when constructing Web sites:
 Offer easily accessible facts about the organization
 Allow visitors to experience the site in different ways
and at different levels
 Sustain visitor attention and encourage return visits
 Offer easily accessible information
Trust and Loyalty
 A 5 percent increase in customer loyalty can yield profit
increases between 25% and 80%
 Repetition of satisfactory service can build customer loyalty
 Customer service is a problem for many electronic
commerce sites
 Why is this so?
 Example of site with good customer service?
 Examples with bad customer service?
Usability Testing
 Companies that have done usability tests
 Conduct focus groups
 Watch how different customers navigate through a
series of Web site test designs
 Cost of usability testing is low compared to the total cost of
a Web site design or overhaul
Customer-Centric Web Site Design
 Put the customer at the center
of all site designs
 Guidelines:
 Design the site around how
visitors will navigate the links
 Guidelines:
 Avoid using business jargon
and terms that visitors might
not understand
 Be consistent in use of design
features and colors
 Allow visitors to access
information quickly
 Make sure navigation controls
are clearly labeled
 Avoid using inflated
marketing statements
 Test text visibility on smaller
monitors
 Conduct usability tests
Connecting With Customers
 Personal contact model
 Firm’s employees individually
search for, qualify, and
contact potential customers
 Prospecting
 Personal contact approach to
identifying and reaching
customers
 Mass media approach
 Firms prepare advertising and
promotional materials about
the firm and its products
 Addressable media
 Advertising efforts are
directed to a known
addressee
 Also called mass media
 One-to-many communication
model
 Communication flows from
one advertiser to many
potential buyers
 One-to-one communication model
 Both buyer and seller
participate in information
exchange
Exercise: Web Site design
 Page 149 of the text includes a list of things that Web sites can do to meet the
needs of visitors. Find three Web sites that meet three or more of the needs in
the table below. On a 10 point scale (10 highest) rate how well each site meets
the need. You may use the Webby Awards site as a starting point in your search
but use other sites besides the Webby winner in your category.
RATE THE SITES
Goal that web sites should meet:
1. Offer easily accessible facts about he organization
2. Allow visitors to experience the site in different ways
at different levels
3. Provide visitors with a meaningful, two-way interactive
communication link with the organization
4. Sustain visitor attention and encourage return visits
5. Offer easily accessible information about products &
services and how to use them
Webby
Winner
Company 1 Company 2 Company 3 Company 4
Summary
 Models used to generate revenue
on the Web include:
 Web catalog
 Digital content sales
 Advertising-supported
 Advertising-subscription
mixed
 Fee-for-transaction and feefor-service
 Companies undertaking electronic
commerce initiatives sometimes:
 Form strategic alliances
 Contract with channel
distribution managers
 Firms must understand how the
Web differs from other media
 Enlisting the help of users when
building test versions of the
Web site is a good way to create
a site that represents the
organization well
 Firms must also understand the
nature of communication on the
Web