NBA 600: Session 9 E-Commerce and Online Communities 18 February 2003 Daniel Huttenlocher

Today’s Class

   Finish discussion of online retail from last week Start topic of online communities – Several companies established to sell community building software for the Web • Mainly gone or in other businesses now – Yet online communities remain important aspect of businesses such as eBay, Amazon • Social, learning or sharing aspect Summarize papers on Internet travel – Growth of business use – “relationship” accts.

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User Experience is Everything

  Online, the brand is the experience – Major part of the offering, e.g. Amazon’s focus – Contrast with kinds of offline brands that are mainly about experience No overall design to IBM site in late ’90’s – – – Hard to use, most common requests were help button and search box – experience=confusion Re-designed over 10 weeks, over 100 people • Common layout, low download time, graphic design, navigability First week saw 84% drop in help button, 400% increase in sales (NYT 8/30/99) 3

AMZN Focus on Customer

    Company attracts people with customer focus – not just in customer facing roles – Including software developers Continuous testing in their usability lab – – Entire experience, not just Web interaction Tradeoff of new features versus clutter Metrics to evaluate each change – Careful evaluation of how changes drive sales Leading the customer carefully – E.g., with one-click addressing fears by making clear it was easy to cancel 4

Customer Experience at AMZN

    Discovery – Searching, browsing, recommendations, relatedness, what you’ve done on site Community – Reviewers, merchants, spending time making site richer experience Shopping – The bread and butter, has to be easy and fun Order monitoring – Sale not over until customer happy with item(s) • At least if want repeat business 5

Revisiting E-Commerce Failures

   Some were just too early – – Level of comfort with online shopping E.g., much furniture bought offline not seen • But Living.com didn’t make it Some didn’t fit online model well – E.g., pet supplies • Low value and high shipping cost items Some built un-sustainable costs/debt – E.g., Webvan provided value beyond pricing • FreshDirect giving online grocery a try in NYC 6

FreshDirect Online Grocer

    Focus is on food, particularly perishables – Modeled on Dell: provide great choice and use Internet to deliver that choice • With new manufacturing process for product Better quality and selection of fresh foods – – Prices 10-30% lower than Manhattan stores Fixed $3.95 delivery fee, minimum $40 order • Deliver only at night and on weekends Direct from warehouse to customer – Many items prepared in the warehouse Raised $120M; goal $225M/yr sales by ’04 7

Summary of Online Retail

   Importance of user experience on brand – – Requires commitment across the company Requires common site design, navigation • But content needs to be accurate, so best under control of individual business group/team Selection and convenience are big drivers of online commerce – – Price secondary focus for successful firms Perhaps getting less important for consumers • Driver of choice both online and offline Online community plays role too – next 8

Online Community

  People spending time adding value because they are having fun doing it – – Interacting with others • Shared interests, winning a game Audience for their work • Reviews, commentary, open source software Feedback is critical – Mainly fun if you know you are reaching others • • Amazon has reviewer ratings Ebay has buyer/seller ratings • Internet Chess club has player rankings 9

Hard to Start a Community

   Chicken-and-egg problem – Good content/value is attracted by a good audience, which is attracted by good content Helps to do something where people are “obsessive” or “expert” • Collecting/trading • Book/music/video reviews • • • Gaming Writing software Health problems Need to balance interests of experts or providers with beginners or consumers 10

Community as Supplement

  Amazon is a good example of supplement – Reviews add richness to the user experience – – • • Can be extremely helpful in making selections Reviewers can have immediate impact on shoppers’ decisions People rank reviews/reviewers even though they are only indirectly rewarded Little “free riding” problem compared to what economists would expect In contrast newspaper or magazine site – Amateur reviews compete with professionals • Less obvious means for feedback 11

Community as Addiction

  Winning at games – Especially where tangible reward such as money or property • Including virtual property – Includes auctions/trading Ebay a good example: users often refer to themselves as addicted – – Buying things don’t need and weren’t looking for beforehand Beginners advised to use auto-bidding and (hidden) “maximum price” • Avoid potentially costly bidding wars 12

Balance of Providers and Users

   Ebay has historically had a naturally self sustaining nature – Many of the participants are collectors which makes them both buyers and sellers As Ebay moves to more corporate sellers – – Fewer sellers and more buyers Potential for loss of balance (NYT 11/25/02) Trading sites need more exact balance – Only one provider and customer per transaction • In contrast reviews are “consumed” many times  In fact should be, to give feedback 13

Community Trust

   Ebay’s initial challenge – Building trust to trade with strangers online • Focused on sense of community and “inherent goodness of people” Means of running cheaters out of town – Reputation scores based on completed transactions (+,0,-) • • Number of positives minus negatives About half of transactions result in ratings High reputation scores – Ebay rewards its highest reputation sellers • 85,000 points 14

Maintaining Trust

   Ebay says fraud less than 1/100 th – – percent But still moving beyond “community policing” Highly visible case involved real world too • Merchant who fled with over $200K also had shop and employees Poor experiences more common than outright fraud – Sellers now being verified through credit card or other information • Contract with Verisign Works in sense that fraud outside higher – Case of fake cashiers check and used Mac’s 15

Value of Reputation

  Resnick (UMich) study shows price effect – Controlled study with “matched pairs” of vintage postcards • Done in conjunction with established seller who had high reputation – • Sold one of each pair as relatively new seller with little reputation High reputation seller received closing bids on average 7.6% higher than unknown sellers Perhaps surprisingly, a few negative scores had little effect – Treated similar to unknown with a few positives and no negatives 16

Epinions and Pure Community

  Goal to provide “unbiased” reviews of products and services – – – Contributed by visitors to site Rated for accuracy and value by other visitors Want to be better than sites such as Amazon by having more of a community • Not restricted to items on one site Changed from advertising revenue model – – Clearly not working by late 2000 Main revenue now from referrals to retailers • Fee per referral and/or for listings 17

Online Travel Assignment

  What transaction vs. relationship customers want – – Transaction: price focused, own time cheap Relationship: total cost focused • • Person time expensive, flexibility and convenience key Some claimed cost not important or secondary, but data did not support that view   One of largest controllable costs; managed travel Appetite for a lowering total cost Mixed views on how/where technology could benefit relationship customers 18

Where Technology Good or Bad

    Compliance and pre-approval of travel – Easier to apply rules and get approvals, via email and/or Web Repeat travel – Store old itineraries, make simple to rebook Availability of tools for own research and booking where desired – Some postulated that many business travelers do this already, to double-check agents Expert human assistance can’t be beat in case of problems en route 19

Evolution of Online Travel

 Wide range of views – – Little change Continued dominance of corporate agencies such as Amex but with help of new technology • Build on relationship and service expertise • Use Internet to provide more information direct to traveler and to travel coordinator – New entrants such as Expedia • Build on technology expertise to provide Internet information wherever possible • • Grow or buy relationship and service experts Particularly for underserved smaller businesses 20

“Hybrid” Travel Agent Model

   Internet access as additional valuable means of information access Continued telephone access to experts – In some ways similar to Dell.com, people available for higher value tasks Several argued easier for Amex to build or buy technology expertise than vice versa – Have relationships now, happy customers – But can’t be complacent • AMEX actively developing technology, started in 1997 with Expedia as partner • Online booking grew from 5.8 to 13.5% Q1-Q3 ‘02 21