Revenue Models of PEPSI

and Coca-Cola COMMERCE

HOW DO THEY DIFFER ?
 Slide Show By –

MUZAHID KHAN COMMERCE

Integrated BBA+MBA
muzahidkhan123@gmail
 COMMERCE
Revenue/Business Models
Web Catalog Revenue Model
Advertising-Supported Models
Subscription-Based Revenue
Models
Fee-for-Transaction Revenue
Models
Fee-for-Service Revenue Models
Comparison of Three Models
Revenue Strategy Considerations
Revenue/Business Models
Definition:
How does the firm earn revenue?
Three issues to consider:
What does it sell (product/services).
To whom does it sell (customers).
How does it sell (distribution channel).
Common e-commerce revenue models:
Web catalog (e-tailing): Amazon, Dell, Land’s
End.
Advertising-based: Yahoo, Google, CNN.com.
Subscription-based: WSJ.
Fee per transaction: eBay, E-Trade.
Fee per service: CNN videos.
 COMMERCE Web Catalog Revenue Model
Revenue/Business Models
Similar to mail-order catalogs predating
Web Catalog Revenue Model the web:

Advertising-Supported Models
Works best for:
Subscription-Based Revenue Standardized products with little quality concerns:
Models (New) Books, music, and videos.

Fee-for-Transaction Revenue Impulse purchases:

Models Gifts, electronics.
Fee-for-Service Revenue Models
Problems:
Comparison of Three Models Thin margins because users shop around for the
lowest price.
Revenue Strategy Considerations High volume sales are needed to remain
profitable (economies of scale).
 COMMERCE
Revenue/Business Models
Web Catalog Revenue Model
Advertising-Supported
Models
Subscription-Based Revenue
Models
Fee-for-Transaction Revenue
Models
Fee-for-Service Revenue Models
Comparison of Three Models
Revenue Strategy Considerations
Advertising-Supported Models
Free programming used to attract viewers,
and then sell ads to marketers based on
viewership (like broadcast TV).
Revenue = CPM * # of eyeballs.
CPM: Cost per thousand banner ads.
Who has higher CPM: Yahoo or Yahoo
Finance?
Horizontal versus vertical portal.
Stickiness: Website’s ability to retain visitors.
Sticky content: e-mail, message boards, chat.
Non-sticky content: news, search.
Not very effective:
Low CPM rates due to low ad effectiveness.
Non-sticky content costs money!
 COMMERCE Yahoo versus Google
Yahoo Google
Generic banner ads Ads based on user’s search keywords
Ads less effective in committing Ads more effective in committing
sale sale
Low CPM rate High CPM rate
Push model: Uses news content to Pull model: Driven by users’ own
attract viewers search queries
Producing/buying news content is Providing a search engine is not
expensive expensive
News content not produced but only
linked to external news sites
Low revenue (low CPM) + High cost High revenue (high CPM) + Low cost
= Low profit = High profit
 COMMERCE
Revenue/Business Models
Web Catalog Revenue Model
Advertising-Supported Models
Subscription-Based Revenue
Models
Fee-for-Transaction Revenue
Models
Fee-for-Service Revenue Models
Comparison of Three Models
Revenue Strategy Considerations
Subscription-Based Revenue Models
Subscription fee charged for preferred
content (like cable TV):
New York Times (crosswords)
Wall Street Journal (special articles).
CBS Marketwatch (archived articles).
AOL (monthly fee for ISP connection).
Pornographic web sites.
Usually a combination of free and premium (fee)
content:
Attract customers using free content, then try to
make them pay for premium content.
Some sites use subscription-advertisement mixed
revenue model.
 COMMERCE
Revenue/Business Models
Web Catalog Revenue Model
Advertising-Supported Models
Subscription-Based Revenue
Models
Fee-for-Transaction Revenue
Models
Fee-for-Service Revenue Models
Comparison of Three Models
Revenue Strategy Considerations
Fee-for-Transaction Revenue Models
Businesses offer services and charge a fee
based on number or size of transactions
processed.
Ebay: Listing fee + % of highest bid
(commission).
Ameritrade: $8 flat per trade.
Expedia: $5 surcharge per ticket.
Ticketmaster: Commission per ticket
purchased.
Plagiarism services: Surcharge per term paper
downloaded.
 COMMERCE
Revenue/Business Models
Web Catalog Revenue Model
Advertising-Supported Models
Subscription-Based Revenue
Models
Fee-for-Transaction Revenue
Models
Fee-for-Service Revenue
Models
Comparison of Three Models
Revenue Strategy Considerations
Fee-for-Service Revenue Models
Fee based on value of service provided.
Online games:
Customers pay to play premium games on the
Web.
Concerts and films:
Subscribers pay for streaming concert videos
and films accessed via broadband connection.
Professional services:
Prepaid legal, dental, insurance, warranty, and
other services marketed and sold through the
Web.
 COMMERCE Comparison of Three Models
Revenue/Business Models
The Amazon model (catalog/e-tailing):
Low profitability (due to high fulfillment costs).
Web Catalog Revenue Model
Easy to replicate.
Advertising-Supported Models Only sustainable through sales volume and
repeat sales.
Subscription-Based Revenue Economies of scale and scope are vital for
Models survival.
The Dell model (customization):
Fee-for-Transaction Revenue Complex to operate (sophisticated supply chain).
Models Difficult to replicate.
Requires end-to-end optimization of supply
Fee-for-Service Revenue Models chains for lowest costs.
Comparison of Three Models
The eBay model (marketplace):
Low operating costs.
Revenue Strategy Considerations Strong network effect (non-replicable).
First-mover advantage critical.
 COMMERCE
Revenue/Business Models
Web Catalog Revenue Model
Advertising-Supported Models
Subscription-Based Revenue
Models
Fee-for-Transaction Revenue
Models
Fee-for-Service Revenue Models
Comparison of Three Models
Revenue Strategy
Considerations
Revenue Strategy Considerations
Channel conflict (cannibalization):
When both online and offline channels are used,
growth in online sales may come at the cost of
lower offline sales at retail outlets.
Strategic alliance:
Two companies can jointly sell a common product
to help them both.
Ford and Firestone, Sears and Kenmore.
Minimize customer effort using value-
added services:
Provide search and comparison tools for customers
to compare alternatives.
Provide user personalization/recommendation
services.
Provide account aggregation services: Single site
login for all accounts for online bill payment.