1

Introduction to E-Commerce
Revenue Models
2
An Introduction to E-Commerce
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
2
3
An Introduction to E-Commerce
Objectives (continued)
Creating an effective business presence on
the Web
Web site usability
Communicating effectively with customers
on the Web
4
An Introduction to E-Commerce
Revenue Models
Mail order or catalog model
Proven to be successful for a wide variety of
consumer items
Web catalog revenue model
Taking the catalog model to the Web
3
5
An Introduction to E-Commerce
Computers and Consumer
Electronics
Apple, Dell, Gateway, and Sun
Microsystems have had great success
selling on the Web
Dell created value by designing its entire
business around offering a high degree of
configuration flexibility to its customers
6
An Introduction to E-Commerce
Books, Music, and Videos
Retailers use the Web catalog model to sell books,
music, and videos
Among the most visible examples of electronic
commerce
J eff Bezos
Formed Amazon.com
J ason and Matthew Olim
Formed an online music store they called CDnow
Used the Web catalog revenue model
4
7
An Introduction to E-Commerce
Luxury Goods
People are still reluctant to buy luxury goods
through a Web site
Web sites of Vera Wang and Versace
Constructed to provide information to shoppers, not
to generate revenue
Web site of Evian
Designed for a select, affluent group of customers
9
An Introduction to E-Commerce
Flowers and Gifts
1-800-Flowers
Created an online extension to its telephone
order business
Chocolatier Godiva
Offers business gift plans on its site
5
10
An Introduction to E-Commerce
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
11
An Introduction to E-Commerce
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
6
12
An Introduction to E-Commerce
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!, AOL, AltaVista
13
An Introduction to E-Commerce
Advertising-Subscription
Mixed Revenue Models
Subscribers
Pay a fee and accept some level of advertising
Typically are subjected to much less advertising
Used by
The New York Times and The Wall Street
Journal
7
14
An Introduction to E-Commerce
Advertising-Subscription Mixed
Revenue Models (continued)
Business Week
Offers some free content at its Business Week
onlinesite
Requires visitors to buy a subscription to the
Business Week print magazine
15
An Introduction to E-Commerce
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
8
16
An Introduction to E-Commerce
Fee-for-Service Revenue
Models
Fee 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
17
An Introduction to E-Commerce
Fee-for-Service Revenue
Models (continued)
Concerts and films
As more households obtain broadband access to
the Internet, companies are providing streaming
video of concerts and 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
9
18
An Introduction to E-Commerce
Revenue Models in Transition
Subscription to advertising-supported model
Microsoft founded its Slate magazineWeb site
An upscale news and current events publication
Charged an annual subscription fee after a limited free
introductory period
Was unable to draw sufficient number of paid
subscribers
Now operated as an advertising-supported site
19
An Introduction to E-Commerce
Advertising-Supported to Advertising-
Subscription Mixed Model
Salon.com
Operated for several years as an advertising-
supported site
Now offers an optional subscription version of
its site
Subscription offering was motivated by the
companys inability to raise additional money
from investors
10
20
An Introduction to E-Commerce
Advertising-Supported to Fee-
for-Services 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 generated
Later switched to a subscription-supported
model
21
An Introduction to E-Commerce
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
J anuary 2002
Converted to a new revenue model that was
primarily subscription supported
11
22
An Introduction to E-Commerce
Multiple Transitions
Encyclopdia Britannica
Original offerings
The Britannica Internet Guide
Free Web navigation aid
Encyclopdia 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
23
An Introduction to E-Commerce
Revenue Strategy Issues
Channel conflict
Occurs whenever sales activities on a companys Web
site interfere with existing sales outlets
Also called cannibalization
Channel cooperation
Giving customers access to the companys products
through a coordinated presence in all distribution
channels
12
25
An Introduction to E-Commerce
Creating an Effective Web
Presence
An organizations presence
The public image it conveys to its stakeholders
Stakeholders of a firm
Include its customers, suppliers, employees,
stockholders, neighbors, and the general public
26
An Introduction to E-Commerce
Achieving Web Presence Goals
Objectives of the business
Attracting visitors to the Web site
Making the site interesting enough that visitors
stay and explore
Convincing visitors to follow the sites links to
obtain information
13
27
An Introduction to E-Commerce
Achieving Web Presence Goals
(continued)
Objectives of the business
Creating an impression consistent with the
organizations desired image
Building a trusting relationship with visitors
Reinforcing positive images that the visitor
might already have about the organization
Encouraging visitors to return to the site
28
An Introduction to E-Commerce
Profit-Driven Organizations
Toyota site
A good example of an effective Web presence
Provides links to
Detailed information about each vehicle model
A dealer locator page
Information about the company and the financing
services it offers
14
29
An Introduction to E-Commerce
Toyota U.S. Home page
30
An Introduction to E-Commerce
Profit-Driven Organizations
(continued)
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
15
31
An Introduction to E-Commerce
Quaker Oats Old Home Page
32
An Introduction to E-Commerce
Quaker Oats Home Page: 1999
Redesign
16
33
An Introduction to E-Commerce
Not-for-Profit Organizations
Key goal for the Web sites
Information dissemination
Key element on any successful electronic
commerce Web site
Combination of information dissemination and a
two-way contact channel
34
An Introduction to E-Commerce
Web Site Usability
Motivations of Web site visitors
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
17
35
An Introduction to E-Commerce
Web Site Usability (continued)
Motivations of Web site visitors
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
36
An Introduction to E-Commerce
Making Web Sites Accessible
One of the best ways to accommodate a
broad range of visitor needs is to build
flexibility into the Web sites interface
Good site design lets visitors choose among
information attributes
Web sites can offer visitors multiple
information formats by including links to
files in those formats
18
37
An Introduction to E-Commerce
Making Web Sites Accessible
(continued)
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
38
An Introduction to E-Commerce
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
19
39
An Introduction to E-Commerce
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
40
An Introduction to E-Commerce
Customer-Centric Web Site
Design
Putting the customer at the center of all site
designs
Guidelines
Design the site around how visitors will
navigate the links
Allow visitors to access information quickly
Avoid using inflated marketing statements
20
41
An Introduction to E-Commerce
Customer-Centric Web Site
Design (continued)
Guidelines
Avoid using business jargon and terms that
visitors might not understand
Be consistent in use of design features and
colors
Make sure navigation controls are clearly
labeled
Test text visibility on smaller monitors
Conduct usability tests
42
An Introduction to E-Commerce
Connecting With Customers
Personal contact model
Firms employees individually search for,
qualify, and contact potential customers
Prospecting
Personal contact approach to identifying and
reaching customers
Mass mediaapproach
Firms prepare advertising and promotional
materials about the firm and its products
21
43
An Introduction to E-Commerce
Connecting With Customers
(continued)
Addressable media
Advertising efforts 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
44
An Introduction to E-Commerce
Business Communication
Modes
22
45
An Introduction to E-Commerce
Summary
Models used to generate revenue on the Web
Web catalog
Digital content sales
Advertising-supported
Advertising-subscription mixed
Fee-for-transaction and fee-for-service
Companies undertaking electronic commerce
initiatives sometimes
Form strategic alliances
Contract with channel distribution managers
46
An Introduction to E-Commerce
Summary (continued)
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