Chapter 4 : E-Business Revenue Models

Dr. Samim Al Azad (SAA2)

Assistant Professor, SB&E, NSU
 Chapter Opening Case
Pinterest: A Picture is Worth a Thousand Words

§ Allow users to collect scrapbooks of content and pin (save) to a virtual

bulletin board.
§ As of February 2017, there were over 75 billion pins and 1.5 billion
different boards.
– Over 175 million monthly active members worldwide (70% are women)

§ Revenue models- advertising, user data sell

– Pricing models [CPM, CPC, CPA (For videos: Cost per View/ CPV or CPM)]

§ Legal concern: issue of copyright infringement

– In 2014: a federal lawsuit against Pinterest

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 Chapter Opening Case
Pinterest: A Picture is Worth a Thousand Words

§ Have you used Pinterest or any other content curation sites?

§ What are your main interests?
§ Have you purchased anything based on a pin or board on Pinterest
or any other curation site?
§ Why do Pinterest links drive more purchasing than Facebook links?

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 Learning Objectives

§ Revenue model and its Categories

§ 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

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 Revenue Models

§ Web business revenue-generating models

– Web catalog (sales revenue model)
– Digital content (subscription revenue model)
– Advertising-supported and Advertising-subscription mixed
– Fee-based (transactions and services)
– Free for many, fee for a few

§ Can work for both sale types

– Business-to-consumer (B2C)
– Business-to-business (B2B)
§ Can use same revenue model for both types of sales

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 1. Web Catalog Revenue Models
(Sales Revenue Model)

§ Adapted from mail-order (catalog) model

– Seller establishes brand image, and then uses the strength of that
image to sell through printed information mailed to prospective buyers
§ Orders placed by mail or toll-free telephone number

§ Expands traditional model to the online world by replacing the

print catalogs with information
– Offers flexibility
§ Orders placed through Web site or telephone
§ Payments made though Web site, telephone, or mail

– Creates additional sales outlet for existing companies

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 1. Web Catalog Revenue Models (cont’d.)

§ Computers and consumer electronics

– Sell a full range of products on the Web (Dell)

§ Books, music, and videos

– Amazon.com, Barnes & Noble, Blackwell’s, Powell’s Books

§ Clothing retailers
– Display clothing photos categorized by type Prices, sizes, colors

§ Flowers and gifts (gift retailers)

– Online extension to successful telephone business

§ General discounters
– Traditional discount retailers (Costco, Target, Wal-Mart)

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 2. Digital Content Revenue Models
(Subscription Revenue Model)

§ Company sells right (subscriptions) to the customers to access the

information they own

§ Academic research content

– ProQuest: digital copies of academic publications

§ Business content:
– Newspaper publisher subscriptions
– Sold digitized newspaper, magazine, and journal content subscriptions

§ Technical content : Association for Computer Machinery (ACM): digital

library
§ Others: ???

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 3. Advertising as a Revenue Models

§ Instead of charging a fee or subscription for content, many

online businesses display advertising on their web site.
– To support the operation of the web site, and development or purchase
the contents

§ Online advertising is now well established

– Some sites rely entirely on advertising for their revenue
– Others use it only to provide part of their revenue

§ 2 types:
– Advertising-supported revenue model
– Advertising-subscription mixed model

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 3.1 Advertising-Supported Revenue Models

§ Revenue comes from sole advertisement

§ Used by broadcast network television

– Provides free programming with advertising messages, but display advertising
to supports network operations sufficiently

§ 2 challenges for sole revenue sources web sites:

1. obtaining large advertiser interest
2. measuring and charging site visitor views
§ Keeping visitors at site and attracting repeat visitors

§ Solution: Using a specialized information Web site

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FIGURE Three strategies for an advertising-supported revenue model
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 3.2 Advertising-Subscription Mixed Models

§ Subscribers pay a fee but also accept some level of advertising

– Typically less advertising compared to advertising-supported sites
– Example: traditional newspaper

§ Web sites offer different degrees of success

– The New York Times (today)
§ Bulk of revenue derived from advertising

– The Wall Street Journal (mixed model)

§ Subscription revenue weighted more heavily

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FIGURE Revenue models used by online editions of newspapers and magazines
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 4.1 Fee-for-Transaction Revenue Models

§ Service fee charged based on transaction number or size

• Previously, service information provided by a human agent

– However, currently web site offers visitor transaction information they
need about the transaction

§ Value chain
– Disintermediation: intermediary removed
– Reintermediation: new intermediary (fee-for-transaction Web site)
introduced

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 4.1 Fee-for-Transaction Revenue Models
(cont’d.)

Examples
§ Online travel agents
§ Online banking and financial service
• Stockbrokers and Insurance brokers
• Event tickets: online agencies earn a fee on every ticket sold
– Shohoz.com, Ticketmaster, Tickets.com,

§ Real estate and mortgage loans

– Web sites provide all traditional broker services

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 4.2 Fee-for-Service Revenue Models

§ Companies offer Web services for which they charge a fee

– These fees are neither broker services nor services based on
transactions number or size (value of the service)

§ Professional services
– Medical, legal and other professional practices allow clients/ patients
to make appointment (consultation services) online

§ Consultancy
§ Online games

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 5. Free for Many, Fee for a Few

§ Offer a product or service to a large number of customers

for free and then charge a small number of customers.

§ Leads to a different revenue model

– Offer basic product to many for free
– Charge a fee to some for differentiated products

§ Example:
– Any software (student version and professional version)
– Yahoo e-mail accounts, bakery: free cookies

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 Class Discussion

§ Task-1
– Identify different categories of revenue models and give
an example of each from the context of Bangladesh.
§ Web catalog (sales revenue model)
§ Digital content (subscription revenue model)
§ Advertising-supported and
§ Advertising-subscription mixed
§ Fee-based (transactions)
§ Fee based (services)
§ Free for many, fee for a few

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 Class Discussion

§ Task-2
– Prothom-alo is one of the most popular newspapers in Bangladesh
with millions of readers worldwide (including online and offline).
Ø Identify the business model and revenue model of prothom-alo newspaper
based on your learning.

§ Task-3
– North South Business Review is one of the leading online journals for
business research, which is published by NSU publication.
Ø What kind of revenue model would you like to suggest for this kind of online
content provider? Why?

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 Revenue Models in Transition

§ Many companies have gone through transitions in their

revenue models
– as they learn how to do business successfully on the Web.

§ Reasons-
– to meet the needs of new and changing Web users
– lengthy unprofitable growth phases
– to cover/maintain the operating cost
– to increase revenue
– to lead/capture the market

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 1. Subscription to Advertising-Supported Model

Slate magazine (Microsoft)

§ It publishes upscale news and current events

§ Success expectations were high because of it’s experienced
writers and editors
§ Initial revenue source
– Annual subscription did not cover operating costs
– Was unable to draw a sufficient number of paid subscriber (competitors
used ad. Revenue model)

§ Now an advertising-supported site

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 2. Advertising-Supported to Advertising-
Subscription Mixed Model

Salon.com (online magazine)

§ Acclaimed for innovative content

§ Initial revenue source was advertising-supported site, but
– Needed additional money to continue operations

§ Now offers optional subscription version (annual fee for Salon

premium)
– Free of advertising
– Additional content
– Downloadable content (for offline reading)

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 2. Advertising-Supported to Fee-for-Services
Model

Xdrive

§ Xdrive Technologies: offered free disk storage

§ Initial revenue source (1999): advertising-supported
– Users had to provide personal information
– Xdrive sent targeted e-mail advertising to them (users)

§ Did not cover operating costs

§ 2005: bought by AOL
– Switched to a subscription-supported model (B and C)
– AOL closed the service in 2009

§ Successful company: dropbox

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 Revenue Models in Transition (Multiple Changes)

Others

§ Encyclopedia Britannica
§ The New York times

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 Class Discussion

Ø Task-4
Ø Give an examples of BD e-commerce website that went
through such kind of revenue model transition.

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 Revenue Strategy Issues

§ Issues arise when companies implement those revenue

models-
– Channel conflict and cannibalization
– Strategic alliances
– Luxury goods strategies
– Overstock sales strategies

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 1. Channel Conflict and Cannibalization

§ Company Web site sales activities interfere with existing

sales outlets

§ Example:
– Levi Strauss & Company sells through DS & RS
– Began selling products through levi’s website (1998)
§ Retail stores complained to Levi’s about reduced sales because of
additional online outlets

– Levi’s Web site stopped selling products (2000)

§ Sites now provide product, retail distributor information

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 2. Strategic Alliances

§ Two or more companies join forces to undertake activity

over long time period.

§ Purpose: To sell on the web (levi’s and retail stores)

§ Example:
– Yodlee (IT developing firms) and its’ client bank
– Amazon.com
§ Joined with Target, CDnow, ToysRUs

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 3. Luxury Goods Strategies

§ Difficult to sell online

– Expensive luxury goods, and high-fashion clothing items

§ Why?
– Consumers generally want to see in person or touch

§ Usually many luxury brand hesitate to offer in online

– Fearing of alienating the upscale physical stores (Lilly Pulitzer)

§ Solution: Limiting the range of online offering (Calvin Klein)

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 4. Overstock Sales Strategies

§ Problem of overstocks
– Products that did not sell as well as hoped

§ Outlet store for selling overstocks (widely used)

§ Overstock web page also worked well (Lands’ End)

– Many websites include a link to separate sections for overstock or
clearance sales of end season merchandise.

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 Creating an Effective Web Presence

§ Organization’s web presence

– Public image conveyed to stakeholders
– Usually not important until growth reaches significant size

§ Effective Web presence

– Critical even for smallest and newest Web operating firms

§ Many customers know the company only through the web

presence (any example?)

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 Identifying Web Presence Goals

§ Web business site objectives

– Attracting Web site visitors
– Keeping visitors to stay and explore
– Convincing visitors to follow site’s links to obtain information (liked sns
pages /subscription)
– Creating an impression consistent with the organization’s desired
image
– Building a trusting relationship with visitors
– Reinforcing positive images about the organization
– Encouraging visitors to return to the site (retain customer)

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 Making Web presence consistent with brand
image

§ Different firms establish different Web presence goals

1. Coca Cola Web site pages
§ Usually include trusted corporate image (Coke bottle)
§ Image: traditional position as a trusted classic

2. Pepsi Web site pages

§ Usually filled with hyperlinks to activities and product-related promotions
§ Image: upstart product favored by younger generation

Carefully think about your company's’ web presence goal!!!

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 Cass Discussion

§ Task-5
Ø How can a not-for-profit organization use (WP goal) a
website to enhance its operation throughout the world?

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 Web Site Usability

§ Meeting the needs of Web sites visitors

– varied motivations of visitors
– making site accessible

§ Trust and loyalty

§ Usability testing
§ Customer centric Web site design

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 Web Site Usability

§ Task-6
Ø How can you make a website functional for customers who
are visually impaired?

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 Home Work-1

§ Go to the website of Wix, Weebly, or another provider of your choosing that

allows you to create a simple e-tailer website for a free trial period. Create a
website. The site should feature at least four pages, including a home page,
product page, offers (sell on XXX), blog, shopping cart, and contact page.
It's an open format website, so you have to include all necessary information
that you want in your pages. The more attractive the website, the more
points you will get. Extra credit will be given for additional complexity and
creativity.

– Product page: You have to offer at least 3 categories of products and (at least) 2
different types of products from each category (total 6 product description). Each
product should be displayed with detail product specifications, total cost,
discounted cost (if any), indicate stock out (if any)/ inventory level, and so on.

– Offer /Sell on page: Offer some products with huge discounts for special occasion
like New Year.
– (Product) Blog page: Discuss some products which are new to the customers
about the products' usability, benefits, and so on.
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 Chapter Review (True/ False)

True § Another name of Web catalog is sales revenue model.

§ In sole advertising revenue model, subscribers pay a fee
False
but also accept some level of advertising.

False § In general interest strategy, advertisers usually pay higher

rates to reach large number of undifferentiated visitors.

True § Fee-for-transaction revenue model introduces both the

disintermediation and reintermediation in the value chain.

False § Channel conflicts arise when both channels experience

huge sales.

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