Meeting 1

Introduction

Elizabeth, S.Kom., M.M., M.T.I.

• E-business
– Use of digital technology and Internet to drive major
business processes
• E-commerce
– Subset of e-business
– Buying and selling goods and services through
Internet
• E-government:
– Using Internet technology to deliver information and
services to citizens, employees, and businesses
Categories of Electronic Commerce
• Business-to-consumer (B2C)
– Consumer shopping on the Web
• Business-to-business (B2B): e-procurement
– Transactions conducted between Web businesses
– Supply management (procurement) departments
• Negotiate purchase transactions with suppliers
• Consumer-to-consumer (C2C)
• Business-to-government (B2G)

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 Revenue Models
• Web business revenue-generating models
– Web catalog
– Digital content
– Advertising-supported
– Advertising-subscription mixed
– Fee-based
• 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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 Web Catalog Revenue Models
• Adapted from mail-order (catalog) model
– Seller establishes brand image
– Printed information mailed to prospective buyers
• Orders placed by mail
• Expands traditional model
– Replaces or supplements print catalogs
– 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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Web Catalog Revenue Models (cont’d.)

• Computers and consumer electronics

– Leading computer manufacturers
• Sell a full range of products on the Web
– Dell allows product configuration flexibility
• Creates value
– Best Buy
• Web sites sell same products as in stores

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Web Catalog Revenue Models (cont’d.)

• Computers and consumer electronics (cont’d.)

– Marketing channel
• Pathway to customers
– Advantage of having several marketing channels
• Reach more customers at less cost
– Can combine marketing channels
• Example: in-store online ordering
• Example: mail catalogs with reference to retailer’s Web
site

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FIGURE 4-1 Combining marketing channels: Two retailer examples
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Web Catalog Revenue Models (cont’d.)

• Books
– Most visible electronic commerce examples
– Amazon.com Web-only retailer originally sold
books
• Evolved into general retailer
– Barnes & Noble, Blackwell’s, Books-A-Million,
Powell’s Books
• All adopted Web catalog revenue model

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Web Catalog Revenue Models (cont’d.)

• Luxury goods
– Difficult to sell online
• Customers want to see product in person or touch
– Vera Wang and Versace
• Web sites provide information
• Shopper purchases at physical store
• Heavy use of graphics and animation
– Evian Web site
• Presents information in a visually stunning way

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Web Catalog Revenue Models (cont’d.)
• Clothing retailers
– Many adapted catalog sales model to Web
– Display clothing photos categorized by type
• Prices, sizes, colors, tailoring details
– Want customers to examine clothing online
• Place orders through Web site
– Lands’ End online Web shopping assistance
• Lands’ End Live (1999)
• Online text chat and call-back feature
• Ability to push Web pages to customer’s browser

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 Web Catalog Revenue Models (cont’d.)
• Clothing retailers (cont’d.)
– Lands’ End personal shopper agent (more recent)
• Learns preferences and makes suggestions
– My Virtual Model (customers try clothes)
• Graphic image built from customer measurements
– Another feature allows:
• Two shoppers using different computers to simultaneously
browse Web site together
• Only one of the shoppers can purchase items
• Either shopper can select items to view
• Selected items appear in both Web browsers

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Web Catalog Revenue Models (cont’d.)

• Clothing retailers (cont’d.)

– Online overstocks stores
• Reach more people than physical outlet stores
– Problem: varying computer monitor color settings
• Solution: send fabric swatch on request
• Solution: offer generous return policies

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 Web Catalog Revenue Models (cont’d.)
• Flowers and gifts (gift retailers)
– 1-800-Flowers
• Online extension to successful telephone business
• Competes with online-only florists
– Godiva offers business gift plans
– Hickory Farms and Mrs. Fields Cookies
• Offer familiar name brands on the Web
– Harry and David
• Original Web site for informational purposes
• Promoted catalog business and added online ordering feature

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Web Catalog Revenue Models (cont’d.)
• General discounters
– Buy.com and Overstock.com
• Borrowed Wal-Mart and discount club sales model
• Sell merchandise at extremely low prices
– Traditional discount retailers (Costco, Kmart, Target,
Wal-Mart)
• Slow to implement online sales on their Web sites
• Had huge investments in physical stores
• Did not understand online retailing world
• Now use the Web catalog revenue model in their successful
online sales operations

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 Digital Content Subscription Revenue Models

• Firms owning written information or

information rights
– Embrace the Web as a highly efficient distribution
mechanism
– Use the digital content revenue model
• Sell subscriptions for access to information they own
• Legal content
– LexisNexis: offers variety of information services
– Lexis.com: offers original legal information product
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 Digital Content Subscription Revenue Models
(cont’d.)
• Academic research content
– ProQuest: digital copies of academic publications
• Business content
– Dow Jones newspaper publisher subscriptions
• Sold digitized newspaper, magazine, and journal content
subscriptions
• Factiva: online content management and integration service
• Technical content
– Association for Computer Machinery (ACM): digital
library
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Advertising-Supported Revenue Models
• Used by United States broadcast network television
– Provides free programming and advertising messages
• Supports network operations sufficiently
• Problem: measuring and charging site visitor views
– Stickiness
• Keeping visitors at site and attracting repeat visitors
• Exposed to more advertising in a sticky site
• Problem: obtaining large advertiser interest
– Requires demographic information collection
• Characteristics set used to group visitors

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 Advertising-Supported Revenue Models
(cont’d.)
• Can obtain large advertiser interest by:
– Using a specialized information Web site
• Draw a specialized audience certain advertisers want to
reach
– Examples:
• The Huffington Post and the Drudge Report
• HowStuffWorks

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FIGURE 4-2 Three strategies for an advertising-supported revenue model
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 Advertising-Supported Revenue Models
(cont’d.)
• Web portals (portal)
– Site used as a launching point to enter the Web
• Almost always includes a Web directory or search
engine
• Often includes other features
– Web directories
• Listing of hyperlinks to Web pages
– Yahoo!: one of the first
• Presents search term triggered advertising on each
page
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 Advertising-Supported Revenue Models
(cont’d.)
• Web portals (cont’d.)
– Portal sites using general interest strategy
• AOL, Excite, Google, Bing
– Portal sites not using general interest strategy
• Help visitors find information within a specific knowledge
domain
• Advertisers pay more
• Example: C-NET
– Travel sites
• Successful as advertising-supported online businesses
• Example: Kayak
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 Advertising-Supported Revenue Models
(cont’d.)
• Newspaper and magazine publishers
– Sell advertising to cover Web site costs
– Internet Public Library Online Newspapers page
• Provides links to worldwide newspaper sites
– Local shopping news, alternative press newspapers
• Easier transition to advertising-supported Web revenue model
– Newspaper’s Web presence
• Provides greater exposure and advertising audience
• Diverts sales from the print edition (difficult to measure)
• Operating costs not covered by advertising revenue

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 Advertising-Supported Revenue Models
(cont’d.)
• Targeted classified advertising sites
– Can command higher rates than general advertising
– Original version
• Newspaper classified advertising
– Growth of classified advertising Web sites
• Very bad for newspapers
• Example: craigslist
– Web employment advertising
• Most successful targeted classified advertising category
• Examples: CareerBuilder.com, The Ladders and Guru.com,
Monster.com

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 Advertising-Supported Revenue Models
(cont’d.)
• Targeted classified advertising sites (cont’d.)
– Used vehicle sites
• AutoTrader.com, CycleTrader.com, BoatTrader.com
• Accept paid advertising to sell cars, motorcycles, boats
– Product sites with dedicated following (VetteFinders)
• Successful by catering to small audiences
– Potential classified advertising sites
• Any site selling products useful to buyer after initial use
• Musicians Buy-Line, ComicLink.com, The Golf Classifieds

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 Advertising-Subscription Mixed Revenue
Models
• Subscribers pay fee and accept advertising
– Typically less advertising compared to advertising-
supported sites
• 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 4-3 Revenue models used by online editions of newspapers and magazines

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 Advertising-Subscription Mixed Revenue
Models (cont’d.)
• ESPN
– Leverages brand name from cable television business
– Sells advertising, offers free information
– Mixed model includes advertising and subscription
revenue (collects Insider subscriber revenue)
• Consumers Union (ConsumerReports.org)
– Purely a subscription-supported site
– Not-for-profit organization with no advertising
– Free information
• Attracts subscribers and fulfills mission

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 Fee-for-Transaction Revenue Models
• Service fee charged
– Based on transaction number or size
• Web site offers visitor transaction information
– Personal service formerly provided by a human agent
• Value chain
– Disintermediation
• Intermediary (human agent) removed
– Reintermediation
• New intermediary (fee-for-transaction Web site) introduced

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

• Travel
– Travel agency revenue model: receive fee for
facilitating a transaction
• Travel agent adds information consolidation and
filtering value
– Computers also good at information consolidation
and filtering
• Travel agents have long used networked computers:
Sabre Travel Network
– Internet provided a new way to do business online
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Fee-for-Transaction Revenue Models (cont’d.)

• Travel (cont’d.)
– Web-based travel agencies were new entrants
• Examples: Travelocity, Expedia, Hotels.com, Hotel
Discount Reservations, Orbitz
• Generate advertising revenue from ads placed on travel
information pages
– Traditional travel agents: squeezed out
• Surviving agencies charge a flat fee
– Smaller travel agents specialize (cruises, hotels)
• May use a reintermediation strategy (WaveHunters.com)
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FIGURE 4-4 Orbitz home page

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 Fee-for-Transaction Revenue Models
(cont’d.)
• Automobile sales
– Web sites implement the fee-for-transaction revenue
model differently
– CarsDirect.com model
• Customers select specific car, site determines price and finds
local dealer
– Autoweb.com and Autobytel model
• Locate local dealers, car sells at small premium over dealer’s
nominal cost
– Car salesperson: disintermediated
– Web site: new intermediary (reintermediation)
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 Fee-for-Transaction Revenue Models
(cont’d.)
• Stockbrokers
– Original full-line brokers charged relatively high
commissions
• Provided advice
– 1970s: deregulation resulted in discount brokers
• Web-based brokerage firms: E*TRADE and Datek
• Web allowed investment advice, fast trade execution
online

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 Fee-for-Transaction Revenue Models
(cont’d.)
• Stockbrokers (cont’d.)
– 1990s: discount brokers faced competition from
online firms
• Discount brokers and full-line brokers opened new
stock trading and information Web sites
– Online brokers offer transaction cost reductions
– Traditional stockbrokers: disintermediated

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 Fee-for-Transaction Revenue Models
(cont’d.)
• Insurance brokers
– Quotesmith offered Internet policy price quotes directly
to public (1996)
• Independent insurance agents: disintermediated
– Insurance policy information, comparisons, sales sites
• InsWeb, Answer Financial, Insurance.com
– Progressive Web site
• Provides quotes for competitors’ products too
– The General (General Automobile Insurance Services)
Web site
• Offers comfortable, anonymous experience

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 Fee-for-Transaction Revenue Models
(cont’d.)
• Event tickets
– Web allows event promoters to sell tickets from one
virtual location to customers worldwide
– Online agencies earn a fee on every ticket sold
• Ticketmaster, Tickets.com, TicketWeb
– Web created secondary ticket market (StubHub,
TicketsNow)
• Brokers connecting ticket owners with buyers
• Earn fees on tickets resold for others, buy ticket blocks
– Web created easy-to-find central marketplace, facilitating
buyer-seller negotiations
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 Fee-for-Transaction Revenue Models
(cont’d.)
• Real estate and mortgage loans
– Web sites provide all traditional broker services
• Coldwell Banker, Prudential
– National Association of Realtors Web site
• Realtor.com
– 2008 financial crisis
• Dramatically reduced number of mortgage brokers in
business
– Successful online mortgage brokers
• Ditech and E-LOAN

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 Fee-for-Transaction Revenue Models
(cont’d.)
• Financial services
– No physical product
• Easy to offer on Web
– Web financial transactions concerns
• Trust and reliability of financial
institution

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 Fee-for-Transaction Revenue Models
(cont’d.)
• Online music
– Recording industry: slow to embrace online distribution
• Feared digital copying
– Large online music stores
• Revenue from fee-for-transaction model
• Some sites offer subscription plans
– Complicating issues
• Stores offer limited number of digital music files
• Stores promote their own music file format
• Artists and recording companies invoke limits

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

• Online music (cont’d.)

– Complicating issues (cont’d.)
• Buyers required to download and install Digital Rights
Management (DRM) software
• Varying restrictions confusing to consumers
– Online music market industry failed to embrace
the network effect gained by adopting one
standard file format

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 Fee-for-Transaction Revenue Models
(cont’d.)
• Online music (cont’d.)
– Some stores sold audio in a generally compatible
file format with no copying restrictions
• Mondomix MP3 and Smithsonian Folkways
• Music not produced by major recording companies
– Solutions
• Adopt one standard file format, no copying restrictions,
DRM-free MP3 format (Amazon in 2007)
– By 2012: 80 percent of all music will be sold online

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 Fee-for-Transaction Revenue Models
(cont’d.)
• Online video
– Issues hampering prior sales
• Large file size
• Fear of online sales impairing other sales types
• Inability to play on variety of devices
– Overcoming the issues
• New technologies improving delivery
• Companies incorporating online distribution into revenue
strategy
• Delivery allowed on multiple devices
– Through standard Web browser

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 Fee-for-Transaction Revenue Models
(cont’d.)
• Electronic books
– Forms of digital audio books
• CDs (originally) and various types of digital files
• Audible sells subscriptions
– Allows monthly download of a certain number of books
• Pricing is per book
• Amazon.com
– Offers books, newspapers, magazines, other digital
format items
• Delivered directly to its line of Kindle readers
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 Fee-for-Service Revenue Models
• Companies offer Web service
– Fee based on service value
• Not a broker service
• Not based on transactions-processed number or size
• Online games
– Sales revenue source
• Advertising (older concept), pay-to-play for premium
games, subscription fees
– Average game player is 35 years old, playing
computer or video games for 12 years
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 Fee-for-Service Revenue Models (cont’d.)

• Professional services
– Limited Web use
• State laws prohibit extension of practice
• Patients may set appointments, receive online consultation
– Major concern
• Patient privacy
– Law on the Web site
• Legal consultations to United Kingdom residents
– Martindale.com
• Online version of Martindale-Hubbell lawyer directory

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 Fee-for-Service Revenue Models (cont’d.)

• Professional services (cont’d.)

– CPA Directory
• United States accounting professionals site
– General health information
• RealAge, Dr. Andrew Weil’s Self Healing, WebMD
– Significant barrier
• Patient diagnosis difficult without physical examination
– Some physicians beginning to offer online
consultations
• For ongoing, established relationship patients

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 Free for Many, Fee for a Few
• Economics of manufacturing
– Different for physical and digital products
– Unit cost high percentage of physical products
– Unit cost very small for digital products
• Leads to a different revenue model
– Offer basic product to many for free
– Charge a fee to some for differentiated products
• Examples: Yahoo e-mail accounts

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 Revenue Models in Transition
• Companies must change revenue model
– To meet needs of new and changing Web users
• Some companies created e-commerce Web
sites
– Needed many years to grow large enough to
become profitable (CNN and ESPN)
• Some companies changed model or went out
of business
– Due to lengthy unprofitable growth phases
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Subscription to Advertising-Supported Model

• Slate magazine
– Upscale news and current events
• Success expectations were high
– Experienced writers and editors
– Acclaim for incisive reporting and excellent writing
• Initial revenue source
– Annual subscription did not cover operating costs
• Now an advertising-supported site
– Part of the Bing portal
• Value to Microsoft: increase the portal’s stickiness

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 Advertising-Supported to Advertising-
Subscription Mixed Model
• Salon.com
– Acclaimed for innovative content
• Initial revenue source
– Advertising-supported site
– Needed additional money to continue operations
• Now offers optional subscription version
– Annual fee for Salon premium
• Free of advertising
• Additional content
• Downloadable content

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 Advertising-Supported to Fee-for-Services
Model
• Xdrive Technologies: offered free disk storage
• Initial revenue source (1999): advertising-supported
– Targeted e-mail advertising
– Did not cover operating costs
• 2005: bought by AOL
– Switched to a subscription-supported model
– Xdrive frequently adjusted its monthly fee downward
– AOL closed the service in 2009
• Successful companies: fee based on storage amount
used
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Advertising-Supported to Subscription Model

• Northern Light search engine includes own database

– Results include Web site links and abstracts of its owned
content
– Initial revenue source
• Combination of the advertising-supported model plus a fee-
based information access service
• Advertising revenue: insufficient to cover service
– Converted to a new subscription-supported revenue model
• Mainly large corporate clients
• Individual monthly billing option for articles accessed

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 Multiple Transitions
• Encyclopedia Britannica
– Initial Web offerings (1994)
• Britannica Internet Guide
• Encyclopedia Britannica Online
– Initial revenue source
• Paid subscription site had low subscription sales
– Converted to free advertiser-supported site (1999)
• Advertising revenues declined
– 2001: returned to mixed model with subscription plan and
free content
– Value added: sells reputation and the expertise

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