NBA 600: Session 9 ECommerce and Online Communities 18 February 2003 - PowerPoint PPT Presentation

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NBA 600: Session 9 ECommerce and Online Communities 18 February 2003


Yet online communities remain important aspect of businesses such as eBay, Amazon ... Major part of the offering, e.g. Amazon's focus ... – PowerPoint PPT presentation

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Title: NBA 600: Session 9 ECommerce and Online Communities 18 February 2003

NBA 600 Session 9E-Commerce and Online
Communities18 February 2003
  • Daniel Huttenlocher

Todays Class
  • Finish discussion of online retail from last
  • 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.

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

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

Customer Experience at AMZN
  • Discovery
  • Searching, browsing, recommendations,
    relatedness, what youve 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

Revisiting E-Commerce Failures
  • Some were just too early
  • Level of comfort with online shopping
  • E.g., much furniture bought offline not seen
  • But didnt make it
  • Some didnt 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

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

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

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

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

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
  • 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

Community as Addiction
  • Winning at games
  • Especially where tangible reward such as money or
  • Including virtual property
  • Includes auctions/trading
  • Ebay a good example users often refer to
    themselves as addicted
  • Buying things dont need and werent looking for
  • Beginners advised to use auto-bidding and
    (hidden) maximum price
  • Avoid potentially costly bidding wars

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

Community Trust
  • Ebays 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
  • Number of positives minus negatives
  • About half of transactions result in ratings
  • High reputation scores
  • Ebay rewards its highest reputation sellers
  • 85,000 points

Maintaining Trust
  • Ebay says fraud less than 1/100th 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 Macs

Value of Reputation
  • Resnick (UMich) study shows price effect
  • Controlled study with matched pairs of vintage
  • 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

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

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
  • Appetite for a lowering total cost
  • Mixed views on how/where technology could benefit
    relationship customers

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 cant be beat in case of
    problems en route

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

Hybrid Travel Agent Model
  • Internet access as additional valuable means of
    information access
  • Continued telephone access to experts
  • In some ways similar to, 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 cant 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
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