Chapter 3: Selling on the Web: Revenue Models and Building a Web Presence

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Chapter 3Selling on the Web Revenue Models and
Building a Web Presence
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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
• Creating an effective business presence on the
  Web
• Web site usability
• Communicating effectively with customers on the
  Web

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E-BUSINESS MODELS
Atomic Business Models

• Weill and Vitale proposition The value
  propositions of eight business models differ
  according to the degree to which the following
  e-business assets are captured online
• Customer transaction to capture revenue
• Customer data to capture data about customers
  purchasing needs
• Customer relationship ability to influence
  customers behaviors

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E-BUSINESS MODELS
Atomic Business Models
Business Models and Their E-Business Assets
(Based on Weill and Vitale 2001, Straub 2004)
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E-BUSINESS MODELS
Atomic Business Models
Business Models and their E-Business Assets
(Based on Weill and Vitale 2001, Straub 2004)
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Typical Business Models in EC

• Online direct marketing
• Electronic tendering systems (e.g., reverse
  auction)
• Name your own price
• Affiliate marketing
• Viral marketing
• Group purchasing
• Online auctions
• Product and service customization customization

• Electronic marketplaces and exchanges
• Value-chain integrators
• Value-chain service providers
• Information brokers
• Bartering
• Deep discounting
• Membership
• Supply chain improvers

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Examples of 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

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Computers and Consumer Electronics

• Apple, Dell, Gateway, and Sun Microsystems have
  had great success selling on the Web
• Apple has leveraged the web to enable iTunes
• Dell created value by designing its entire
  business around offering a high degree of
  configuration flexibility to its customers

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Books, Music, and Videos

• Retailers use the Web catalog model to sell
  books, music, and videos
• Jeff Bezos Amazon.com
• Jason and Matthew Olim CDnow

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Luxury Goods

• People are still reluctant to buy luxury goods
  through a Web site
• The Web sites of Vera Wang and Versace were
  constructed to provide information to shoppers,
  not to generate revenue
• The Evian Web site was designed for a select,
  affluent group of customers

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Clothing Retailers

• Lands End
• Pioneered the idea of online Web shopping
  assistance with its Lands End Live feature in
  1999
• Personal shopper is an Intelligent agent program
  that learns a customers preferences and helps
  customers match products to their preferences
• Virtual model Build your idealized view of
  yourself ? with custom measurements, etc.

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Flowers and Gifts

• 1-800-Flowers
• Godiva
• Harry and David
• Mrs. Fields Cookies

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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

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Advertising-Supported Revenue Models

• This is the same model that broadcasters use for
  radio and TV that is, they provide programming
  to an audience along with advertising messages
• Generally, advertisers are charged based on
  whether site visitors click-through to the
  advertiser's site.
• Googles AdWords uses a cost-per-click pricing
  scheme whereby the advertiser bids on keywords
  and pages, with higher bids resulting in higher
  page placement. Actual prices paid are
  determined by a combination of click-though rates
  and the bid.

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Advertising-Supported Revenue Models

• Success of Web advertising is hampered by
• No consensus on how to measure and charge for
  site visitor views
• Very few Web sites have sufficient visitors to
  interest large advertisers
• The stickiness of a web site is increasingly
  important. What make a site sticky?

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Web Portals

• Web directories and search engines were some of
  the first portals
• Portals or Web portals
• Yahoo!, AOL, Google, etc. are general purpose
  portals that are launch points for many people
  into the web
• Numerous portals are specialized for specific
  interest groups

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Advertising-Subscription Mixed Revenue Models

• Subscribers pay a fee and accept some level of
  advertising typically subscribers are subjected
  to much less advertising
• Examples include the New York Times and The Wall
  Street Journal

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Advertising-Subscription Mixed Revenue Models
(continued)

• Business Week
• Offers some free content at its Business Week
  online site
• Requires visitors to buy a subscription to the
  Business Week print magazine

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Fee-for-Transaction Models

• Models where businesses offer services and charge
  a fee based on the number or size of transactions
  processed
• Travel Agents
• Automobile sales
• Stockbrokers
• Insurance sales

• Ticket sales
• Real estate
• Online banking
• Online music

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Fee-for-Transaction Models

• What is going on with online service providers?
• Disintermediation The removal of an intermediary
  from a value chain
• Reintermediation The introduction of a new
  intermediary

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Fee-for-Service Models

• Fee is based on the value of a service provided
• Services range from games and entertainment to
  financial advice

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Fee-for-Service Models

• Online games
• WOW
• Concerts and films
• Streaming video of concerts and films to paying
  subscribers

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Revenue Models in Transition

• Subscription to advertising-supported model
  (e.g., Slate Magazine)
• Advertising-Supported to Advertising-Subscription
  Mixed Model (e.g., Salon.com)
• Advertising-Supported to Fee-for-Services Model
  (e.g., xdrive.com)
• Advertising-Supported to Subscription Model
  (e.g., NorthLight.com)
• Multiple Transitions (e.g., Encyclopædia
  Britannica)

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Revenue Models in Transition

• Subscription to advertising-supported model
• Slate Magazine
• An upscale news and current events publication
  that charged an annual subscription fee
• However, they were unable to draw a sufficient
  number of paid subscribers
• Therefore, they now operate as an
  advertising-supported site

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Advertising-Supported to Advertising-Subscription
Mixed Model

• Salon.com
• Operated for several years as an
  advertising-supported site
• But, now offers an optional subscription version
  of its site
• The subscription offering was motivated by the
  companys inability to raise additional money
  from investors

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Advertising-Supported to Fee-for-Services Model

• Xdrive Technologies
• Opened its original advertising-supported Web
  site in 1999 and offered free disk storage space
  online to users
• After 2 years, it was unable to pay the costs of
  providing the service with the advertising
  revenue it generated
• Therefore, it switched to a part free, part
  subscription-supported model

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Advertising-Supported to Subscription Model

• Northern Light
• Founded in August 1997 as a search engine
• Revenue model was originally a combination of
  advertising-supported plus a fee-based
  information access service
• In 2002 it converted to a model that was
  primarily subscription supported

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Multiple Transitions

• Encyclopædia Britannica
• Original offerings included
• The Britannica Internet Guide
• Free Web navigation aid
• Encyclopædia 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

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Revenue Strategy Issues

• Channel conflict (or cannibalization)
• Sales activities on a companys Web site
  interfere with existing sales outlets (e.g., Levi
  Strauss)
• Channel cooperation
• Giving customers access to the companys products
  through a coordinated presence in all
  distribution channels (e.g., Staples, Eddie Bauer)

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Strategic Alliances and Channel Distribution
Management

• Strategic alliance when two or more companies
  join forces to undertake an activity over a long
  period of time
• Account aggregation services (e.g., Yodlee)
• Channel distribution managers (i.e. fulfillment
  managers) firms that take over the
  responsibility for a particular product line
  within a retail context

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Creating an Effective Web Presence

• An organizations presence is the public image it
  conveys to its stakeholders
• Stakeholders of a firm include customers,
  suppliers, employees, stockholders, neighbors,
  and the general public

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Achieving Web Presence Goals

• Objectives of the business include
• 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
• Creating an impression consistent with the
  organizations desired brand image
• Building a trusting relationship with visitors
• Reinforcing positive images that the visitor
  might already have about the organization

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Profit-Driven Organizations

• The Toyota site is a good example of an effective
  Web presence
• It provides links to
• Detailed information about each vehicle model
• A dealer locator page
• Information about the company and the financing
  services it offers

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Profit-Driven Organizations

• The 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

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Not-for-Profit Organizations

• Key goal for the Web sites of not-for-profit
  organizations is information dissemination
• Key element on any successful electronic commerce
  Web site is the combination of information
  dissemination and a two-way contact channel

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Web Site Usability

• Motivations of Web site visitors include
• 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
• 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

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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

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Making Web Sites Accessible

• 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 about
  products and services

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Making Web Sites Accessible

• What does accessibility really mean? How do
  people with disabilities access webpages?
• Images animations Use the alt attribute to
  describe the function of each visual.
• Image maps. Use the client-side map and text for
  hotspots.
• Multimedia. Provide captioning and transcripts of
  audio, and descriptions of video.
• Hypertext links. Use text that makes sense when
  read out of context. For example, avoid "click
  here."
• Page organization. Use headings, lists, and
  consistent structure. Use CSS for layout and
  style where possible.
• Graphs charts. Summarize or use the longdesc
  attribute.
• Scripts, applets, plug-ins. Provide alternative
  content in case active features are inaccessible
  or unsupported.
• Frames. Use the noframes element and meaningful
  titles.
• Tables. Make line-by-line reading sensible.
  Summarize.
• Check your work. Validate. Use tools, checklist,
  and guidelines at http//www.w3.org/TR/WCAG

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How do you retain customers?

• One of the most common factors that influences a
  sites success is the trust customers have in the
  firm and the increased loyalty that this brings
• What leads to trust?
• A 5 percent increase in customer loyalty can
  yield profit increases between 25 and 80
• Repetition of satisfactory service can build
  trust and customer loyalty
• Poor customer service results in lack of trust,
  which can kill loyalty

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How do you retain customers?

• Make the site usable. Usability is defined by
  five quality components (Alertbox, Dr. Jakob
  Nielsen)
• Learnability How easy is it for users to
  accomplish basic tasks the first time they
  encounter the design?
• Efficiency Once users have learned the design,
  how quickly can they perform tasks?
• Memorability When users return to the design
  after a period of not using it, how easily can
  they reestablish proficiency?
• Errors How many errors do users make, how severe
  are these errors, and how easily can they recover
  from the errors?
• Satisfaction How pleasant is it to use the
  design?

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Customer-Centric Web Site Design

• Customer-centric Web site design puts 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
• 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

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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 media approach Advertising and promotional
  materials are distributed through radio, TV, etc.
• Addressable media Advertising efforts are
  directed to a known addressee
• 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

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Entrepreneurship and Business Models

• Entrepreneurship and creativity is a process!
• Identify an Opportunity
• Develop a Concept
• Determine the Required Resources
• Acquire the Necessary Resources
• Implement and Manage
• Harvest the Venture

Source Morris et al. Entrepreneurship
Innovation
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Entrepreneurship and Business Models

• Frameworks

The Environment
Entrepreneurial Process
The OrganizationalContext
The Entrepreneur
The Resources
The Concept
Source Morris et al. Entrepreneurship
Innovation
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Entrepreneurship and Business Models

• How to find opportunities

Source Morris et al. Entrepreneurship
Innovation
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Entrepreneurship and Business Models

• Types of Innovations
• New to the world products or services
• New to the market products or services
• New product or service line that at least one
  competitor is offering
• Addition to existing products or service lines
• Product/service improvement, revision, including
  addition of new features or options
• New application of existing products or services,
  including application to a new market segment
• Repositioning of an existing product or service

Source Morris et al. Entrepreneurship
Innovation
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Entrepreneurship and Business Models

• Entry Wedges

Source Morris et al. Entrepreneurship
Innovation
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What is a Business Model?

• Six key questions
• How do we create value?
• For whom do we create value?
• What is our source of competence/ advantage?
• How do we differentiate ourselves?
• How do we make money?
• What are our time, scope, and size ambitions?

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Porters Competitive Forces Model How the
Internet Influences Industry Structure
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Summary

• Models used to generate revenue on the Web
  include
• 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

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Summary

• 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