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ITECH3211-ITECH7211
E-Commerce -1
LN-3: Selling on the Web
Faculty of Science
In this chapter, you will learn about:
What a revenue model is and how companies use various
revenue models
How some companies change their revenue models to
achieve success
Revenue strategy issues that companies face when selling
online
How to create an effective business presence on the Web
What factors enhance Web site usability
How companies use the Web to connect with customers
Learning Objectives
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Revenue Models
Revenue Models in Transition
Revenue Strategy Issues
Creating an Effective Web Presence
Web Site Usability
Connecting with Customers
Summary
Lecture Outline
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RM is a collection of business processes used to identify
customers, market to those customers and generate sales to
those customers.
generate revenues is the goal of RM
Web business revenue-generating models
Web catalog RM ()
Digital content RM
Advertising-supported RM
Advertising-subscription mixed RM
Fee-based RM
Same model can work for both sale types
Business-to-consumer (B2C)
Business-to-business (B2B)
Can use same revenue model for both types of sales
Revenue Models (RM)
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Adapted from mail-order (catalog) model
Since 1872, a traditional one
Seller establishes brand image
Printed information mailed to prospective buyers
Orders placed by mail or toll-free telephone number
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
Web Catalog Revenue Models
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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, J&R Music World, Radio Shack
Web sites sell same products as in stores
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
Web Catalog Revenue Models (cont)
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Books, music, and videos
Most visible e-commerce examples
Amazon.com Web-only retailer originally sold books
Evolved into general retailer
Fishpond.com.au, largest in Australia
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
Web Catalog Revenue Models (contd.)
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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
My Virtual Model (customers try clothes)
Graphic image built from customer measurements
Problem: varying computer monitor color settings
Solution: send fabric swatch on request
Solution: offer generous return policies




Web Catalog Revenue Models (contd.)
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Flowers and gifts (gift retailers)
1-800-Flowers
Online extension to successful telephone business
Competes with online-only florists
General discounters
Buy.com and Overstock.com
Borrowed Wal-Mart and discount club sales model
Sell merchandise at extremely low prices
Web Catalog Revenue Models (contd.)
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Firms owning written information or information rights
Sell subscriptions for access to information they own
Legal content
LexisNexis: offers variety of information services
Academic research content
ProQuest: digital copies of academic publications
Business content
Dow Jones newspaper publisher subscriptions
Technical content
Association for Computing Machinery (ACM): digital library
Digital Rights Management (DRM) software: intended to curtail
music piracy
Amazon MP3 store: first to offer DRM-free MP3 format


Fee-for-Content RM
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Used by United States broadcast network television
Provides free programming and advertising messages
Supports network operations sufficiently
Newspaper and magazine publishers
Sell advertising to cover Web site costs
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
Advertising-Supported Revenue Models
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Can obtain large advertiser interest by:
Using a specialized information Web site, e.g.
The Huffington Post and the Drudge Report
HowStuffWorks
Web portals (portal) e.g. ACM 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
using general/specific interest strategy
Advertising-Supported RM (cont)
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FIGURE 3-2 Three strategies for an advertising-supported revenue model
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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
Advertising-Subscription Mixed Revenue
Models
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Service fee charged
Based on transaction number or size
http://www.jetstar.com/au/en/home
Web site offers visitor transaction information
Personal service formerly provided by a human agent
Value chain
Disintermediation
Intermediary (human agent) removed
Intelligent agents added
Reintermediation
New intermediary (fee-for-transaction Web site) introduced
Fee-for-Transaction Revenue Models
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Travel
Travel agency revenue model: receive fee for facilitating a
transaction
Travel agent adds information consolidation and filtering value
One transaction gets about $50.
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
Web-based travel agencies
Fee-for-Transaction Revenue Models (cont)
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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 dealers
nominal cost
Car salesperson: disintermediated
Web site: new intermediary (reintermediation)
Fee-for-Transaction RM (cont)
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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
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

Fee-for-Transaction RM (cont)
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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 (GE (general electric): General Automobile
Insurance Services) Web site
Offers comfortable, anonymous experience
Fee-for-Transaction RM (cont)
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Real estate and mortgage loans
Web sites provide all traditional broker services
Coldwell Banker, Prudential
Online Real estate in Australia
www.domain.com.au, http://www.realestate.com.au
2008 financial crisis
Dramatically reduced number of mortgage brokers in business
Successful online mortgage brokers
Ditech and E-LOAN
In Australia, Wespec, ANZ, National, Commonwealth Bank are the
home loan providers.
Fee-for-Transaction RM (cont)
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Online banking and financial services
No physical product
Easy to offer on Web
Web financial transactions concerns
Trust and reliability of financial institution
Solutions
Use existing banks identification and reputation
Start online bank not affiliated with existing bank (First Internet Bank
of Indiana)
www.westpac.com.au

Fee-for-Transaction RM (cont)
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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
2012: 80 percent of all music sold online, Global Digital
Music Sales to top $8.6 Billion.


Fee-for-Transaction RM (cont)
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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
Fee-for-Transaction RM (cont)
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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
Fee-for-Transaction RM (cont)
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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

Fee-for-Service Revenue Models
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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 residents
General health information
Significant barrier
Patient diagnosis difficult without physical examination
Some physicians beginning to offer online consultations
For ongoing, established relationship patients

Fee-for-Service Revenue Models (contd.)
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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, bakery: free cookies
Free for Many, Fee for a Few
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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
Revenue Models in Transition
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Slate.com 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 portals stickiness
Subscription to Advertising-Supported Model
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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
Advertising-Supported to Advertising-
Subscription Mixed Model
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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
Advertising-Supported to Fee-for-Services
Model
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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
Advertising-Supported to Subscription Model
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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
Multiple Changes to Revenue Models
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Topics:
Web revenue models implementation issues
Dealing with the issues
Channel conflict (cannibalization)
Company Web site sales activities interfere with existing sales
outlets
Levis Web site and Maytag
Web sites no longer sell products
Sites now provide product, retail distributor information
Eddie Bauer
Online purchases returnable at retail stores
Required compensation and bonus plans adjustments to support Web
site
Channel Cooperation made it successful

Revenue Strategy Issues
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Strategic alliance
Two or more companies join forces
Undertake activity over long time period
Yodlee account aggregation services provider
Yodlee concentrates on developing the technology and
services
Banks provide the customers
Amazon.com
Joined with Target, CDnow, ToysRUs
ToysRUs and Amazon suing each other
Strategic Alliances
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Organizations presence
Public image conveyed to stakeholders
Usually not important
Until growth reaches significant size
Stakeholders
Customers, suppliers, employees, stockholders, neighbors, general
public
Effective Web presence
Critical even for smallest and newest Web operating firms
Creating an Effective Web Presence
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Business physical space
Focus: very specific objectives
Not image driven
Must satisfy many business needs
Often fails to convey a good presence
Web business site
Intentionally creates distinctive presences
Good Web site design provides:
Effective image-creation features
Effective image-enhancing features
Matching site design to function

Identifying Web Presence Goals
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Web business site objectives:
Attracting Web site visitors
Keeping visitors to stay and explore
Convincing visitors to follow sites links to obtain
information
Creating an impression consistent with the organizations
desired image
Building a trusting relationship with visitors
Reinforcing positive images about the organization
Encouraging visitors to return to the site
Making Web presence consistent with brand image
Different firms establish different Web presence goals

Identifying Web Presence Goals (cont)
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Not-for-profit organizations
Web presence effort key goals:
Image enhancement and information dissemination
Successful site key elements
Integrate information dissemination with fund-raising
Provide two-way contact channel
American Civil Liberties Union (ACLU) (google please)
Serves many different constituencies
Web sites used to stay in touch with existing stakeholders,
identify new opportunities for serving them
Identifying Web Presence Goals (cont)
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Current Web presences
Few businesses accomplish all goals
Most fail to provide visitors sufficient interactive contact
opportunities
Improving Web presence
Make site accessible to more people
Make site easier to use
Make site encourage visitors trust
Make site develop feelings of loyalty toward the organization
Web Site Usability
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Simple mid-1990s Web sites
Conveyed basic business information
No market research conducted
Web objectives achievement
Failed due to no understanding for Web presence-building
media
Web sites designed to create an organizations presence:
Contain links to standard information set
Success dependent on how this information offered
How the Web Is Different
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Successful Web businesses:
Realize every visitor is a potential customer (partner)
Web presence is an important concern
Know visitor characteristic variations
Understand that the visitor is at the site for a reason
Varied motivations of Web site visitors
Why visitors arrive at Web sites
Learning about company products or services
Buying products or services
Obtaining warranty, service, repair policy information
Making Web sites accessible
Offer multiple information formats
Consider goals in Web site construction

Meeting the Needs of Web Site Visitors
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Creates relationship value
Good service leads to seller trust
Delivery, order handling, help selecting product, after-sale
support
Satisfactory service builds customer loyalty
Customer service in electronic commerce sites
Problem
Lack integration between call centers and Web sites
Poor e-mail responsiveness
Trust and Loyalty
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Companies routinely review electronic commerce Web sites
for:
Usability, customer service, other factors
Sell the gathered information directly to the companies
operating the Web sites
Include suggestions for improvements
BizRate.com posts ratings
Provides comparison shopping service
Compiles ratings by conducting surveys of sites
customers
Rating Electronic Commerce Web Sites
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Importance
Helps meet Web site goals
Avoids Web site frustration
Customers leave site without buying anything
Simple site usability changes
Include telephone contact information
Staff a call center
Learn about visitor needs by conducting focus groups
Usability testing cost
Low compared to Web site design costs
Usability Testing
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Important part of successful electronic business operation
Focus on meeting all site visitors needs
Customer-centric approach
Putting customer at center of all site designs
Follow guidelines and recommendations
Make visitors Web experiences more efficient, effective, memorable
Webby Awards site (www.weebly.com)
Examples of good Web site design
Connecting with Customers
Important element of a corporate Web presence
Identify and reach out to customers

Customer-Centric Web Site Design
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Communication modes and characteristics
Personal contact (prospecting), 1 to 1 communication
model
Employees individually search for, qualify, contact potential
customers
Mass media, 1 to n communication model
Deliver messages by broadcasting
Addressable media
Advertising efforts directed to known addressee
Internet medium: 1 to 1, 1 to n, n to m communication
model
Occupies central space in medium choice continuum
The Nature of Communication on the Web
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FIGURE 3-9 Business communication modes
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Six main Web revenue models
Models work differently
Different business types use different models
Companies change models as they learn more about:
Customers, business environment
Channel conflict and cannibalization challenges
Congruent with network model of organization, some
companies form strategic alliances
Effective Web presence delivers customer value
Web site visitors arrive with a variety of expectations, prior
knowledge, skill levels, technology
Web site communication used to reach customers
Summary
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Faculty of Science
Schneider, G (2011) E-Commerce (9th) Course Technology
Schneider, G (2013) E-Commerce (10th) Course Technology

References
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