Electronic Commerce

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

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
Expands traditional model
Computers and consumer electronics
Books, music, and videos
Luxury goods
Clothing retailers
Flowers and gifts (gift retailers)

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Web Catalog Revenue Models

(contd.)

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 (contd.)

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 (contd.)

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 3-2 Three strategies for an advertising-supported revenue model

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Advertising-Supported Revenue
Models (contd.)

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 (contd.)
Newspaper and magazine publishers
Targeted classified advertising sites

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Advertising-Subscription Mixed
Revenue Models

Subscribers pay fee and accept advertising

Typically less advertising compared to advertisingsupported sites

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FIGURE 3-3 Revenue models used by online editions of newspapers and

magazines

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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 (contd.)

Travel

Automobile sales(CarsDirect.com, Autoweb.com and

Autobytel model)
Stockbrokers (E*Trade, Datek)
Insurance brokers (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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FIGURE 3-4 Orbitz home page

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Fee-for-Transaction Revenue Models

(contd.)

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

(contd.)
Real estate and mortgage loans
Online banking and financial services
Online music
Online video

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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

(contd.)

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

(contd.)

Professional services (contd.)

CPA Directory
United States accounting professionals site

General health information

RealAge, Dr. Andrew Weils Self Healing, WebMD

Significant barrier
Patient diagnosis difficult without physical
examination

Some physicians beginning to offer online

consultations
For ongoing, established relationship patients

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, bakery: free
cookies

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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Revenue Strategy Issues

Topics:
Web revenue models implementation issues
Dealing with the issues

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Channel Conflict and

Cannibalization

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
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Strategic Alliances

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
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Creating an Effective Web

Presence

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

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Identifying Web Presence

Goals

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

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Identifying Web Presence Goals

(contd.)

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

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Identifying Web Presence Goals

(contd.)

Making Web presence consistent with brand

image
Different firms establish different Web presence
goals
Coca Cola Web site pages
Usually include trusted corporate image (Coke bottle)
Image: traditional position as a trusted classic

Pepsi Web site pages

Usually filled with hyperlinks to activities and
product-related promotions
Image: upstart product favored by younger
generation
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Identifying Web Presence Goals

(contd.)

Matching site design to function

Volkswagen of America site
Accomplishes important functions for the company
Provides links to detailed Volkswagen model
information, links to a dealer locator page, links to
information about the company, a link to a set of
shopping tools

Volkswagens home page

Meets the needs of most visitors quickly and
effectively

Volkswagen site enhances company image by

providing useful information to customers online
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FIGURE 3-5 Volkswagen of America home page

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Identifying Web Presence Goals

(contd.)

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)

Serves many different constituencies

Web sites used to stay in touch with existing

stakeholders, identify new opportunities for
serving them

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FIGURE 3-6 ACLU home page

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Web Site Usability

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

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How the Web Is Different

Simple mid-1990s Web sites

Conveyed basic business information
No market research conducted

Web objectives achievement

Failed due to no understanding for Web presencebuilding media

Web sites designed to create an

organizations presence:
Contain links to standard information set
Success dependent on how this information
offered
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Meeting the Needs of Web Site

Visitors

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

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Meeting the Needs of Web Site

Visitors (contd.)

Varied motivations of Web site visitors

(contd.)
Why visitors arrive at Web sites (contd.)

Obtaining general company information

Obtaining financial information
Identifying people
Obtaining contact information
Following a link into the site while searching for
information about a related product, service, or topic

Challenge to meet all motivations

Visitors arrive with different needs, experience, and
expectation levels
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Meeting the Needs of Web Site

Visitors (contd.)

Making Web sites accessible

Build interface flexibility options:

Frame use
Text-only version
Selection of smaller graphic images
Specification of streaming media connection type
Choice among information attributes

Controversial Web site design issues

Adobe Flash software use
Some tasks lend themselves to animated Web pages

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FIGURE 3-7 Lee Jeans FitFinder Flash animation

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Meeting the Needs of Web Site

Visitors (contd.)

Making Web sites accessible (contd.)

Offer multiple information formats
Consider goals in Web site construction

FIGURE 3-8 Goals for business Web sites

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Trust and Loyalty

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

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Rating Electronic Commerce

Web Sites

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

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Usability Testing

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

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Customer-Centric Web Site

Design
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

Examples of good Web site design

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Connecting with
Customers
Important element of a corporate Web
presence
Identify and reach out to customers

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The Nature of Communication on

the Web

Communication modes
Personal contact (prospecting) model
Employees individually search for, qualify, contact
potential customers

Mass media
Deliver messages by broadcasting

Addressable media
Advertising efforts directed to known addressee

Internet medium
Occupies central space in medium choice
continuum

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FIGURE 3-9 Business communication modes

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Summary

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

One approach: channel cooperation

Effective Web presence delivers customer value

Web site visitors arrive with a variety of expectations,
prior knowledge, skill levels, technology

Web communication fits in between personal

contact and mass media

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