White Paper on Sector analysis of web2.

0 based websites for

Guides and Reviews

Submitted by Team GeekFreaks

- Sushant Kumar (09BM8052)

- Pritesh Gehlot (09BM8072)
- Vaibhav Shrimani (09BM8058)
- Nidhi Bansal (09BM8028)

WEB 2.0
 Sector analysis of web2.0 based websites for Guides and Reviews

Introduction

The Web 2.0 based online city guides and reviews websites provides an interactive platform, where
the users can get information about various businesses in their locality or neighbourhood. They can
also generate content on these websites by providing reviews/ratings/photographs/article about any of
the places they have been to. These websites contain detailed information about businesses like
services offered, location- with map and directions, pricing, comparison with the competitors and
member’s recommendation.

One can search for businesses in categories ranging from a dry cleaner/Pan shop near their house to
expensive restaurants and personal finance available in their city. Small businesses can advertise on
such websites to attract local consumers.

History

Before 1970s the only means to get information about the best sweet shop or shopping location in a
city was the residence of that locality. And the opinion given by them was generally biased as it was
limited to the places they would have been to or heard about from their friends. In 1979, Tim and
Nina Zagat collected and correlated the ratings of restaurants by diners. For their first guide, covering
New York City, the Zagats surveyed their friends. Zagat provided various indices in the book
(cuisine, location and special features) and also provided a set of rankings up front (top food, top by
location, best value, etc.).

One of the first web based city sites, Citysearch.com which was founded in September 1995 by
Jeffrey Brewer, Caskey Dickson, Brad Haaugard, Taylor Wescoatt, and Tamar Halpern. They
introduced “Best of Citysearch”, a feature that gives locals an opportunity to vote for their favorite
businesses in popular categories such as Restaurants, Nightlife, Hotels and Services. Many such sites
like yelp.com, Luxecityguides.com (for luxury customers), bcglocations.com (for business travellers)
were created on the same lines.

MouthShut.com was first such Indian city search website and was founded in the year 2000 by Faisal
Farooqui [2]. The Indian blog contentsutra.com reports that MouthShut.com pioneered the whole user-
generated content space in India then. Burrp.com and asklaila.com were few of the many guide and
review websites which were developed later to provide detailed city information to the user.

Services Offered

Information: All Information that you need about Eating and hangout places – location, menu cards,
reviews and ratings. Also provides information about shopping, entertainment, beauty clinics & Spa.

Classifieds: Advertisements posted by local businesses.

Booking and reviews: Online booking of movie tickets. Users can share their experiences by
providing reviews.

Events: Platform to showcase the talent by local artists- post pictures, articles. One can post event
details on website.

Direction & Maps: Provides maps to reach a particular location.

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Vinod Gupta School of Management, IIT Kharagpur
 Sector analysis of web2.0 based websites for Guides and Reviews

Advantages

• One stop shop for all information with comparative analysis of available options.

• Online search saves time and one can view images and videos before making a decision.

• People feel more connected to and updated about their neighborhood with discussion forums.

• Provides employment opportunities to people who want to utilize their spare time.

Business model

As stated by an online news website, atnewyork.com:

"People spend most of their money within a few miles of home," the reasoning went. And people care
most deeply about what happens around the corner. Entertainment dollars--for movies, dining out,
whatever--is entirely a local phenomenon. And in a city like New York, where tourists are
everywhere, the potential market for local information is exponentially larger than just the locals.
"Local advertising, that's the ticket."

The city information and review websites have tapped people’s need for local news and one’s desire
to be updated of what’s happening in his locality. So in simple words, the business model of
information and review websites is to provide information to the consumers of services and earn
revenues from providers of services for advertising their businesses to the consumers.

Steps from Inception to Establishment

1. Build database

Most of the information and review websites have started their businesses by building up a data base
for a city or two depending of their abilities to fund the project. They were initially only information
sites. For this the website owners need to gather as much information about a city, most visited places,
best hotels, economic hotels, movie theatres, hospitals, schools and colleges and other places of
common interest. Many local businesses that are aware of the advantages of online publicity readily
pay up to advertise their business of the website. This becomes a major source of income.

2. Expand the database

It is very important that the database is up to date with latest information. This is where websites
developed with web2.0 technology have advantage over other websites. Ease of scalability is major
advantage of web2.0. Also once a website starts gaining popularity it is necessary that it starts
expanding the database beyond the original geographical areas. Most of the websites that have gained
popularity have scaled to national level by adding database for at least 20-25 major cities nationwide
within a year of inception. This ensures brand creation which accelerates revenue generation.

3. Attract user community

Once a website has created a nationwide (or even detailed regional) database, it can easily attract
users in the cyber space. More the information, more are the users. Websites developed with web2.0
platform (like most the websites being developed these days) have been highly successful in
expanding their user base. In web2.0 environment, users can have their profile; contribute to the

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 Sector analysis of web2.0 based websites for Guides and Reviews

website in form of information, first hand review and experiences. Users are the only source of free
data. Also data put up by a user if validated and reviewed for free by other users. The rise of user
community is indication of popularity, source of exponentially increasing data and feedback and
hence makes a website more lucrative for businesses to post their advertisements on.

4. Set up sustainable source of revenue

Advertisements are major source of income. But businesses pass by and all businesses do not
advertise in good times. So company should look for other sources of income. Now that website has a
huge database of information and user communities, it can be used for conducting market survey and
research. Many marketing research firms collaborate with such websites for gaining information-rich
data and first hand experiences and reviews from user community. Such collaborations often become
long term and regular source of income for information and review websites.

5. Look out for new business opportunities

Information and review websites need to keep innovating and add new features to gain a competitive
edge. Initially websites started including with user ratings with every piece of information. Later with
invent of web2.0, they could add features like user reviews and feedbacks for a particular service.
Users could create a community to discuss their hobbies and interests. Users could also interact to buy
and sell certain goods. Few websites started creating a niche by target specific set of customers with
relevant data (e.g.: there are websites which have special information for economic travellers, some
for luxury seekers and others for sports and fitness enthusiasts within a locality).

Different sources of revenue and profitability

1. Ads by google: Google AdSense is a program enabling online businesses to earn revenue from
serving ads precisely targeted to specific web content and search pages. Thousands of Google
advertisers also benefit from AdSense by gaining exposure on sites across the Google Network,
which includes many of the Top 100 Media Metrix. The websites try to maximize their revenues
by providing space for such ads across different pages.

2. Ads from local businesses: Local Businesses benefit most from information and review websites.
These businesses post their ads on information and review websites and are major source of
revenue. Websites provide intelligent ad space depending on users search criteria for any
information.

3. Commission from financial transactions: Some websites allow booking of hotels, cabs or services
like movie shows in theatres and multiplexes. The websites often earn a percentage of this
transaction from the businesses when any such booking is facilitated from the website.

4. Paid premium services: Some specialized search for premium information can be charged to the
user. However this forms a small percentage of revenues.

5. Can sell data to marketing agencies: Marketing agencies and market research firms readily pay
the websites for gaining information-rich data and first hand experiences and review from user
community. Such collaborations often become long term and are regular source of income.

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Vinod Gupta School of Management, IIT Kharagpur
 Sector analysis of web2.0 based websites for Guides and Reviews

Target users of the websites

1. People travelling to new and unfamiliar cities for personal, business reasons.
2. Internet savvy people who prefer to seek most information and book services or buy products
online.
3. Local people who want to be updated of new businesses and services coming up in
neighborhood.
4. Business owners who want to advertise and promote their business and marketing agencies.

The Porter’s 5 forces Analysis:

1) The threat of substitute products or services

The existence of products outside of the realm of the common product boundaries increases the
propensity of customers to switch to alternatives.

 Buyer’s propensity to substitute: The customers generally switch to the sites that provide an
attractive and user friendly graphical interface. Moreover the performance of the site also
plays an important role in selecting a particular site. If the site is up and running all the time
without any hassle, it is always preferred over the site that has poor performance.
 Relative price performance of substitute: This factor signifies the variations that various
players in the City travel guide illustrate. The variations may be in the cost of booking hotels
etc. If the customers find that the price of booking is less in case on offline mode, the
customer may switch to the substitute methods of booking over telephone or on the spot.
 Perceived level of product differentiation: As long as the site is viewed as a service with
extraordinary features that other sites do not provide, the service is differentiate from its
competitors. For example if the site is user friendly and has an exceptionally good user
interface, it differentiates itself from its competitors.
 Number of substitute products available in the market: This factor also determines the
customer’s preference to switch from one site to another. In travel city guide, there are a lot of
players and therefore the number of substitute products in the market is very high.
 Ease of substitution: Information-based products are more prone to substitution and
therefore the sites in this sector are easy to substitute.
 Quality depreciation: If a site gives the information about a place, it should clearly illustrate
the information with the use of high quality pictures etc. Poor quality of pictures or wrong
information may lead to customers switching to the substitute products.

2) The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms. This results in many new entrants, which
eventually will decrease profitability. Unless the entry of new firms can be blocked by incumbents,
the profit rate will fall towards a competitive level (perfect competition).

 The existence of barriers to entry (patents, rights, etc.)The most attractive segment is one
in which entry barriers are high and exit barriers are low. Here the entry barrier is too low and
the exit barrier is also low, which makes this sector full of large number of players and thus
competition is very high.
 Switching costs or sunk costs: The switching cost is low as entry cost is low and the even if
the cost incurred is not reversed, the players in the sector can survive.

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 Sector analysis of web2.0 based websites for Guides and Reviews

 Capital requirements: Capital requirements are low. The capital is required only for
gathering information about the city and building the database and the site. Moreover some
amount is required for registering the sites in the server of the sector.
 Access to distribution: This refers to the ease of the usage of the sites for this particular
sector. The only thing needed here is internet availability and a computer to access the Web.
The online sites of this sector are easy to use and easily accessible.
 Customer loyalty to established brands: This sector has high customer loyalty to the
established brands. Mostly people stick to use the sites that have satisfied the customers
earlier and have given superior service.
 Learning curve advantages: As the companies built their learning curve, they determine
their strengths and weaknesses and this helps them to have a competitive edge over other
sites.
 Government policies: This sector has lenient government policies.
 Industry profitability; the more profitable the industry the more attractive it will be to
new competitors: The City guide sector is highly profitable. The high profitability of this
sector has attracted large number of players in this field.

3) The intensity of competitive rivalry

For most industries, the intensity of competitive rivalry is the major determinant of the
competitiveness of the industry.

 Sustainable competitive advantage through innovation: This sector has a lot of players
and therefore it has a high competition. Therefore for ensuring sustainable competitive
advantage, the company has to innovate and come up with original ideas for its product and
services.
 Competition between online and offline companies: This sector faces moderate level
competition between online sites and offline companies. While most of the customer in
Developed country uses online sites, In Developing countries, the internet users use this
facility of online city guide. On the other hand, the customers who do not use internet go to
offline companies for the information related to a particular city.
 Level of advertising expense: The Advertising expense is low for online companies and is
mostly concentrated on the Web. This factor contributes to heightened competition in the
sector.
 Powerful competitive strategy: Due to high intensity of competitive rivalry, this sector
experiences high competition.

4) The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs: the ability of customers
to put the firm under pressure, which also affects the customer's sensitivity to price changes. This
issue is directly related to what customer can receive owing to his position in the market.

 Buyer volume. The number of people which are going to use the system depends on many
factors such as population of the city, culture, history, location, status. E.g.: Delhi is a large
city and many people need urgent information regarding distance and landmarks. Paris is a
very old and historical city. Tourists coming there needs information regarding tourist spots in
and around the city. The functionalities attached with a website have to vary from city to city.
 Buyer switching costs relative to firm switching costs. In this case, switching cost has
relatively low importance unless and until information guide is physically involved in
providing information to people. Because of the competition in large tourist places, getting a
customer is easier. Thus the switching cost remains less relevant.
 Availability of existing substitute products. The presence of substitute in any field raises
the level of competition in any field to new heights. For example in case of Google maps and

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Vinod Gupta School of Management, IIT Kharagpur
 Sector analysis of web2.0 based websites for Guides and Reviews

Mapmyindia, the competitors will try to introduce more details and location information,
pictures in there site in order to get ahead in competition.
 Buyer price sensitivity. Customers in this segment are usually unwilling to pay for such
information. So, the opportunity for the company to produce revenue is only by way of
advertisement or promotion contract with other business groups.
 Differential advantage (uniqueness) of industry products. This uniqueness of the products
can be exhibited by examples like Justdial. Just dial contain all the important contact numbers
and addresses in the city.

5) The bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs. In this case the suppliers
are mainly the users of the site themselves who share information with an intention to benefit other
users. Also existing information stores act as commercial suppliers.

 Supplier switching costs relative to firm switching costs. In this case, switching cost has
relatively low importance unless and until information guide is physically involved in
providing information to people.
 Degree of differentiation of inputs. In our case the differentiation can be raised by the type
of data that is being supplied by the supplier. For example, a directory can give us the details
of contact number and addresses. Sites like Google map shows detailed map and location of
an address.
 Impact of inputs on cost or differentiation. In present scenario, where people use internet
frequently, the cost of inputs and their differentiation drops sharply.
 Presence of substitute inputs. In tourist places, the concentration of the firms devoted to the
industry is high. So, it reduces the cost of inputs significantly because of the competition.
 Supplier concentration to firm concentration ratio. Again the type of data states the need
of supplier. However, here again the factors such as switching cost, unity among supplier,
vitality of input to firm and firm situation in the industry as a customer can pose a serious
challenge to Both firm and supplier.
 Supplier competition – It can be termed as ability to forward vertically integrate and cut out
the buyer. This scenario is highly possible in our case as the person who has good supply of
information can very well use it to promote his own business.

Thus we see that information and review websites have highly evolved from being just information
providing yellow pages. With more innovative marketing ideas, even more features and specialized
data will become part of these websites’ information sharing and community interaction.

References:

http://www.google.com/services/adsense_weblogs.html

http://en.wikipedia.org/wiki/Porter%27s_5_forces

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Vinod Gupta School of Management, IIT Kharagpur