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

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

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

(Based on Weill and Vitale 2001, Straub 2004)

Business Models and Their E-Business Assets

E-BUSINESS MODELS
Atomic Business Models

(Based on Weill and Vitale 2001, Straub 2004)

Business Models and their E-Business Assets

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

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

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 16 interest groups

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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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., Encyclopdia Britannica)
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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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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 39 organization

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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 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 Organizational Context

Entrepreneurship and Business Models

The Environment

Entrepreneurial Process

The Entrepreneur

The Concept

The Resources

Source: Morris et al. Entrepreneurship & Innovation

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Entrepreneurship and Business Models

How to find opportunities
Types Perennial Methods Deliberate Search vs. Discovery Sources The Rules Change Demographics Change Underserved Markets Social Trends Detractors No Need Present Window is not yet open Strong Loyalties High Switching Costs

Occasional

Market Pull vs. Resource or Capacity Push

Multiple Causes

New customers to the market

Increase in usage rates Shortages

Satisfied customers

Multiple Effects

Easy for others to enter with alternatives Intense competition Customers hard to reach

New Knowledge

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
Other Entry Wedges
Exploiting Parallel Momentum Geographic Transfer Supply Shortages Tapping Utilized Resources Customer Sponsorship Customer Contract Becoming a 2nd Source Parent Co. Sponsorship Joint Venture Licensing Market Relinquishment Selloff Division Governmental Sponsorship Favored Purchasing Rule Changes
New Product or Service Parallel Competition Franchising Acquisition

X X X X X X X X X X X

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
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