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Objectives In this chapter, you will learn about: Revenue models

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

2 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

3 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 customer’s purchasing needs Customer relationship – ability to influence customer’s behaviors

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

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

6 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

7 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

8 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

9 Books, Music, and Videos Retailers use the Web catalog model to sell books, music, and videos Jeff Bezos: Jason and Matthew Olim : CDnow

10 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

11 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 customer’s preferences and helps customers match products to their preferences Virtual model: Build your idealized view of yourself  with custom measurements, etc.

12 Flowers and Gifts 1-800-Flowers: Godiva: Harry and David
Mrs. Fields Cookies

13 Digital Content Revenue Models
Firms that own intellectual property have embraced the Web as a new and highly efficient distribution mechanism Provides full-text search of court cases, laws, patent databases, and tax regulations ProQuest: Sells digital copies of published documents

14 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. Google’s 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.

15 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?

16 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

17 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

18 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

19 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

20 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

21 Fee-for-Service Models
Fee is based on the value of a service provided Services range from games and entertainment to financial advice

22 Fee-for-Service Models
Online games WOW Concerts and films Streaming video of concerts and films to paying subscribers

23 Revenue Models in Transition
Subscription to advertising-supported model (e.g., Slate Magazine) Advertising-Supported to Advertising-Subscription Mixed Model (e.g., Advertising-Supported to Fee-for-Services Model (e.g., Advertising-Supported to Subscription Model (e.g., Multiple Transitions (e.g., Encyclopædia Britannica)

24 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

25 Advertising-Supported to Advertising-Subscription Mixed Model 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 company’s inability to raise additional money from investors

26 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

27 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

28 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

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

30 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

31 Creating an Effective Web Presence
An organization’s presence is the public image it conveys to its stakeholders Stakeholders of a firm include customers, suppliers, employees, stockholders, neighbors, and the general public

32 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 site’s links to obtain information Creating an impression consistent with the organization’s desired brand image Building a trusting relationship with visitors Reinforcing positive images that the visitor might already have about the organization

33 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


35 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



38 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

39 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

40 Making Web Sites Accessible
One of the best ways to accommodate a broad range of visitor needs is to build flexibility into the Web site’s 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

41 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

42 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

43 How do you retain customers?
One of the most common factors that influences a site’s 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

44 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?

45 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

46 Connecting with Customers
Personal contact model: Firm’s 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


48 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

49 Entrepreneurship and Business Models
Frameworks The Environment Entrepreneurial Process The Organizational Context The Entrepreneur The Concept The Resources Source: Morris et al. Entrepreneurship & Innovation

50 Entrepreneurship and Business Models
How to find opportunities Types Methods Sources Detractors Perennial Deliberate Search vs. Discovery The Rules Change Demographics Change No Need Present Window is not yet open Occasional Market Pull vs. Resource or Capacity Push Underserved Markets Social Trends Strong Loyalties High Switching Costs Multiple Causes New customers to the market Satisfied customers Multiple Effects Increase in usage rates Shortages Easy for others to enter with alternatives Intense competition New Knowledge Customers hard to reach Source: Morris et al. Entrepreneurship & Innovation

51 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

52 Entrepreneurship and Business Models
Entry Wedges Source: Morris et al. Entrepreneurship & Innovation

53 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?

54 Porter’s Competitive Forces Model: How the Internet Influences Industry Structure

55 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

56 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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