1. Copyright © 2010 Pearson Education, Inc. E-commerce Kenneth C. Laudon Carol Guercio Traver business. technology. society. Sixth Edition

2. Copyright © 2010 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc. Slide 11-2 Chapter 11 Social Networks, Auctions, and Portals

3. Copyright © 2010 Pearson Education, Inc. Social Network Fever Spreads to the Professions Class Discussion How has the growth of social networking enabled the creation of more specific niche sites? What are some examples of social network sites with a financial or business focus? Describe some common features and activities on these social networking sites. What features of social networks best explains their popularity? Slide 11-3

4. Copyright © 2010 Pearson Education, Inc. Social Networks and Online Communities Internet began as community building technology for scientists, researchers Early communities limited to bulletin boards, newsgroups; e.g., the Well 2002: mobile Internet devices, blogs, sharing of rich media began new era of social networking Social networking one of most common Internet activities Slide 11-4

5. Copyright © 2010 Pearson Education, Inc. What Is an Online Social Network? Area online where people who share common ties can interact Participants do not necessarily share goals Portals and social networks:  Moving closer together  Portals adding social networking features  Community sites adding portal-like services Searching News E-commerce services Slide 11-5

6. Copyright © 2010 Pearson Education, Inc. The Growth of Social Networks and Online Communities Top 10 social networks account for over 90% social networking activity Facebook users: over 49% are 35+ Unique audience size:  Social networking: 147 million  Top 4 search engines: 550 million Annual advertising revenue  Social networking sites: $1.4 billion  Top 4 search engines: $12 billion Slide 11-6

7. Copyright © 2010 Pearson Education, Inc. Top 10 Social Network Sites 2009 vs. 2008 Slide 11-7 SOURCES: eMarketer, 2009c; comScore, 2009; Facebook, 2009.Figure 11.1, Page 722

8. Copyright © 2010 Pearson Education, Inc. Types of Social Networks and Their Business Models Early networking sites relied on subscriptions Today primarily advertising General communities:  Offer opportunities to interact with general audience organized into general topics  Advertising supported by selling ad space on pages and videos Practice networks:  Offer focused discussion groups, help, and knowledge related to area of shared practice  May be profit or non-profit; rely on advertising or user donations Slide 11-8

9. Copyright © 2010 Pearson Education, Inc. Types of Social Networks And Their Business Models Interest-based social networks:  Offer focused discussion groups based on shared interest in some specific subject  Usually advertising supported Affinity communities:  Offer focused discussion and interaction with other people who share same affinity (self or group identification)  Advertising and revenues from sales of products Sponsored communities:  Created by government, non-profit, or for-profit organizations for purpose of pursuing organizational goals Slide 11-9

10. Copyright © 2010 Pearson Education, Inc. Social Network Features and Technologies Profiles Friends network Network discovery Favorites E-mail Storage Instant messaging Message boards Online polling Chat Discussion groups Experts online Membership management tools Slide 11-10

11. Copyright © 2010 Pearson Education, Inc. Insight on Technology Social Operating Systems: Facebook vs. Google Class Discussion What does Mark Zuckerberg, Facebook’s CEO, mean by “social operating system”? Why have Facebook applications become so popular? Do they have any limitations? How has Google responded? Which core functions can their programs perform? What are the advantages of Google’s software over “closed worlds” like Facebook? Slide 11-11

12. Copyright © 2010 Pearson Education, Inc. Online Auctions Online auction sites among the most popular consumer-to-consumer sites on the Internet eBay: market leader Several hundred different auction sites in the United States alone Established portals and online retail sites increasingly are adding auctions to their sites Slide 11-12

13. Copyright © 2010 Pearson Education, Inc. Defining and Measuring the Growth of Auctions and Dynamic Pricing Dynamic pricing  Airline tickets, coupons, college scholarships  Prices based on demand characteristics of customer and supply situation of seller Many types of dynamic pricing  Bundling  Trigger pricing  Utilization pricing  Personalization pricing Slide 11-13

14. Copyright © 2010 Pearson Education, Inc. Defining and Measuring the Growth of Auctions and Dynamic Pricing Auctions: type of dynamic pricing  C2C auctions Auction house an intermediary $25 billion gross revenue 2009  B2C auctions Business owns assets; often used for excess goods $19 billion gross revenue 2009  Can be used to allocate, bundle resources  Expected to grow 5%–10% annually through 2013 Slide 11-14

15. Copyright © 2010 Pearson Education, Inc. Benefits of Auctions Liquidity Price discovery Price transparency Market efficiency Lower transaction costs Consumer aggregation Network effects Market maker benefits: no inventory or fulfillment activities Slide 11-15

16. Copyright © 2010 Pearson Education, Inc. Risks and Costs of Auctions for Consumers and Businesses Delayed consumption costs Monitoring costs  Possible solutions include: Fixed pricing Watch lists Proxy bidding Equipment costs Trust risks  Possible solution—rating systems Fulfillment costs Slide 11-16

17. Copyright © 2010 Pearson Education, Inc. Internet Auction Basics Different from traditional auctions  Last much longer (usually a week)  Variable number of bidders who come and go from auction arena Market power and bias in dynamically priced markets  Neutral: number of buyers and sellers is few or equal  Seller bias: few sellers and many buyers  Buyer bias: many sellers and few buyers Slide 11-17

18. Copyright © 2010 Pearson Education, Inc. Internet Auction Basics Price allocation rules  Uniform pricing rule: multiple winners who all pay the same price  Discriminatory pricing rule: winners pay different amount depending on what they bid Public vs. private information  Prices bid may be kept secret Bid rigging  Open markets Price matching Slide 11-18

19. Copyright © 2010 Pearson Education, Inc. Bias in Dynamically Priced Markets Slide 11-19 Figure 11.4, Page 735

20. Copyright © 2010 Pearson Education, Inc. Types of Auctions English auctions:  Single item up for sale to single seller  Highest bidder wins Traditional Dutch auction:  Uses a clock that displays starting price  Clock ticks down price until buyer stops it Dutch Internet auction:  Public ascending price, multiple units  Final price is lowest successful bid, which sets price for all higher bidders Slide 11-20

21. Copyright © 2010 Pearson Education, Inc. Types of Auctions Name your own price auctions  Users specify what they are willing to pay for goods or services and multiple providers bid for their business  Prices do not descend and are fixed Group buying auctions (demand aggregators)  Group buying of products at dynamically adjusted discount prices based on high volume purchases  Two principles 1. Sellers more likely to offer discounts to buyers purchasing in volume 2. Buyers increase their purchases as prices fall Slide 11-21

22. Copyright © 2010 Pearson Education, Inc. Types of Auctions Professional service auctions  Example: Elance.com Auction aggregators (mega auctions)  Use Web crawlers to search thousands of Web auction sites and accumulate information on products, bids, auction duration, etc.  Unlicensed aggregators opposed by eBay Slide 11-22

23. Copyright © 2010 Pearson Education, Inc. Slide 11-23 Table 11.7, Page 742

24. Copyright © 2010 Pearson Education, Inc. Seller and Consumer Behavior at Auctions Seller profit: arrival rate, auction length, and number of units at auction Auction prices not necessarily the lowest Unintended results of participating in auctions:  Winner’s regret  Seller’s lament  Loser’s lament Consumer trust an important motivating factor in auctions Slide 11-24

25. Copyright © 2010 Pearson Education, Inc. Auction Profits Slide 11-25 SOURCE: Vakrat and Seidmann, 1998.Figure 11.5, Page 744

26. Copyright © 2010 Pearson Education, Inc. Insight on Society Swoopo: Online Auction or Game of Chance? Class Discussion What are the similarities of Swoopo to auctions? To gambling? Are there any ethical considerations posed by Swoopo’s business model? Is Swoopo essentially a deceptive experience? Why or why not? What other sites or online experiences contain deceptive elements? Slide 11-26

27. Copyright © 2010 Pearson Education, Inc. When Auction Markets Fail: Fraud and Abuse in Auctions Markets fail to produce socially desirable outcomes in four situations:  Information asymmetry, monopoly power, public goods, and externalities. Auction markets prone to fraud  Most common: failure to deliver, failure to pay In 2009, 25% of Internet fraud complaints concern online auctions Slide 11-27

28. Copyright © 2010 Pearson Education, Inc. Portals Most frequently visited sites on Web Original portals were search engines As search sites, attracted huge audiences Today provide:  Navigation of the Web  Commerce  Content (own and others’) Compete on reach and unique visitors Enterprise portals  Help employees find important organizational content Slide 11-28

29. Copyright © 2010 Pearson Education, Inc. Top 5 Portal/Search Engines in the United States Slide 11-29 SOURCE: comScore, 2009; author’s estimates.Figure 11.5, Page 755

30. Copyright © 2010 Pearson Education, Inc. Insight on Business The Transformation of AOL Class Discussion What types of decisions led to AOL’s decline in popularity? What posed the greatest competition to AOL? What are AOL’s current strategies? Are the new strategies valid? Do you think they will succeed? What is the business value of AOL? Slide 11-30

31. Copyright © 2010 Pearson Education, Inc. Types of Portals General purpose portals:  Attempt to attract very large general audience  Retain audience by providing in-depth vertical content channels  E.g., Yahoo, MSN Vertical market portals:  Attempt to attract highly focused, loyal audiences with specific interest in: Community (affinity group); e.g., iVillage.com Focused content; e.g., ESPN.com Slide 11-31

32. Copyright © 2010 Pearson Education, Inc. Two General Types of Portals: General Purpose and Vertical Market Portals Figure 11.6, Page 756 Slide 11-32

33. Copyright © 2010 Pearson Education, Inc. Portal Business Models ISP services (AOL, MSN)  Provide Web access, e-mail for monthly fee General advertising revenue  Charge for impressions delivered Tenancy deals  Fixed charge for number of impressions, exclusive partnerships, “sole providers” Commissions on sales  Sales at site by independent providers Subscription fees  Charging for premium content Slide 11-33

34. Copyright © 2010 Pearson Education, Inc. Revenue per Customer and Market Focus Figure 11.7, Page 757 Slide 11-34

35. Copyright © 2010 Pearson Education, Inc.Slide 11-35 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2010 Pearson Education, Inc. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall