1. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Internet Marketing & e-Commerce Ward Hanson Kirthi Kalyanam Requests for permission to copy any part of the material should be addressed to: PERMISSIONS DEPARTMENT THOMSON BUSINESS and ECONOMICS 5109 Natorp Boulevard Mason, OH 45040 Phone: (800) 423-0563

2. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Part One: Chapter Five Web Business Models “A good business model begins with an insight into human motivations and ends in a rich stream of profits.” Joan Magretta, Why Business Models Matter

3. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation The Value of Customer Contact Web-based business models fundamentally change the way businesses interact with customers

4. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation The Value of Customer Contact Web-based business models fundamentally change the way businesses interact with customers Shift from occasional transaction to continuous analysis of customer behavior

5. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation The Value of Customer Contact Web-based business models fundamentally change the way businesses interact with customers Shift from occasional transaction to continuous analysis of customer behavior Shift from value distribution to value creation

6. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Closed Loop Marketing Tracking customers from ad click to page views to purchase or exit Learning from and responding to customer interaction at each level Expanded accountability Accelerated learning curve on pricing, product quality and other variables

7. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Closed Loop Marketing Marketing Reaction Resource Allocation Customer Value Calculation Customer Database Segmentation Customer Database Creation Customer Action

8. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Evaluating Customer Contact Online customer contact comes in many forms –Website visits –Banner advertising –Email promotions –Cell phone price checks

9. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Evaluating Customer Contact Web Chain Analysis calculates the effectiveness of online strategies

10. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Evaluating Customer Contact Web Chain Analysis calculates the effectiveness of online strategies –Expected value of a contact: the unified contact value

11. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Evaluating Customer Contact Web Chain Analysis calculates the effectiveness of online strategies –Expected value of a contact: the unified contact value –Expected value of a prospect: the unified visit value

12. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Evaluating Customer Contact Web Chain Analysis calculates the effectiveness of online strategies –Expected value of a contact: the unified contact value –Expected value of a prospect: the unified visit value –Expected value of a new customer

13. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Evaluating Customer Contact Web Chain Analysis calculates the effectiveness of online strategies –Expected value of a contact: the unified contact value –Expected value of a prospect: the unified visit value –Expected value of a new customer –Expected value of a repeat buyer

14. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Evaluating Customer Contact

15. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Customer Lifetime Value The ability to track, store and analyze individual behavior online allows firms to calculate the present value of the future cash flow attributed to the relationship with any one customer

16. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Customer Lifetime Value The ability to track, store and analyze individual behavior online allows firms to calculate the present value of the future cash flow attributed to the relationship with any one customer Not every customer is created equal; high support costs can drive some customer relationship below zero value

17. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Customer Lifetime Value

18. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Web Benefits to Business Online strategies can bring direct and indirect benefits to firms Not every online tactic is profitable No formula for successful online business model Scale matters

19. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Web Benefits to Businesses Cost reduction –In banking, the switch from teller windows to ATMs to online transactions Supply chain coordination –At Dell Computers, reduced inventory and faster response to changes in the market Also: improved customer knowledge, enhanced product quality and advanced branding

20. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Revenue Benefits Online capabilities create new revenue opportunities

21. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Revenue Benefits Online capabilities create new revenue opportunities Incremental benefits –Advertising last-minute tee times for a reduced price (lastminutegolfer.com)

22. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Revenue Benefits Online capabilities create new revenue opportunities Incremental benefits –Advertising last-minute tee times for a reduced price (lastminutegolfer.com) Entirely new streams of revenue –Selling music by the song at iTunes

23. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Revenue Benefits Online capabilities create new revenue opportunities Incremental benefits –Advertising last-minute tee times for a reduced price (lastminutegolfer.com) Entirely new streams of revenue –Selling music by the song at iTunes Enhanced products drive revenue –At Science, online content helps drive the magazine’s print sales

24. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Revenue Models Permission sponsorship Banner advertising Prospect fees Sales commissions

25. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Revenue Models Factors in selecting payment structure: –Attitude toward risk –Ability to monitor performance –Current market emphasis –Negotiating power

26. © Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Selecting a Payment Structure Sponsorship Fixed Payment Banner Ads Impressions Prospect Fees Click through Commissions Purchase Increasingly Performance Based and Higher Rise for Web Site Risk for AdvertiserRisk for Ad Network