McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. internet business models text and cases tom eisenmann

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Key Issues for Internet Business Models

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Access Provider Lecture

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. B14 McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. INTERNET BUSINESS MODELS ACCESS PROVIDERS –TCI; Teledesic; Geocast PORTALS CONTENT PROVIDERS RETAILERS BROKERS MARKET MAKERS

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. B15 Issues Facing Access Providers Free ISP threat Broadband discontinuity: attackers (e.g., TCI, Teledesic) must make huge upfront capital expenditures in the face of massive demand, technological and regulatory uncertainty Bundling opportunity (ISP; wireline and wireless phone; cable TV; etc.) –Reduces churn (but exposes all to weak links) –Reduces customer acquisition costs –Allows targeting of discounts to heavy users –But, do consumers prefer ‘best of breed’?

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. B16 INTERNET BUSINESS MODELS ACCESS PROVIDERS PORTALS –StarMedia; Yahoo!; Tellme CONTENT PROVIDERS RETAILERS BROKERS MARKET MAKERS

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. B17 Issues Facing Portals Payoff from vertical integration Viability of competing models –Free access (NetZero; AltaVista) –Better navigation (GoTo.com; Google; AskJeeves; About.com) –Destination sites usurping portal functionality Maturation of the user and advertiser bases Portal disintermediation of commerce sites Broadband discontinuity

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. B18 INTERNET BUSINESS MODELS ACCESS PROVIDERS PORTALS CONTENT PROVIDERS –BET.com; CNET; Boston.com; BMG RETAILERS BROKERS MARKET MAKERS

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. B19 Issues Facing Online Content Providers Register users or find other ways to target ads? Become a vertical portal/“infomediary”? (CNET; BET; Boston.com) –Link to third party information sources –Add commerce capabilities –Be “complete, credible, and convenient”; aggregate and integrate Syndicate content to other websites? Exploit multi-media linkages? (e.g., CNET: TV and radio)

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. B110 INTERNET BUSINESS MODELS ACCESS PROVIDERS PORTALS CONTENT PROVIDERS RETAILERS –Petstore.com; Staples.com; Sendwine.com BROKERS MARKET MAKERS

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. B111 Issues Facing Online Retailers Impact of ‘bots’, Impact of ‘information intermediaries’ (Egghead vs. CNET) Become a vertical portal/infomediary?

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. B112 INTERNET BUSINESS MODELS ACCESS PROVIDERS PORTALS CONTENT PROVIDERS RETAILERS OF PHYSICAL GOODS BROKERS –Microsoft Carpoint; DLJdirect; Rosenbluth Travel; Wit Capital MARKET MAKERS

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. B113 Issues Facing Online Brokers How many sellers should you present? (Quicken: “too many = hassle”; Staples: “best of breed”; WebHouse: “one-at-a-time okay?”; CNET: “offer all, but give preference to those who pay”) Should you accept an equity investment from a major seller? (Carpoint/Ford; WebHouse) Can you be a retailer yourself and not drive away other sellers? (Quicken vs. InsWeb vs. eCoverage; CNET; Carpoint vs. CarsDirect.com) Who’s side are you on? (Carpoint presents only a single quote to consumer)

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. B114 INTERNET BUSINESS MODELS - ACCESS PROVIDERS MASS MARKET PORTALS CONTENT PROVIDERS RETAILERS OF PHYSICAL GOODS BROKERS MARKET MAKERS –eBricks.com; Sothebys.com; Priceline WebHouse

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. B115 Issues Facing Market Makers Business model: lead generation or transactions? If transactions, relative emphasis on exchange versus catalog? –Liquidity versus transaction cost savings benefits Try to disintermediate any existing players? Give equity to large buyers/sellers to gain momentum? Preserve anonymity of buyers/sellers? If so, how to build trust? Compromise neutrality to increase revenues? (e.g., Monster.com becoming a headhunter) Rollout: penetrate a single vertical market across multiple geographic regions, or multiple vertical markets across a single geographic region?