1. SOCIAL NETWORKS, AUCTIONS, AND PORTALS CHAPTER 11

2. LEARNING OBJECTIVES  Describe the major types of auctions, their benefits and costs, and how they operate  Understand when to use auctions in a business  Recognize the potential for auction abuse and fraud  Describe the major types of Internet portals and their business models  Describe the different types of social networks and online communities and their business models

3. ONLINE AUCTIONS  The most widely known auctions are C2C auctions in which the auction house is simply an intermediary connecting buyers and sellers  The market leader in C2C auctions is eBay, which has around 157 million active users in the US and over 550 million items listed on any given day within thousands of different categories  In the US alone, there are several hundred auction sites, some specializing in unique collectible products, and others adopting a more generalist approach  Less well know n are B2C auctions where a business owns or controls assets and uses dynamic pricing to establish the price  Auctions also constitute a significant part of B2B e-commerce and more than a third of procurement officers use auctions to procure goods

4. AUCTIONS  Auctions are markets in which prices are variable and based on the competition among participants who are buying and selling products (dynamic pricing)  Auctions are useful in situations where the price of an item is not known because it is rare, unique, or subject to wide fluctuations in demand or supply  The purpose of an auction is to identify reservation prices:  the lowest price a seller is willing to accept, or  the highest price a buying is willing to pay  There are several auction types that each attempt to efficiently identify the participant’s reservation prices

5. AUCTION TYPES  Price taking (fixed pricing)  English auction  Dutch auction  Name your own price  Sealed bid  First price  Second price  Double auction

6. NEWER FORMS OF DYNAMIC PRICING  Trigger pricing  Used in m-commerce, adjusts prices based on the location of the consumer  Utilization pricing  Adjusts prices based on utilization of the product  What is an example where trigger or utilization pricing could be used to identify an appropriate price for a product or service?

7. BENEFITS OF AUCTIONS  Liquidity  Convert unique items to cash  Price discovery and market efficiency  Efficiently match supply and demand to find a market value for an item  Price transparency  Participants can monitor auctions as they occur  Lower transaction costs  Consumer aggregation and network effects  Large auction markets are more valuable to participants

8. RISKS AND COSTS OF AUCTIONS  Delayed consumption costs  Monitoring costs  Can be reduced by watch lists, proxy bidding, etc.  Equipment costs  Trust risks  Fulfillment costs

9. WHEN TO USE AUCTIONS (AND FOR WHAT) IN BUSINESS  Consider auctions from the business perspective  Their objective is to maximize their revenue by finding a true market value for products and services  Table 11.6 provides an overview of factors to consider  One example is the product’s current life cycle phase (early, mature, late)  For which life cycle phase(s) would it be best to use fixed pricing?  For which life cycle phase(s) would it be best to use an auction?

10. FRAUD AND ABUSE IN ONLINE AUCTIONS  Online and offline auction markets are particularly prone to fraud  Some of the possible abuses and frauds include:  Bid rigging  Price matching  Shill feedback (defensive or offensive)  Feedback extortion  Transaction interference  Bid manipulation  Non-payment after winning  Shill bidding  Transaction non-performance and non-selling seller  Bid siphoning

11. E-COMMERCE PORTALS  Portals are the most frequently visited sites on the Web if only because they typically are the first page to which many users point their browser on startup  The top portals such as Yahoo, MSN, and AOL have hundreds of millions of unique visitors worldwide each month  Web portals are gateways to the billions of Web pages available on the Internet  Millions of users have set Facebook a their home page, choosing to start their sessions with news from friends  Perhaps the most important service provided by portals is that of helping people find the information they are looking for on the Web

12. E-COMMERCE PORTALS (CONT.)  Early portals were primarily search engines, but portals have evolved into much more complex websites that provide news, entertainment, maps, images, social networks, in-depth information, and education  Portals today seek to be a sticky destination site, not merely a gateway through which visitors pass  Portals also serve important functions for businesses and other organizations  Enterprise portals help employees or members navigate to important content, such as HR information, corporate news, or organizational announcements  Drake’s blueView is an enterprise portal

13. THE TOP 5 PORTAL/SEARCH ENGINE SITES IN THE UNITED STATES (FIGURE 11.3)

14. PORTAL TYPES (FIGURE 11.4)

15. PORTAL VALUE  Because the value of portals to advertisers and content owners is largely a function of the size of the audience each portal reaches, and the length of time visitors stay on the site, portals compete with one another on reach and unique visitors  Reach is defined as the percentage of the Web audience that visits the site in a month  Unique visitors is defined as the number of uniquely identified individuals who visit in a month  Portals are inevitably subject to the network effect  How does this affect their business strategy?

16. SOCIAL NETWORKS AND ONLINE COMMUNITIES (PAST)  From the beginning, the Internet was intended to be a community-building technology that would allow scientists to share data, knowledge, and opinions in a real-time online environment  The early online communities involved a relatively small number of Internet aficionados, and users with intense interests in technology, politics, literature, and ideas  The technology was largely limited to posting text messages on bulletin boards sponsored by the community, and sending one-to-one or one-to-many e-mails

17. SOCIAL NETWORKS AND ONLINE COMMUNITIES (PRESENT)  By 2002, the nature of online communities had begun to change  User-created blogs became inexpensive and easy to set up without any technical expertise  Photo sites enabled convenient sharing of photos  Beginning in 2007, the growth of mobile devices enabled sharing of riche media such as photos, music, and videos  Suddenly there was a much wider audience for sharing interests and activities, and much more to share

18. SOCIAL NETWORKS AND ONLINE COMMUNITIES (PRESENT)  A new culture emerged as well  Online communities broadened to include a much wider set of people and tastes, especially pre-teen, teens, and college students who were the fastest to adopt many of these new technologies  The new social network culture is very personal and “me” centered, displaying photos and broadcasting personal activities, interests, hobbies, and relationships on social network profiles  Today’s social networks are as much a sociological phenomenon as they are a technology phenomenon  Currently, social network participation is one of the most common usages of the Internet (about three-quarters of all Internet users in the US, 180 million people)  Worldwide, the social network phenomena is even stronger with nearly 2 billion users worldwide, 27% of the world’s population, and still growing at 9% annually

19. WHAT IS AN ONLINE SOCIAL NETWORK?  Social networks involve:  A group of people  Shared social interaction  Common ties among members  People who share an area for some period of time  Online social networks are a variation of traditional social networks facilitated by the Internet with some differing characteristics including the removal of geographic and time limitations

20. TOP SOCIAL NETWORKS (FIGURE 11.1)

21. TURNING SOCIAL NETWORKS INTO BUSINESSES  While the early social networks had a difficult time raising capital and revenues, today’s social networks are now monetizing their audiences  Early social networks relied on subscriptions  Today, most social networks rely on advertising or venture capital investment  Facebook has the largest US advertising revenue  Its annual advertising revenue is now well over $7 billion

22. TURNING SOCIAL NETWORKS INTO BUSINESSES (CONT.)  Some social networks have become very successful, but social networks do not always succeed as businesses  For example, Twitter’s growth has slowed in recent years and it has never shown a profit  Social networks have had an important impact on how businesses operate, communicate and serve their customers  A survey of Fortune 500 firms found that 93% used LinkedIn, 78% used Twitter, and 74% used Facebook  These sites can also be a powerful listening tool that has strengthened the role of customers and customer feedback systems  Social networks are where corporate brands and reputations are formed, and firms today take very seriously the topic of “online reputation”

23. THE FUTURE OF SOCIAL NETWORKS  Social networking is one of the most popular online activities  Will it decline in popularity or grow even more popular in the future?  Will the industry become more concentrated (Facebook increasing their market share), or become less concentrated?  Many young users report “network fatigue”  The financial future of social networks is to become advertising and sales platforms, but they are not yet proven advertising platforms that drive sales  The relationship between “like” and sales is not clear yet  As social networks attempt to monetize their huge audiences, user resentment grows  Use of users private information also creates feelings of betrayal and fear