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Chapter 3: Selling on the Web: Revenue Models and Building a Web Presence. Revenue Models. Question: How do we generate revenue?? Web catalog revenue model Taking the successful mail order catalog model to the Web Examples Dell Amazon Lands’ End 1-800-Flowers.

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revenue models
Revenue Models

Question: How do we generate revenue??

  • Web catalog revenue model
    • Taking the successful mail order catalog model to the Web
  • Examples
    • Dell
    • Amazon
    • Lands’ End
    • 1-800-Flowers
digital content revenue models
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
advertising supported revenue models
Advertising-Supported Revenue Models
  • Broadcasters provide free programming to an audience along with advertising messages
  • Success of Web advertising is hampered by:
    • No consensus on how to measure and charge for site visitor views
      • Stickiness of a Web site: the ability to keep visitors and attract repeat visitors
    • Very few Web sites have sufficient visitors to interest large advertisers
web portals
Web Portals
  • Web directory
    • A listing of hyperlinks to Web pages
  • Portal or Web portal
    • Site used as a launching point to enter the Web
    • Almost always includes a Web directory and search engine
    • Examples: Yahoo!, Google
  • Exercise
    • Go to several portals – Yahoo, Google, AOL, CNN etc.
    • What are the similarities and differences in the homepage?
    • Which do you rate as the most effective?
advertising subscription mixed revenue models
Advertising-Subscription Mixed Revenue Models
  • Subscribers pay a fee and accept some level of advertising
    • Typically are subjected to much less advertising
  • This model is used by The New York Times (somewhat) and The Wall Street Journal
fee for transaction revenue models
Fee-for-Transaction Revenue Models
  • Businesses offer services and charge a fee based on the number or size of transactions processed
  • Disintermediation
    • Removal of an intermediary from a value chain
  • Reintermediation
    • Introduction of a new intermediary
Digression: Infomediaries and Cybermedaries: A continuing role for mediating players in the electronic marketplace
  • How will Internet affect intermediaries
    • Disintermediation??
    • Create new intermediaries??
  • Argument for disintermediation:
    • Manufacturers will internalize activities traditionally performed by intermediaries

Sarkar, M. B., Butler, B.A., and Steinfield, C. (1996), Journal Computer Mediated Communication, 1:3

infomediaries and cybermedaries
Infomediaries and Cybermedaries

Transaction Cost Theory (Coase 1937)

  • Examples:
    • search and information costs
    • bargaining and decision costs
    • policing and enforcement costs
  • When should a transaction be carried out within the firm or in the market?
  • Transactions are integrated when the internal cost of exchange is less than the external cost of exchange.
  • Hierarchical structure – market coordination costs predominate
  • Market-like relationship w/ external firms – networks reduce transaction costs
week 2 infomediaries and cybermedaries
Week 2: Infomediaries and Cybermedaries

Possible Transactions Between Producers, Consumers, and Intermediaries, where P = Producer, C = Consumer, I = Intermediary, and T1, T2, and T3 = Transaction costs

  • View 1: Internet will reduce transactions costs to 0
    • Problematic
    • Implies networked organization w/ more rather than fewer intermediaries
  • Suppose T1’= T2’ = T3’ = T* a theoretical minimum
  • Before T1 > T2 + T3 implies an intermediary
  • Now: T1’ < T2’ + T3’ implies no intermediary
  • Question: Is T* the same for all transactions?
infomediaries and cybermedaries11
Infomediaries and Cybermedaries

Consumer advantages

Search and evaluation

Needs assessment and product matching

Customer risk management

Product distribution

Producer advantages

Product information dissemination

Purchase influence

Provision of customer information

Producer risk management

Transaction economies of scale

Intermediaries balance consumer and producer needs

infomediaries and cybermedaries13
Infomediaries and Cybermedaries

Social and Subjective factors for intermediaries:

  • Firm may be unable to impose producer-centric structure on its markets
  • Consumers may choose to use intermediaries because they represent multiple producers
  • Benefits of social interaction and entertainment
    • Consumers may inhibit producers form abandoning traditional and on-line intermediaries who serve their needs
fee for service revenue models
Fee-for-Service Revenue Models

Fee is based on the value of a service provided

Services range from games and entertainment to financial advice

Online games

Growing number of sites include premium games in their offerings

Site visitors must pay to play these premium games

Examples? Experiences?

Concerts and films

As more households obtain broadband access to the Internet, companies provide streaming video of concerts & films to paying subscribers

Professional services

State laws are one of the main forces preventing U.S. professionals from extending their practices to the Web


revenue models in transition
Revenue Models in Transition
  • Subscription to advertising-supported model
    • Microsoft founded its Slate magazineWeb site
      • An upscale news and current events publication
      • Charged an annual subscription fee after a limited free introductory period
      • Was unable to draw a sufficient number of paid subscribers
      • Now operated as an advertising-supported site
advertising supported to advertising subscription mixed model
Advertising-Supported to Advertising-Subscription Mixed Model
    • Operated for several years as an advertising-supported site
    • Now offers an optional subscription version of its site
    • Subscription offering was motivated by the company’s inability to raise additional money from investors
advertising supported to fee for services model
Advertising-Supported to Fee-for-Services Model
  • Xdrive Technologies
    • Opened its original advertising-supported Web site in 1999
    • Offered free disk storage space online to users
    • After two years, it was unable to pay the costs of providing the service with the advertising revenue it generated
    • Later it switched to a subscription-supported model
advertising supported to subscription model
Advertising-Supported to Subscription Model
  • Northern Light
    • Founded in August 1997 as a search engine with a twist
    • Revenue model
      • Combination of advertising-supported model plus a fee-based information access service
    • January 2002
      • Converted to a new revenue model that was primarily subscription supported
multiple transitions
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
    • Go to site --
    • Impressions? Why use the vs. Wikipedia?
revenue strategy issues
Revenue Strategy Issues

Channel conflict

Occurs whenever sales activities on a company’s Web site interfere with existing sales outlets

Also called cannibalization


Channel cooperation

Giving customers access to the company’s products through a coordinated presence in all distribution channels


Go to a Web site of a physical store and see if you can identify examples of channel cooperation.


strategic alliances and channel distribution management
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
    • Increase the propensity of customers to return to a site
  • Channel distribution managers
    • Companies that take over the responsibility for a particular product line within a retail store
creating an effective web presence
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
achieving web presence goals
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

Objectives of the business include:

Creating an impression consistent with the organization’s desired image

Building a trusting relationship with visitors

Reinforcing positive images that the visitor might already have about the organization

Encouraging visitors to return to the site

profit driven organizations
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

profit driven organizations continued
Profit-Driven Organizations (continued)

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 but graphically more appealing

not for profit organizations
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
  • Exercise
    • Go to the Web site of a not-for-profit organization
    • Does it disseminate information
    • How – if at all – does it differ from other Web sites you have visited
web site usability
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

Motivations of Web site visitors include:

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

making web sites accessible
Making Web Sites Accessible
  • Designers should --
    • Build flexibility into the Web site’s interface
    • Let visitors choose among information attributes
    • Offer multiple information formats by including links to files in those formats
  • 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
trust and loyalty
Trust and Loyalty
  • A 5 percent increase in customer loyalty can yield profit increases between 25% and 80%
  • Repetition of satisfactory service can build customer loyalty
  • Customer service is a problem for many electronic commerce sites
    • Why is this so?
    • Example of site with good customer service?
    • Examples with bad customer service?
usability testing
Usability Testing
  • Companies that have done usability tests
    • Conduct focus groups
    • Watch how different customers navigate through a series of Web site test designs
  • Cost of usability testing is low compared to the total cost of a Web site design or overhaul
customer centric web site design
Customer-Centric Web Site Design

Put the customer at the center of all site designs


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

connecting with customers
Connecting With Customers

Personal contact model

Firm’s employees individually search for, qualify, and contact potential customers


Personal contact approach to identifying and reaching customers

Mass mediaapproach

Firms prepare advertising and promotional materials about the firm and its products

Addressable media

Advertising efforts are directed to a known addressee

Also called mass media

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

exercise web site design
Exercise: Web Site design



Goal that web sites should meet:

Company 1

Company 2

Company 3

Company 4


1. Offer easily accessible facts about he organization

2. Allow visitors to experience the site in different ways

at different levels

3. Provide visitors with a meaningful, two-way interactive

communication link with the organization

4. Sustain visitor attention and encourage return visits

5. Offer easily accessible information about products &

services and how to use them

  • Page 149 of the text includes a list of things that Web sites can do to meet the needs of visitors. Find three Web sites that meet three or more of the needs in the table below. On a 10 point scale (10 highest) rate how well each site meets the need. You may use the Webby Awards site as a starting point in your search but use other sites besides the Webby winner in your category.

Models used to generate revenue on the Web include:

Web catalog

Digital content sales


Advertising-subscription mixed

Fee-for-transaction and fee-for-service

Companies undertaking electronic commerce initiatives sometimes:

Form strategic alliances

Contract with channel distribution managers

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