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  1. AL-MAAREFA COLLEGE FOR SCIENCE AND TECHNOLOGYINFO 211: E-BUSINESSCHAPTER3Selling on the Web: Revenue Models and Building a Web PresenceInstructorMs. ArwaBinsaleh

  2. Learning Objectives In this chapter, you will learn about: Revenue models How some companies move from one revenue model to another to achieve success Revenue strategy issues that companies face when selling on the Web Creating an effective business presence on the Web Web site usability Communicating effectively with customers on the Web Electronic Commerce, Ninth Edition

  3. Revenue Models Web business revenue-generating models Web catalog Digital content Advertising-supported Advertising-subscription mixed Fee-based Can work for both sale types Business-to-consumer (B2C) Business-to-business (B2B) Can use same revenue model for both types of sales Electronic Commerce, Ninth Edition

  4. Web Catalog Revenue Models Adapted from mail-order (catalog) model Seller establishes brand image Printed information mailed to prospective buyers Orders placed by mail or toll-free telephone number Expands traditional model Replaces or supplements print catalogs Offers flexibility Orders placed through Web site or telephone Payments made though Web site, telephone, or mail Creates additional sales outlet for existing companies Electronic Commerce, Ninth Edition

  5. Web Catalog Revenue Models (cont’d.) Computers and consumer electronics Leading computer manufacturers Sell a full range of products on the Web Dell allows product configuration flexibility Creates value Crutchfield Expanded successful mail-order catalog operations to include Web sites Best Buy, J&R Music World, Radio Shack Web sites sell same products as in stores Electronic Commerce, Ninth Edition

  6. Web Catalog Revenue Models (cont’d.) • Computers and consumer electronics (cont’d.) • Marketing channel • Pathway to customers • Advantage of having several marketing channels • Reach more customers at less cost • Can combine marketing channels • Example: in-store online ordering • Example: mail catalogs with reference to retailer’s Web site Electronic Commerce, Ninth Edition 6

  7. FIGURE 3-1 Combining marketing channels: Two retailer examples Electronic Commerce, Ninth Edition 7

  8. Web Catalog Revenue Models (cont’d.) Books, music, and videos Most visible electronic commerce examples Web-only retailer originally sold books Evolved into general retailer Barnes & Noble, Blackwell’s, Books-A-Million, Powell’s Books All adopted Web catalog revenue model CDnow Web-only online music store CD Universe copied CDnow approach Tower Records, Sam Goody retail stores Created Web sites to compete with CDnow Electronic Commerce, Ninth Edition

  9. Web Catalog Revenue Models (cont’d.) Luxury goods Difficult to sell online Customers want to see product in person or touch Vera Wang and Versace Web sites provide information Shopper purchases at physical store Heavy use of graphics and animation Evian Web site Presents information in a visually stunning way Electronic Commerce, Ninth Edition

  10. Web Catalog Revenue Models (cont’d.) Clothing retailers Many adapted catalog sales model to Web Display clothing photos categorized by type Prices, sizes, colors, tailoring details Want customers to examine clothing online Place orders through Web site Lands’ End online Web shopping assistance Lands’ End Live (1999) Online text chat and call-back feature Ability to push Web pages to customer’s browser Electronic Commerce, Ninth Edition

  11. Web Catalog Revenue Models (cont’d.) Clothing retailers (cont’d.) Lands’ End personal shopper agent (more recent) Learns preferences and makes suggestions My Virtual Model (customers try clothes) Graphic image built from customer measurements Another feature allows: Two shoppers using different computers to simultaneously browse Web site together Only one of the shoppers can purchase items Either shopper can select items to view Selected items appear in both Web browsers Electronic Commerce, Ninth Edition

  12. Web Catalog Revenue Models (cont’d.) • Clothing retailers (cont’d.) • Online overstocks stores • Reach more people than physical outlet stores • Problem: varying computer monitor color settings • Solution: send fabric swatch on request • Solution: offer generous return policies Electronic Commerce, Ninth Edition 12

  13. Web Catalog Revenue Models (cont’d.) Flowers and gifts (gift retailers) 1-800-Flowers Online extension to successful telephone business Competes with online-only florists Godiva offers business gift plans Hickory Farms and Mrs. Fields Cookies Offer familiar name brands on the Web Harry and David Original Web site for informational purposes Promoted catalog business and added online ordering feature Electronic Commerce, Ninth Edition

  14. Web Catalog Revenue Models (cont’d.) General discounters and Borrowed Wal-Mart and discount club sales model Sell merchandise at extremely low prices Traditional discount retailers (Costco, Kmart, Target, Wal-Mart) Slow to implement online sales on their Web sites Had huge investments in physical stores Did not understand online retailing world Now use the Web catalog revenue model in their successful online sales operations Electronic Commerce, Ninth Edition

  15. Digital Content Subscription Revenue Models Firms owning written information or information rights Embrace the Web as a highly efficient distribution mechanism Use the digital content revenue model Sell subscriptions for access to information they own Legal content LexisNexis: offers variety of information services offers original legal information product Electronic Commerce, Ninth Edition

  16. Digital Content Subscription Revenue Models (cont’d.) • Academic research content • ProQuest: digital copies of academic publications • Business content • Dow Jones newspaper publisher subscriptions • Sold digitized newspaper, magazine, and journal content subscriptions • Factiva: online content management and integration service • Technical content • Association for Computer Machinery (ACM): digital library Electronic Commerce, Ninth Edition 16

  17. Advertising-Supported Revenue Models Used by United States broadcast network television Provides free programming and advertising messages Supports network operations sufficiently Problem: measuring and charging site visitor views Stickiness Keeping visitors at site and attracting repeat visitors Exposed to more advertising in a sticky site Problem: obtaining large advertiser interest Requires demographic information collection Characteristics set used to group visitors Electronic Commerce, Ninth Edition

  18. Advertising-Supported Revenue Models (cont’d.) Can obtain large advertiser interest by: Using a specialized information Web site Draw a specialized audience certain advertisers want to reach Examples: The Huffington Post and the Drudge Report HowStuffWorks Electronic Commerce, Ninth Edition

  19. FIGURE 3-2 Three strategies for an advertising-supported revenue model Electronic Commerce, Ninth Edition 19

  20. Advertising-Supported Revenue Models (cont’d.) • Web portals (portal) • Site used as a launching point to enter the Web • Almost always includes a Web directory or search engine • Often includes other features • Web directories • Listing of hyperlinks to Web pages • Yahoo!: one of the first • Presents search term triggered advertising on each page Electronic Commerce, Ninth Edition 20

  21. Advertising-Supported Revenue Models (cont’d.) • Web portals (cont’d.) • Portal sites using general interest strategy • AOL, Excite, Google, Bing • Portal sites not using general interest strategy • Help visitors find information within a specific knowledge domain • Advertisers pay more • Example: C-NET • Travel sites • Successful as advertising-supported online businesses • Example: Kayak Electronic Commerce, Ninth Edition 21

  22. Advertising-Supported Revenue Models (cont’d.) Newspaper and magazine publishers Sell advertising to cover Web site costs Internet Public Library Online Newspapers page Provides links to worldwide newspaper sites Local shopping news, alternative press newspapers Easier transition to advertising-supported Web revenue model Newspaper’s Web presence Provides greater exposure and advertising audience Diverts sales from the print edition (difficult to measure) Operating costs not covered by advertising revenue Electronic Commerce, Ninth Edition

  23. Advertising-Supported Revenue Models (cont’d.) Targeted classified advertising sites Can command higher rates than general advertising Original version Newspaper classified advertising Growth of classified advertising Web sites Very bad for newspapers Example: craigslist Web employment advertising Most successful targeted classified advertising category Examples:, The Ladders and, Electronic Commerce, Ninth Edition

  24. Advertising-Supported Revenue Models (cont’d.) Targeted classified advertising sites (cont’d.) Used vehicle sites,, Accept paid advertising to sell cars, motorcycles, boats Product sites with dedicated following (VetteFinders) Successful by catering to small audiences Potential classified advertising sites Any site selling products useful to buyer after initial use Musicians Buy-Line,, The Golf Classifieds Electronic Commerce, Ninth Edition

  25. Advertising-Subscription Mixed Revenue Models Subscribers pay fee and accept advertising Typically less advertising compared to advertising-supported sites Web sites offer different degrees of success The New York Times (today) Bulk of revenue derived from advertising The Wall Street Journal (mixed model) Subscription revenue weighted more heavily Electronic Commerce, Ninth Edition

  26. FIGURE 3-3 Revenue models used by online editions of newspapers and magazines Electronic Commerce, Ninth Edition 26

  27. Advertising-Subscription Mixed Revenue Models (cont’d.) ESPN Leverages brand name from cable television business Sells advertising, offers free information Mixed model includes advertising and subscription revenue (collects Insider subscriber revenue) Consumers Union ( Purely a subscription-supported site Not-for-profit organization with no advertising Free information Attracts subscribers and fulfills mission Electronic Commerce, Ninth Edition

  28. Fee-for-Transaction Revenue Models Service fee charged Based on transaction number or size Web site offers visitor transaction information Personal service formerly provided by a human agent Value chain Disintermediation Intermediary (human agent) removed Reintermediation New intermediary (fee-for-transaction Web site) introduced Electronic Commerce, Ninth Edition

  29. Fee-for-Transaction Revenue Models (cont’d.) Travel Travel agency revenue model: receive fee for facilitating a transaction Travel agent adds information consolidation and filtering value Computers also good at information consolidation and filtering Travel agents have long used networked computers: Sabre Travel Network Internet provided a new way to do business online Electronic Commerce, Ninth Edition

  30. Fee-for-Transaction Revenue Models (cont’d.) • Travel (cont’d.) • Web-based travel agencies were new entrants • Examples: Travelocity, Expedia,, Hotel Discount Reservations, Orbitz • Generate advertising revenue from ads placed on travel information pages • Traditional travel agents: squeezed out • Surviving agencies charge a flat fee • Smaller travel agents specialize (cruises, hotels) • May use a reintermediation strategy ( Electronic Commerce, Ninth Edition 30

  31. FIGURE 3-4 Orbitz home page Electronic Commerce, Ninth Edition

  32. Fee-for-Transaction Revenue Models (cont’d.) Automobile sales Web sites implement the fee-for-transaction revenue model differently model Customers select specific car, site determines price and finds local dealer and Autobytel model Locate local dealers, car sells at small premium over dealer’s nominal cost Car salesperson: disintermediated Web site: new intermediary (reintermediation) Electronic Commerce, Ninth Edition

  33. Fee-for-Transaction Revenue Models (cont’d.) Stockbrokers Original full-line brokers charged relatively high commissions Provided advice 1970s: deregulation resulted in discount brokers Web-based brokerage firms: E*TRADE and Datek Web allowed investment advice, fast trade execution online Electronic Commerce, Ninth Edition

  34. Fee-for-Transaction Revenue Models (cont’d.) • Stockbrokers (cont’d.) • 1990s: discount brokers faced competition from online firms • Discount brokers and full-line brokers opened new stock trading and information Web sites • Online brokers offer transaction cost reductions • Traditional stockbrokers: disintermediated Electronic Commerce, Ninth Edition 34

  35. Fee-for-Transaction Revenue Models (cont’d.) Insurance brokers Quotesmith offered Internet policy price quotes directly to public (1996) Independent insurance agents: disintermediated Insurance policy information, comparisons, sales sites InsWeb, Answer Financial, Progressive Web site Provides quotes for competitors’ products too The General (General Automobile Insurance Services) Web site Offers comfortable, anonymous experience Electronic Commerce, Ninth Edition

  36. Fee-for-Transaction Revenue Models (cont’d.) Event tickets Web allows event promoters to sell tickets from one virtual location to customers worldwide Online agencies earn a fee on every ticket sold Ticketmaster,, TicketWeb Web created secondary ticket market (StubHub, TicketsNow) Brokers connecting ticket owners with buyers Earn fees on tickets resold for others, buy ticket blocks Web created easy-to-find central marketplace, facilitating buyer-seller negotiations Electronic Commerce, Ninth Edition

  37. Fee-for-Transaction Revenue Models (cont’d.) Real estate and mortgage loans Web sites provide all traditional broker services Coldwell Banker, Prudential National Association of Realtors Web site 2008 financial crisis Dramatically reduced number of mortgage brokers in business Successful online mortgage brokers Ditech and E-LOAN Electronic Commerce, Ninth Edition

  38. Fee-for-Transaction Revenue Models (cont’d.) Online banking and financial services No physical product Easy to offer on Web Web financial transactions concerns Trust and reliability of financial institution Solutions Use existing bank’s identification and reputation Start online bank not affiliated with existing bank (First Internet Bank of Indiana) Use different name (Bank One used Wingspan) Approach was not successful Electronic Commerce, Ninth Edition

  39. Fee-for-Transaction Revenue Models (cont’d.) • Online banking and financial services (cont’d.) • Additional barriers preventing a more rapid rate of growth • Lack of bill presentment features • Lack of account aggregation tools • By 2012: • Industry analysts expect most banks (online and traditional) will offer aggregation services Electronic Commerce, Ninth Edition 39

  40. Fee-for-Transaction Revenue Models (cont’d.) Online music Recording industry: slow to embrace online distribution Feared digital copying Large online music stores Revenue from fee-for-transaction model Some sites offer subscription plans Complicating issues Stores offer limited number of digital music files Stores promote their own music file format Artists and recording companies invoke limits Electronic Commerce, Ninth Edition

  41. Fee-for-Transaction Revenue Models (cont’d.) • Online music (cont’d.) • Complicating issues (cont’d.) • Buyers required to download and install Digital Rights Management (DRM) software • Varying restrictions confusing to consumers • Online music market industry failed to embrace the network effect gained by adopting one standard file format Electronic Commerce, Ninth Edition 41

  42. Fee-for-Transaction Revenue Models (cont’d.) • Online music (cont’d.) • Some stores sold audio in a generally compatible file format with no copying restrictions • Mondomix MP3 and Smithsonian Folkways • Music not produced by major recording companies • Solutions • Adopt one standard file format, no copying restrictions, DRM-free MP3 format (Amazon in 2007) • By 2012: 80 percent of all music will be sold online Electronic Commerce, Ninth Edition 42

  43. Fee-for-Transaction Revenue Models (cont’d.) Online video Issues hampering prior sales Large file size Fear of online sales impairing other sales types Inability to play on variety of devices Overcoming the issues New technologies improving delivery Companies incorporating online distribution into revenue strategy Delivery allowed on multiple devices Through standard Web browser Electronic Commerce, Ninth Edition

  44. Fee-for-Transaction Revenue Models (cont’d.) • Electronic books • Forms of digital audio books • CDs (originally) and various types of digital files • Audible sells subscriptions • Allows monthly download of a certain number of books • Pricing is per book • • Offers books, newspapers, magazines, other digital format items • Delivered directly to its line of Kindle readers Electronic Commerce, Ninth Edition 44

  45. Fee-for-Service Revenue Models Companies offer Web service Fee based on service value Not a broker service Not based on transactions-processed number or size Online games Sales revenue source Advertising (older concept), pay-to-play for premium games, subscription fees Average game player is 35 years old, playing computer or video games for 12 years Electronic Commerce, Ninth Edition

  46. Fee-for-Service Revenue Models (cont’d.) Professional services Limited Web use State laws prohibit extension of practice Patients may set appointments, receive online consultation Major concern Patient privacy Law on the Web site Legal consultations to United Kingdom residents Online version of Martindale-Hubbell lawyer directory Electronic Commerce, Ninth Edition

  47. Fee-for-Service Revenue Models (cont’d.) • Professional services (cont’d.) • CPA Directory • United States accounting professionals site • General health information • RealAge, Dr. Andrew Weil’s Self Healing, WebMD • Significant barrier • Patient diagnosis difficult without physical examination • Some physicians beginning to offer online consultations • For ongoing, established relationship patients

  48. Free for Many, Fee for a Few • Economics of manufacturing • Different for physical and digital products • Unit cost high percentage of physical products • Unit cost very small for digital products • Leads to a different revenue model • Offer basic product to many for free • Charge a fee to some for differentiated products • Examples: Yahoo e-mail accounts, bakery: free cookies

  49. Revenue Models in Transition Companies must change revenue model To meet needs of new and changing Web users Some companies created e-commerce Web sites Needed many years to grow large enough to become profitable (CNN and ESPN) Some companies changed model or went out of business Due to lengthy unprofitable growth phases Electronic Commerce, Ninth Edition

  50. Subscription to Advertising-Supported Model Slate magazine Upscale news and current events Success expectations were high Experienced writers and editors Acclaim for incisive reporting and excellent writing Initial revenue source Annual subscription did not cover operating costs Now an advertising-supported site Part of the Bing portal Value to Microsoft: increase the portal’s stickiness Electronic Commerce, Ninth Edition