E-Commerce: The Second Wave

Fifth Annual Edition

Chapter 3:
Selling on the Web:
Revenue Models and
Building a Web Presence
 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

Electronic Commerce: The Second Wave, Fifth Annual Edition 2

 Objectives

• Creating an effective business presence on

the Web

• Web site usability

• Communicating effectively with customers on

the Web

Electronic Commerce: The Second Wave, Fifth Annual Edition 3

 Revenue Models
• Revenue model of selling goods and services on the
Web
– Based on mail order catalog revenue model that
predates the Web (ordering through telephone)
• Mail order or catalog model
– Proven to be successful for wide variety of
consumer items (ordering through mail)
• Web catalog revenue model
– Taking the catalog model to the Web (ordering on
web)

Electronic Commerce: The Second Wave, Fifth Annual Edition 4

 Computers and Consumer Electronics

• Apple, Dell, Gateway, and Sun Microsystems

– Have had great success selling on the Web

• Dell

– Created value by designing entire business

around offering high degree of configuration
flexibility to its customers

Electronic Commerce: The Second Wave, Fifth Annual Edition 5

 Books, Music, and Videos
• Retailers using the Web catalog model to sell
books, music, and videos
– Among the most visible examples of electronic
commerce
• Jeff Bezos
– Formed Amazon.com
• Jason and Matthew Olim
– Formed online music store they called CDnow
– Used the Web catalog revenue model

Electronic Commerce: The Second Wave, Fifth Annual Edition 6

 Luxury Goods
• People are still reluctant to buy through a Web
site
• Web sites of Vera Wang and Versace
– Constructed to provide information to shoppers,
not to generate revenue

• Web site of Evian

– Designed for a select, affluent group of
customers

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 Clothing Retailers
• Lands’ End
– Pioneered idea of online Web shopping
assistance with its Lands’ End Live feature in
1999
• Personal shopper
– Intelligent agent program that learns customer’s
preferences and makes suggestions
• Virtual model
– Graphic image built from customer
measurements

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 Flowers and Gifts

• 1-800-Flowers

– Created online extension to its telephone

order business

• Chocolatier Godiva

– Offers business gift plans on its site

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 Digital Content Revenue Models
• Firms that own intellectual property
– Have embraced the Web as a new and highly
efficient distribution mechanism
• Lexis.com
– Provides full-text search service of court cases,
laws, patent databases, and tax regulations
• ProQuest
– Sells digital copies of published documents

Electronic Commerce: The Second Wave, Fifth Annual Edition 10

Advertising-Supported Revenue Models
• Broadcasters provide free programming to an
audience along with advertising messages
• Success of Web advertising hampered by
– No consensus has emerged on how to
measure and charge for site visitor views
• Stickiness of a Web site: ability to keep visitors
and attract repeat visitors
– Very few Web sites have sufficient visitors to
interest large advertisers

Electronic Commerce: The Second Wave, Fifth Annual Edition 11

 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
– Example: Yahoo, AOL, Altavista

Electronic Commerce: The Second Wave, Fifth Annual Edition 12

 Advertising-Subscription Mixed
Revenue Models
• Subscribers

– Pay a fee and accept some level of advertising

– Typically subjected to much less advertising

• Used by

– The New York Times and The Wall Street

Journal

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 Fee-for-Transaction Revenue Models
• Businesses offer services and charge a fee
based on number or size of transactions
processed
• Disintermediation
– Removal of an intermediary from value chain

• Reintermediation
– Introduction of a new intermediary

Electronic Commerce: The Second Wave, Fifth Annual Edition 15

 Fee-for-Service Revenue Models
• Fee based on value of 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

Electronic Commerce: The Second Wave, Fifth Annual Edition 16

 Fee-for-Service Revenue Models
(Continued)
• Concerts and films
– As more households obtain broadband access
to the Internet
• Companies are providing streaming video of
concerts and films to paying subscribers
• Professional Services
– State laws
• One of the main forces preventing U.S.
professionals from extending their practices to
the Web

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 Revenue Models in Transition
• Subscription to Advertising-Supported Model
– Microsoft founded its Slate magazine Web site
• An upscale news and current events publication
• Charged annual subscription fee after a limited
free introductory period
• Was unable to draw sufficient number of paid
subscribers
• Now operated as an advertising-supported site

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 Advertising-Supported to Advertising-
Subscription Mixed Model
• Salon.com
– Operated for several years as an advertising-
supported site
– Now offers optional subscription version of its
site
– Subscription offering
• Motivated by company’s inability to raise
additional money from investors

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 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, was unable to pay costs of
providing the service with the advertising
revenue generated
– Later switched to a subscription-supported
model

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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

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 Multiple Transitions
• Encyclopædia Britannica
– Original offerings
• The Britannica Internet Guide
– Free Web navigation aid
• Encyclopædia Britannica Online
– Available for a subscription fee or as part of CD
package
– 1999
• Converted to a free, advertiser-supported site
– 2001
• Returned to a mixed model

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 Revenue Strategy Issues
• Channel conflict
– Occurs whenever sales activities on a
company’s Website 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

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 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 propensity of customers to return to
the site
• Channel distribution managers
– Companies that take over responsibility for a
particular product line within a retail store

Electronic Commerce: The Second Wave, Fifth Annual Edition 24

 Creating an Effective Web Presence

• An organization’s presence

– The public image it conveys to its stakeholders

• Stakeholders of a firm

– Include its customers, suppliers, employees,

stockholders, neighbors, and the general
public

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 Achieving Web Presence Goals

• Objectives of the business

– 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

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 Achieving Web Presence Goals
(Continued)

• Objectives of the business

– 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

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 Profit-Driven Organizations
• Toyota site

– A good example of an effective Web presence

– Provides links to

• Detailed information about each vehicle model

• A dealer locator page

• Information about the company and the

financing services it offers

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 Toyota U.S. Home page

Electronic Commerce: The Second Wave, Fifth Annual Edition 29

 Profit-Driven Organizations
(Continued)
• 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

• Essentially the same as previous version

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 Quaker Oats old Home Page

Electronic Commerce: The Second Wave, Fifth Annual Edition 31

Quaker Oats Home Page: 1999 Redesign

Electronic Commerce: The Second Wave, Fifth Annual Edition 32

 Not-for-Profit Organization
• Key goal for the Web sites

– Information dissemination

• Key element on any successful electronic

commerce Web site

– Combination of information dissemination and

a two-way contact channel

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 Web Site Usability
• Motivations of Web site visitors
– 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

Electronic Commerce: The Second Wave, Fifth Annual Edition 34

 Web Site Usability (Continued)
• Motivations of Web site visitors

– 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

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 Making Web Sites Accessible
• One of the best ways to accommodate a
broad range of visitor needs
– Build flexibility into the Web site’s interface
• Good site design
– Lets visitors choose among information
attributes
• Web sites
– Can offer visitors multiple information formats
by including links to files in those formats

Electronic Commerce: The Second Wave, Fifth Annual Edition 36

Making Web Sites Accessible (Continued)
• 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

Electronic Commerce: The Second Wave, Fifth Annual Edition 37

 Trust and Loyalty
• Studies by business researchers
– 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
– A problem for many electronic commerce sites

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 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

– Low compared to total cost of a Web site

design or overhaul

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 Customer-Centric Web Site Design
• Putting the customer at the center of all site
designs

• Guidelines

– Design site around how visitors will navigate

the links

– Allow visitors to access information quickly

– Avoid using inflated marketing statements

Electronic Commerce: The Second Wave, Fifth Annual Edition 40

 Customer-Centric Web Site Design
(Continued)
• Guidelines
– 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

Electronic Commerce: The Second Wave, Fifth Annual Edition 41

 Connecting With Customers
• Personal contact model
– Firm’s employees individually search for,
qualify, and contact potential customers
• Prospecting
– Personal contact approach to identifying and
reaching customers
• Mass media approach
– Firms prepare advertising and promotional
materials about the firm and its products

Electronic Commerce: The Second Wave, Fifth Annual Edition 42

 Connecting With Customers
(Continued)
• Addressable media
– Advertising efforts 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

Electronic Commerce: The Second Wave, Fifth Annual Edition 43

 Business Communication Modes

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 Summary
• Models used to generate revenue on the Web
– Web catalog, digital content sales
– Advertising-supported
– Advertising-subscription mixed
– Fee-for-transaction and fee-for-service
• Companies undertaking electronic commerce
initiatives to
– Form strategic alliances
– Contract with channel distribution managers

Electronic Commerce: The Second Wave, Fifth Annual Edition 45

 Summary
• Firms
– Must understand how the Web differs from other
media
• Enlisting help of users when building test
versions of the Web site
– A good way to create a site that represents the
organization well
• Firms must also
– Understand nature of communication on the
Web

Electronic Commerce: The Second Wave, Fifth Annual Edition 46