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Business models for electronic markets

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					Department of Computer Science Institute for System Architecture, Chair for Computer Networks




                        Web (2.0)
                      Business Models
Introduction

• The Web (2.0) leads to

   1. Complementing traditional business models
   2. A whole new line of business models

• This lecture presents
   – Selected examples for Web based business models
       • amazon (virtual merchants + virtual marketplace)
       • Google AdWords + Google AdSense
         (paid advertisement placement + content targeted advertising)
       • DoubleClick (an advertising network)
       • studiVZ.net (community for building of social networks)
       • Communote – Enterprise Microblogging
       • RapidShare (share of web space hoster)
       • ReputationDefender (search & destroy unwanted information)

   – Web 2.0 business principles
       • “Mashup”
       • “The Long Tail”                                            2
Business model

What is a business model?
• A concept that defines policies for development, creation,
  marketing and distribution of services and products

• Consists of three main components:
   1. Value proposition
       – Describes benefits a customer or a business partner can
          obtain from the association with this company
   2. Architecture of the added value
       – Describes various steps of the added value and of the
          value chain
       – It answers the question: Which configuration or sequence
          of steps is needed to create a service or product?
   3. Revenue model
       - Describes which revenue is generated by which part of
          the value chain
       - It answers the question: How is profit made?
                                                               3
Examples of business models

amazon




• A retail merchant that operates over the web only and offers
  either traditional or web-specific goods or services
• Sales may be made based on list prices or through auctions

• One successful web-specific service is the virtual marketplace
   – Listing fee and commission depend on the price of
     the sold product
   – Provides automated transaction and relationship marketing
     service                                                     4
Examples of business models

Success factors of amazon:

• Offers wide range of products
  (not only bestseller but also niche products)
• More favourable offers in contrast to a local mall
• Partnerships via affiliate programs (e.g. banner exchange,
  revenue sharing)
• Customer interest oriented offers / product suggestions
   – User interest identification via last selected products
   – Every action a user makes is tracked (e.g. which products
     he/she has viewed)

          Based on this information amazon makes suggestions
          which further products / product categories may be
          interesting for the user

   – For identifying the user a cookie is stored (UserID/sessionID)
• Fast transaction (credit card + using debit entries) and delivery
                                                                 5
Examples of business models

Google AdWords
• Google sells favourable link positioning (i.e. Sponsored Links)
• Advertising adapted to particular search terms of a user query
• How often and on which rank an advertisement is displayed
  depends on the price paid to Google and the contextual
  compatibility to searched phrases




                                                                6
Examples of business models

Google AdSense
•   Google analyses the content of pages and then automatically delivers
    relevant ads when the user visits one of these pages
•   The advertiser pays a fee per click to Google
•   The owner of the website gets a fee from Google for every click on an ad

                                         Google
                 Google   keywords      AdSense           ads    Google
               AdSense                     2                    AdWords
                 Index
        Keywords                            3
        + pageURL                                     Website
               MediaBot             Java Google AdSense
                        activate
                  1                Script  banner ads


0. Add the JavaScript code provided for Google AdSense to a page
1. Google analyses the content of the web pages via a so called MediaBot,
   which checks the content of the pages for keywords and adds a page
   to the Google AdSense index (page URL + keywords of this page)
2. Google AdSense selects AdWords ads which match to the keywords of
   the website
3. With the help of the JavaScript code the AdWords ad can be displayed
                                                                       7
   and customised to the design of the AdSense enabled website
Examples of business models




                                                            Relevant text-
                                                            and image-based ads
                                                            that are precisely
                                                            targeted to the site
                                                            content are displayed
                                                            to the user




              <SCRIPT type=text/javascript><!--
              google_ad_client = "pub-6656531913982172";
              google_ad_width = 120;
              google_ad_height = 600;
              google_ad_format = "120x600_as";
              google_ad_type = "text";
              google_ad_channel ="9992331585";
              //--></SCRIPT><SCRIPT type=text/javascript
              src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
              </SCRIPT>                                                        8
Examples of business models

DoubleClick – Information intermediary

• Data about consumers and their consumption habits are
  valuable, especially when this information is carefully analysed
  and used to target marketing campaigns
• On the other hand independently collected data about producers
  and their products are useful for customers when considering a
  purchase

• DoubleClick
   – Collects data about web user behaviour via cookies that can
     be used to analyse marketing effectiveness
   – Transmits behaviour adapted banner ads to a network of
     member sites, thereby it enables advertisers to deploy large
     marketing campaigns
       Advertising network

                                                               9
     Examples of business models

     DoubleClick – Advertising network                                  2. Send GET request to display
                                                                        the banner ad
                    The website contains the banner ad                  (HTTP header element „Referer“
                    (image) that has to be requested from               points to the visited website)
Ad network of       the DoubleClick server
DoubleClick
         Websites                       Client (browser)                  DoubleClick server
                         1. Request
                                                                          A new ID for
                         Send content       standard   Request without    this user is              Data base
      GameStar.de        data
                    ….




                                                       included DC cookie created and             (ID + visited
                                                                          is sent by a              websites)
                                                         Send standard
                                                                          cookie
                                                         banner ads
                                              ……          Set DC cookie                          DC … DoubleClick
                             ……




       GAMES.de

                                                                              DC selects
           …




                                                                              further banner
                                                                              ads by
                                            specific       Request includes
         pctip.ch                                                             analysing the
                                                              DC cookie
                    ….




                                                                              visited websites
                                                           Send banner ads
                                                                              of the user
                                                           e.g. about
                                                           newest pc games



                                                                                                         10
Examples of business models

studiVZ – A community of students
• A social network between students
• Revenue based on contextual advertising and sales of additional
   products and services
• After 15 month of existence studiVZ was sold for ~85 mio. €
    – This community is that valuable due to its high number of
      members (>> 1 mio.) and due to the information they offer
      about their interests and their social connections




                          Social network




                                                             11
System example Communote




Communote – Enterprise Microblogging




                                       12
   Social Messaging Offline



                                                                        SUPER!
                                                                        SUPER!
                                              We have
                                              acquired
                                              the ABC
                                              project!



                       I will be on
                         holidays
                       tomorrow–                       I work
                      canoe trip in                 currently on
                           the                      our website.
  Maybe you            Spreewald!
  check out
 Canoe Max.
He is the best!
 Have a lot of
      fun!
                                      Attention! There are         @Paul nice idea –
                                        several important           maybe you use
                                       files stored on that        wordpress. I have
              Communicat
                                              server.               already gained
               ion context
                                                                   some experiences
                                                                        with it.
   Social Messaging Online




                             Huge variety of functionalities
                             such as:
                             • Storing notes
                             • Create and sharing of
                             Weblogs
                             • Tagging functionality
                             • Search functionalities (e.g. via
                             filtering mechanisms)
                             • Uploading and sharing of files
                             • Fine-grained definition of
                             access rights (e.g. on file level)
                             • Managing favorit articles
                             • Adaptation of design and
                             layout

www.communote.com
 Communote Interfaces


                                                     Coming
                                                      soon.
             E-Mail   LDAP


                             XMPP / IM JSON API



                                              Mobile client




   Browser

                             Improved     Portal   Widgets
                      RSS
                              features integration
Released.                                           Planned.
Technical realization
  Examples of business models

  RapidShare – A sharehoster
  • Provides online web spaces via “one click” upload or download
  • Free or “premium” membership (for a periodic fee –
    no download limit within this period)
  • Partly financed by advertising
  • Total hard disc capacity approx. 1,7 Petabyte
  • Total bandwidth: 90 Gbit/s            The link references to
                                                               all locations of the file
                         Weblog / Discussion board
    (6) Post the link                                        (7) Get the link
                                Link


             (2) Select a server                        (9) Select a server
             (4) Generate the link               (10)


      (5) Get the link                                             (8) Open the link
       (1) Upload         (1)          (3) Replicate                (10) Download


Uploader                                                                                   Downloader

                                                 Server Cluster      RapidShare website
    RapidShare website                                                                                  17
Problems of the web

• Due to the explosive development of the web, non-sceptical and
  non-sensitized users offer various personal information on the
  web
   – User data (name, address, consumption habits….)
   – Bloggings, postings, comments (allegations, sentences,
     (technical) questions….)

• Many public or private instances (employees, competitors, ...)
  are interested in analysing or searching for user data or their
  bloggings, postings, comments etc. on the web
   – User data can be used for
       • Unwanted advertising (e.g. Junk Mails),
       • Criminal purpose - pretend an other identity
         (“identity theft”)
   – Bloggings, postings, comments
       • Can be used for analysing:
           – personal and technical qualifications
           – leisure time activities
           – references etc.
                                                               18
Examples of business models

Example – Selecting job candidates
• From a Research:
   – 1/3 of human resource decision makers screen job
     candidates using search engines
   – They search for information about personal and technical
     qualifications, leisure time activities and references of the
     candidates
   – 25 percent of these human resource decision makers
     declared they had rejected candidates based on personal
     information found online
• Solution for these problems
   – ReputationDefender - Clean up personal web activities
       • SEARCH for information about a person on the internet
         and present it in a report
       • DESTROY all inaccurate, inappropriate, hurtful, and
         slanderous information about a person using proprietary
         in-house methodology
                                                               19
Examples of business models




                              20
Business principles - Mashups

Mashups
• Web 2.0 applications that combine content generated by and
  that make use of further web 2.0 applications
• Therefore Mashups use the available APIs provided by other web
  applications
• E.g. pizzashare.com
   – Uses the API of
     Google Maps
   – Shows restaurants
     within a special
     region inside Google
     Maps




                                                            21
Business principles – The Long Tail

The Long Tail
• “The Long Tail is the realization that the sum of many small
  markets is worth as much, if not more, than a few large
  markets.” (Jason Foster)




                                                                 22
Business principles – The Long Tail

• This trend to make money is made possible and profitable due
  to the development of the internet and its corresponding
  technologies

   – Because of limited sales areas the traditional trade has to be
     designed strictly local-demand-oriented
   – Web stores do not depend on local demands but aggregate
     demands from all over the world
   – Many less profitable products can be sold during a greater
     period of time     this forms the “Long Tail”

• By using the WWW
   – Millions of people all over the world can be reached
   – Significant cost advantages can be achieved
      • The digital mall consists of hard discs which can be
         upgraded without any problems
      • Adding a new product leads to a new entry in the
         database and if necessary to a low cost stock of
         merchandise                                           23
Business principles – The Long Tail

Examples

• eBay
   – In addition to “Powerseller” there are many private sellers
     who offer their miss purchase, cellar rubbish, goods from
     breaking up of a household in an auction, ...
   – eBay is a mix store containing about 50.000 categories

• amazon: Online book shop vs. local book shop
   – A big local book shop permanently stocks about
     100.000 titles and is normally able to order articles from one
     (or a few) vendor(s) bound by contract
   – In contrast amazon stocks about 3 million titles and is able
     to order articles from a very great range of vendors /
     producers
   – From a research: amazon got up to 40 percent of their
     transaction volume from books not offered by regular local
     book shops                                                 24
Business principles

Summary of principals for business models

• Members data is valuable
   – E.g. for analysing of consumption habits
   – Especially social networks offer detailed information about
     members
• High volume of user traffic makes advertising profitable
   – Consumption habit advertising
   – Interest (hobbies) advertising
   – Content targeted advertising
• “Mashup”
   – Combines content from many sources
• “The Long Tail”
   – Many niche markets are profitable

                                                               25
References

• Michael Rappa, Business models on the web,
  http://digitalenterprise.org/models/models.html
• Chris Anderson, The Long Tail,
  http://www.wired.com/wired/archive/12.10/tail.html
• Website which lists usable APIs and its Mashups,
  http://programmableweb.com

• Tim Ferguson, Want a job? Clean up your Web act,
  http://news.com.com/2100-1025_3-6171187.html




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