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					          Chapter 3:
Selling on the Web: Revenue
 Models and Building a Web
In this chapter, you will learn about:

•   Revenue models

•   How some companies move from one revenue model to another to achieve

•   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

Atomic Business Models
Weill and Vitale proposition: The value
 propositions of eight business models differ according
 to the degree to which the following e-business assets
 are captured online:
  – Customer transaction – to capture revenue
  – Customer data – to capture data about customer’s
     purchasing needs
  – Customer relationship – ability to influence
     customer’s behaviors
  Atomic Business Models

(Based on Weill and Vitale 2001, Straub 2004)                                                 4
                                                Business Models and Their E-Business Assets
    Atomic Business Models

(Based on Weill and Vitale 2001, Straub 2004)   Business Models and their E-Business Assets
  Typical Business Models in EC
• Online direct marketing   • Electronic
• Electronic tendering        marketplaces and
  systems (e.g., reverse      exchanges
  auction)                  • Value-chain integrators
• Name your own price       • Value-chain service
• Affiliate marketing         providers
• Viral marketing           • Information brokers
• Group purchasing          • Bartering
• Online auctions           • Deep discounting
• Product and service       • Membership
  customization             • Supply chain improvers
  customization                                         6
 Examples of Revenue Models
• Mail order or catalog model
  – Proven to be successful for a wide variety of
    consumer items
• Web catalog revenue model
  – Taking the catalog model to the Web

   Computers and Consumer
• Apple, Dell, Gateway, and Sun Microsystems
  have had great success selling on the Web

  – Apple has leveraged the web to enable iTunes

  – Dell created value by designing its entire business
    around offering a high degree of configuration
    flexibility to its customers
   Books, Music, and Videos
• Retailers use the Web catalog model to sell
  books, music, and videos
  – Jeff Bezos:
  – Jason and Matthew Olim : CDnow

            Clothing Retailers
• Lands’ End:
  – Pioneered the idea of online Web shopping
    assistance with its Lands’ End Live feature in 1999
  – Personal shopper is an Intelligent agent program
    that learns a customer’s preferences and helps
    customers match products to their preferences
  – Virtual model: Build your idealized view of yourself 
    with custom measurements, etc.

            Flowers and Gifts
• 1-800-Flowers:

• Godiva:

• Harry and David

• Mrs. Fields Cookies
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

          Revenue Models
• This is the same model that broadcasters use for
  radio and TV; that is, they provide programming to an
  audience along with advertising messages
   – Generally, advertisers are charged based on whether site
     visitors click-through to the advertiser's site.
   – Google’s AdWords uses a cost-per-click pricing scheme
     whereby the advertiser bids on keywords and pages, with
     higher bids resulting in higher page placement. Actual
     prices paid are determined by a combination of click-though
     rates and the bid.
         Revenue Models
• Success of Web advertising is hampered by:
   – No consensus on how to measure and charge for
     site visitor views
   – Very few Web sites have sufficient visitors to
     interest large advertisers
• The stickiness of a web site is increasingly
  important. What make a site sticky?

               Web Portals
• Web directories and search engines were
  some of the first portals
• Portals or Web portals
  – Yahoo!, AOL, Google, etc. are general
    purpose portals that are launch points for
    many people into the web
  – Numerous portals are specialized for specific
    interest groups                               16
Advertising-Subscription Mixed
       Revenue Models
• Subscribers pay a fee and accept some
  level of advertising; typically subscribers
  are subjected to much less advertising
  – Examples include the New York Times and
    The Wall Street Journal

   Fee-for-Transaction Models
• Models where businesses offer services and
  charge a fee based on the number or size of
  transactions processed
  – Travel Agents           – Ticket sales
  – Automobile sales        – Real estate
  – Stockbrokers            – Online banking
  – Insurance sales         – Online music

 Fee-for-Transaction Models
• What is going on with online service
  – Disintermediation: The removal of an
    intermediary from a value chain
  – Reintermediation: The introduction of a
    new intermediary

     Fee-for-Service Models
• Fee is based on the value of a service provided
• Services range from games and entertainment
  to financial advice

    Fee-for-Service Models
• Online games
  – WOW
• Concerts and films
  – Streaming video of concerts and films to
    paying subscribers

  Revenue Models in Transition
• Subscription to advertising-supported model (e.g., Slate
• Advertising-Supported to Advertising-Subscription Mixed
  Model (e.g.,
• Advertising-Supported to Fee-for-Services Model (e.g.,
• Advertising-Supported to Subscription Model (e.g.,
• Multiple Transitions (e.g., Encyclopædia Britannica)
  Revenue Strategy Issues
• Channel conflict (or cannibalization)
   – Sales activities on a company’s Web site interfere
     with existing sales outlets (e.g., Levi Strauss)

• Channel cooperation
   – Giving customers access to the company’s
     products through a coordinated presence in all
     distribution channels (e.g., Staples, Eddie Bauer)

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 (e.g., Yodlee)
• Channel distribution managers (i.e. fulfillment
  managers): firms that take over the
  responsibility for a particular product line
  within a retail context
  Creating an Effective Web
• 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
• Objectives of the business include:
   – Attracting visitors to the Web site

   – Making the site interesting enough that visitors stay and

   – Convincing visitors to follow the site’s links to obtain
   – Creating an impression consistent with the organization’s
     desired brand image
   – Building a trusting relationship with visitors
   – Reinforcing positive images that the visitor might already
     have about the organization                                  32
              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
   – 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                                                    39
Making Web Sites Accessible
• One of the best ways to accommodate
  a broad range of visitor needs is to 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
Making Web Sites Accessible
• Goals that should be met when constructing
  Web sites:
  – Offer easily accessible facts about the
  – Allow visitors to experience the site in different
    ways and at different levels
  – Sustain visitor attention and encourage return
  – Offer easily accessible information about products
    and services                                         41
    Making Web Sites Accessible
•        What does accessibility really mean? How
         do people with disabilities access
     –     Images & animations: Use the alt attribute to describe the function of each visual.
     –     Image maps. Use the client-side map and text for hotspots.
     –     Multimedia. Provide captioning and transcripts of audio, and descriptions of video.
     –     Hypertext links. Use text that makes sense when read out of context. For example, avoid "click
     –     Page organization. Use headings, lists, and consistent structure. Use CSS for layout and style
           where possible.
     –     Graphs & charts. Summarize or use the longdesc attribute.
     –     Scripts, applets, & plug-ins. Provide alternative content in case active features are inaccessible
           or unsupported.
     –     Frames. Use the noframes element and meaningful titles.
     –     Tables. Make line-by-line reading sensible. Summarize.
     –     Check your work. Validate. Use tools, checklist, and guidelines at

 How do you retain customers?
• One of the most common factors that influences
  a site’s success is the trust customers have in
  the firm and the increased loyalty that this brings
   – What leads to trust?
      • A 5 percent increase in customer loyalty can yield profit
        increases between 25% and 80%
      • Repetition of satisfactory service can build trust and
        customer loyalty
      • Poor customer service results in lack of trust, which can kill
        loyalty                                                          43
  How do you retain customers?
• Make the site usable. Usability is defined by five quality components
  (Alertbox, Dr. Jakob Nielsen):
    – Learnability: How easy is it for users to accomplish basic tasks the first
      time they encounter the design?

    – Efficiency: Once users have learned the design, how quickly can they
      perform tasks?

    – Memorability: When users return to the design after a period of not
      using it, how easily can they reestablish proficiency?

    – Errors: How many errors do users make, how severe are these errors,
      and how easily can they recover from the errors?

    – Satisfaction: How pleasant is it to use the design?                      44
Customer-Centric Web Site Design
• Customer-centric Web site design puts the customer at the center of
  all site designs
• Guidelines:
   – 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
   – 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
         Entrepreneurship and
           Business Models
• Entrepreneurship and creativity is a
  – Identify an Opportunity
  – Develop a Concept
  – Determine the Required Resources
  – Acquire the Necessary Resources
  – Implement and Manage
  – Harvest the Venture
           Source: Morris et al. Entrepreneurship & Innovation   48
            Entrepreneurship and
              Business Models
• Frameworks
                                           The Environment

     The Organizational
          Context                                                            The Entrepreneur

                             The Concept                     The Resources

                    Source: Morris et al. Entrepreneurship & Innovation                         49
                     Entrepreneurship and
                       Business Models
• How to find opportunities
    Types                      Methods                    Sources                     Detractors
    Perennial                     Deliberate                 The Rules Change           No Need Present
                                  Search vs. Discovery       Demographics               Window is not yet
                                                               Change                      open

    Occasional                    Market Pull vs.            Underserved Markets        Strong Loyalties
                                  Resource or Capacity       Social Trends              High Switching Costs

    Multiple Causes                                           New customers to the       Satisf ied customers

    Multiple Ef f ects                                        Increase in usage          Easy f or others to
                                                               rates                       enter with
                                                              Shortages                   alternatives
                                                                                          Intense competition

                                                              New Knowledge              Customers hard to

                         Source: Morris et al. Entrepreneurship & Innovation                                      50
          Entrepreneurship and
            Business Models
• Types of Innovations
  – New to the world products or services
  – New to the market products or services
  – New product or service line that at least one
    competitor is offering
  – Addition to existing products or service lines
  – Product/service improvement, revision, including
    addition of new features or options
  – New application of existing products or services,
    including application to a new market segment
  – Repositioning of an existing product or service
              Source: Morris et al. Entrepreneurship & Innovation
        Entrepreneurship and
          Business Models
• Entry Wedges

           Source: Morris et al. Entrepreneurship & Innovation
      What is a Business Model?
• Six key questions
  –   How do we create value?
  –   For whom do we create value?
  –   What is our source of competence/ advantage?
  –   How do we differentiate ourselves?
  –   How do we make money?
  –   What are our time, scope, and size ambitions?

Porter’s Competitive Forces Model: How
the Internet Influences Industry Structure

• 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 sometimes:
  – Form strategic alliances
  – Contract with channel distribution managers   55
• 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
• Firms must also understand the nature of
  communication on the Web


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