Chapter 3: Key Concept

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

Key Concept:
This chapter focuses on 6 main ways in which a company can generate revenue online. We learn how these models work and what companies use each. This chapter also focuses on what is involved in order to make a successful web site based on the customers.

Supporting Points:
Revenue Models
Web Catalog Revenue Models: print catalogues expanded online (old mail order model was the start of this)
- Computers and Consumer Electronics: Apple, Dell, Gateway (offer customers access to product info and customization); Best Buy, Circuit City (sell products same way they sell in their stores)
- Books, Music, and Videos: Amazon,com (evolved to become retailer selling books, music, videos, electronics, tools, etc); amazon inspired others to sell online such as Barnes & Noble;
- Luxury Goods: people are usually reluctant to buy through the internet; Versace was developed online to provide info to those who would shop in-store
- Clothing Retailers: Gap; display photos of casual and business clothing with prices, sizes, colors, tailoring details; customers examine clothing and place an order; personal shopper: intelligent agent programs that learns the customers preferences and makes suggestions; virtual model: graphic image built from customer measurements; some companies have overstock websites to sell off inventory; colour settings on monitors cause problems
- Flowers and Gifts: 1-800-Flowers created online extension to its telephone order business; mrs. Fields cookies
- General Discounters: Buy.com, Walmart.com
Digital Content Revenue Models: Lexis.com (provides full-text search of court cases, laws, patent, tax regulations); ProQuest (sells digital copies of published documents)
Advertising-Supported Revenue Models: sites provide info about stuff through advertisements from other companies and charge advertisers rates for placing ads on their page; stickiness: ability to keep visitors as the site and attract repeat visitors; 2 problems: (1) no consensus on how to measure and charge for site visitor views, (2) few web sites have sufficient numbers of visitors to interest large advertisers
- Web Portals: Yahoo!; web directories: listing of hyperlinks to web pages; web portal: site that ppl use as launching point to enter the web (includes directory and search engine, other features that help ppl find what they are looking for)
- Newspaper Publishers: some worry if it helps or hurts sales of newspapers
- Targeted Classified Advertising Sites: niche markets are more successful; monster.com, autotrader.com; classified advertising is very profitable
Advertising-Subscription Mixed Revenue Models: subscribers pay a fee and accept some level of advertisingl The New York Times (mostly advertising supported, charges fees for access to certain areas of the site though)
Fee-for-Transaction Revenue Model: businesses offer services for which they charge a fee that is based on the number or size of transactions they process
- Travel Agents: earn commissions on each booking; value-added is info consolidation and filtering; Travelocity, expedia; these sites also generate revenue from ads placed on travel info pages
- Automobile Sales: carsdirect.com – allows people to select a car at a price it determines
- Stockbrokers: charge customers commission for each trade executed
- Insurance Brokers: Progressive insurance – provides quotes for them and their competitors
- Event Tickets: ticketmaster – sell tickets from one virtual location
- Real Estate and Mortgage Loan Brokers: eRealty: industry observers agree that new online brokers do much better job selling on the Web than traditional real estate brokers
- Online Banking and Financial Services: online banks hold tiny portion of worlds financial transactions; account aggregation: ability to obtain bank, investment, loan and other financial account info from multiple web sites and display in one location at banks web site
- Online Music: ?
Fee-for-Service Revenue Models: based on value of the service provided
- Online games: MSN Games by Zone.com
- Concerts and films:
- Professional Services: WebMD offers general health info

Revenue Models in Transition
Subscription to Advertising-Supported Model:
Advertising-Supported to Advertising-Subscription Model
Advertising-Supported to Fee-for-Services Model
Advertising-Supported to Subscription Model
Multiple Transitions
** Many companies undergo transitions in their revenue models as they leanr how to do business successfully on the web
Revenue Strategy Issues
Channel Conflict and Cannibalization
- channel conflict: occur when sales activities on company’s site interfere with existing sales outlets (also called cannibalization – sites sales consume sales that would be made in the company’s other sales channels
Strategic Alliances and Channel Distribution Management
- when two or more companies join forces to undertake activity over long period of time
- channel distribution managers: companies that take over responsibility for a particular product line within a retail store
Mobile Commerce
- few companies have made money in mobile commerce but some believe that a company with the right service can be successful

Creating an Effective Web Presence
- presence: the public image it conveys to stakeholders
- stakeholders: include customers, suppliers, employees, stockholders, neighbours, general public
Identifying Web Presence Goals
- Making Web presence consistent with brand image:
Achieving Web Presence Goals
- objectives:
o attracting visitors to site
o making the site interesting enough that visitors stay and explore
o convincing visitors to follow sites links to obtain info
o creating impression consistent with org’s desired image
o building trusting relationship with visitors
o reinforcing positive images that the visitor might already have about the org
o encouraging visitors to return to the site
- Profit-driven Organizations
o Companies can enhance their images by providing info
- Not-for-profit organizations
o Key goal is info dissemination
Web Site Usability
How the Web is Different
Meeting the Needs of Web Site Visitors
- Many motivations of web site visitors
- Making web sites accessible
o Offer easily accessible facts about the org
o Allow visitors to experience the site in different ways at different levels
o Provide visitors with meaningful communication link with the org
o Sustain visitor attention and encourage return visits
o Offer info about products and how to use them
Trust and Loyalty
- seller can create value in relationship with customer by nurturing customers’ trust and developing it into loyalty
Customer-Centric Web Site Design: there are many things to think of when designing your site and there are some guidelines that involve usability, avoiding business jargon, text visibility, etc.

Application
Valhalla Pure Outfitters has an online store that has only been up and running for a few months thus far. There is channel conflict between the online store and the retail stores across BC and Alberta. The site is set up so that the products are sold online but come from the closest retail store. Some of the stores are frustrated and do not like the idea that the online store is taking 50% of the margin on sales made online, as they are losing their margin if they were to sell it in store.