ELECTRONIC COMMERCE MODULE 1

CHAPTER III: SELLING ON THE WEB: REVENUE MODELS AND BUILDING A WEB
PRESENCE

I. OBJECTIVES
At the end of this chapter, the students should be able to 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.

II. SUBJECT MATTER

Topic: Revenue Models and Building a Web Presence
Subtopic: - Computers and Consumer Electronics
- Digital Content Revenue Models
- Advertising-Supported Revenue Models
- Advertising-Subscription Mixed Revenue Models
- Fee-for-Transaction Revenue Models
- Revenue Models in Transition
- Revenue Strategy Issues
- Strategic Alliances and Channel Distribution Management
- Creating an Effective Web Presence

III. PROCEDURE
A. Preliminaries
Pre- Assessment
1. Define and discuss revenue models and computers and Consumer Electronics.
2. Explain Digital Content Revenue Models, Advertising-Supported Revenue Models,
Advertising-Subscription Mixed Revenue Models, Fee-for-Transaction Revenue Models
and Revenue Models in Transition.
3. Enumerate and identify some issues in revenue strategy.
4. Discuss Strategic Alliances and Channel Distribution Management.
5. Examine and explore the factors and elements of creating an Effective Web Presence.

B. Lesson Proper
In this chapter, you will learn about various models for generating revenue used by Web
businesses today, including Web catalog, advertising-supported, advertising-subscription mixed,
and fee-based models. These approaches can work for both business-to-consumer (B2C) and
business-to-business (B2B) electronic commerce. Many companies create one Web site to handle

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both B2C and B2B sales. Even when companies create separate sites (or separate pages within
one site), they often use the same revenue model for both types of sales.

1. Revenue Models

A useful way to think about electronic commerce implementations is to consider how they
can generate revenue. Not all electronic commerce initiatives have the goal of providing revenue;
some are undertaken to reduce costs or improve customer service.
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 Electronics

 Apple, Dell, Gateway, and Sun Microsystems have had great success selling on the Web.
 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
o Among the most visible examples of electronic commerce
 Jeff Bezos
o Formed Amazon.com
 Jason and Matthew Olim
o Formed an online music store they called CDnow
o Used the Web catalog revenue model

Luxury Goods

 People are still reluctant to buy luxury goods through a Web site
 Web sites of Vera Wang and Versace
o Constructed to provide information to shoppers, not to generate revenue
 Web site of Evian
o Designed for a select, affluent group of customers

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Vera Wang Website

Versace Website

Web site of Evian

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Clothing Retailers
Lands’ End

 Pioneered the 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

Lands’ End Website

Flowers and Gifts

1-800-Flowers

 Created an online extension to its telephone order business

Chocolatier Godiva

 Offers business gift plans on its site

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Godiva Website

2. 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 of court cases, laws, patent databases, and tax regulations.
ProQuest

 Sells digital copies of published documents.

Lexis.com

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ProQuest Website

3. Advertising-Supported Revenue Models

 Broadcasters provide free programming to an audience along with advertising messages

 Success of Web advertising is hampered by
o No consensus on how to measure and charge for site visitor views
o Stickiness of a Web site: the ability to keep visitors and attract repeat visitors
o Very few Web sites have sufficient visitors to interest large advertisers

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
 Examples: Yahoo!, AOL, AltaVista, Google, etc.

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Example of Web Portal

4. Advertising-Subscription Mixed Revenue Models

In an advertising-subscription mixed revenue model, which has been used for many years by
traditional print newspapers and magazines, subscribers pay a fee and accept some level of
advertising. On Web sites that use the advertising-subscription revenue model, subscribers are
typically subjected to much less advertising than they are on advertising-supported sites. Firms
have had varying levels of success in applying this model and a number of companies have moved
to or from this model over their lifetimes.

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The New York Times

The Wall Street Journal

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5. Fee-for-Transaction Revenue Models
In the 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. Some of these services
lend themselves well to operating on the Web. To the extent that companies can offer Web site
visitors the information they need about the transaction, companies can offer much of the
personal service formerly provided by human agents. If customers are willing to enter transaction
information into Web site forms, these sites can provide options and execute transactions much
less expensively than traditional transaction service providers. The removal of an intermediary,
such as a human agent, from a value chain is called disintermediation. The introduction of a new
intermediary, such as a fee-for-transaction Web site, into a value chain is called
reintermediation.
Fee-for-Service Revenue Models
Companies are offering an increasing variety of services on the Web for which they charge
a fee. These are neither broker services nor services for which the charge is based on the number
or size of transactions processed. The fee is based on the value of the service provided. These fee
for-service revenue models range from games and entertainment to financial advice and the
professional services of accountants, lawyers, and physicians.
Online games

 Growing number of sites include premium games in their offerings

 Site visitors must pay to play these premium games
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 are one of the main forces preventing U.S. professionals from extending their
practices to the Web.
Revenue Models in Transition
Subscription to advertising-supported model

 Microsoft founded its Slate magazine Web site

o An upscale news and current events publication
o Charged an annual subscription fee after a limited free introductory period
o Was unable to draw sufficient number of paid subscribers
o Now operated as an advertising-supported site

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6. Advertising-Supported to Advertising-Subscription Mixed Model
Salon.com

 Operated for several years as an advertising-supported site

 Now offers an optional subscription version of its site
 Subscription offering was motivated by the company’s inability to raise additional money
from investors.
Salon.com

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

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January 2002

 Converted to a new revenue model that was primarily subscription supported.

Multiple Transitions
Encyclopedia Britannica began its online expansion with two Web-based offerings. The
Britannica Internet Guide was a free Web navigation aid that classified and rated information
laden Web sites. It featured reviews written by Britannica editors who also selected and indexed
the sites. The company’s other Web site, Encyclopedia Britannica Online, was available for a
subscription fee or as part of the Encyclopedia Britannica CD package. Britannica used the free
site to attract users to the paid subscription site.
In 1999, disappointed by low subscription sales, Britannica converted to a free, advertiser
supported site. The first day the new site, Britannica.com, became available at no cost to the
public, it had over 15 million visitors, forcing Britannica to shut down for two weeks to upgrade
its servers.
The Britannica.com site then offered the full content of the print edition in searchable
form, plus access to the Merriam-Webster’s Collegiate Dictionary and the Britannica Book of the
Year. After two years of trying to generate a profit using this advertising-supported model,
Britannica faced declining advertising revenues. In 2001, Britannica returned to a mixed model in
which it offered free summaries of encyclopedia articles and free access to the Merriam-
Webster’s Collegiate Dictionary on the Web, with the full text of the encyclopedia available for a
subscription fee of $50 per year or $5 per month.
7. Revenue Strategy Issues
Channel conflict

 Occurs whenever sales activities on a company’s Web site 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.
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.

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Account aggregation services

 Increase the propensity of customers to return to the site

Channel distribution managers

 Companies that take over the responsibility for a particular product line within a retail
store.

8. Creating an Effective Web Presence

Businesses have always created a presence in the physical world by building stores, factories,
warehouses, and office buildings. An organization’s presence is the public image it conveys to its
stakeholders. The stakeholders of a firm include its customers, suppliers, employees,
stockholders, neighbors, and the general public. Most companies tend not to worry much about
the image they project until they grow to a significant size - until then, they are too focused on
just surviving to spare the effort. On the Web, presence can be much more important. Many
customers and other stakeholders of a Web business know the company only through its Web
presence. Creating an effective Web presence can be critical even for the smallest and newest
firms operating on the Web.
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
 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
Profit-Driven Organizations
Toyota site

 A good example of an effective Web presence

 Provides links to
o Detailed information about each vehicle model
o A dealer locator page
o Information about the company and the financing services it offers

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Toyota U.S. Home page

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 is essentially the same as the previous version
Quaker Oats Old Home Page

Quaker Oats Home Page: Current

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Not-for-Profit Organizations

 Key goal for the Web sites

o Information dissemination
 Key element on any successful electronic commerce Web site
o Combination of information dissemination and a two-way contact channel

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
 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
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.
 Goals that should be met when constructing Web sites

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o Offer easily accessible facts about the organization
o Allow visitors to experience the site in different ways and at different levels
o Sustain visitor attention and encourage return visits
o Offer easily accessible information

Trust and Loyalty

 A five (5) percent increase in customer loyalty can yield profit increases between 25% and
80%
 Repetition of satisfactory service can build customer loyalty
 Customer service is a problem for many electronic commerce sites
Usability Testing

 Companies that have done usability tests

o Conduct focus groups
o Watch how different customers navigate through a series of Web site test designs
 Cost of usability testing is low compared to the total cost of a Web site design or overhaul
Customer-Centric Web Site Design

 Putting the customer at the center of all site designs

 Guidelines
o Design the site around how visitors will navigate the links
o Allow visitors to access information quickly
o Avoid using inflated marketing statements
o Avoid using business jargon and terms that visitors might not understand
o Be consistent in use of design features and colors
o Make sure navigation controls are clearly labeled
o Test text visibility on smaller monitors
o Conduct usability tests

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
Addressable media

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 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

Business Communication Modes

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ACTIVITY 1: FILL IN THE BLANKS

Read each sentence carefully. Fill in the blanks with the correct answer.

1. The _____ is an intelligent agent program that learns the customer’s preferences and
makes suggestions.
2. The _____ is a graphic image built from customer measurements on which customers can
try clothes.
3. The set of characteristics that marketers use to group visitors is called _____, which
includes such things as address, age, gender, income level, type of job held, hobbies, and
religion.
4. A(n) _____ is a listing of hyperlinks to Web pages.
5. Channel conflict is also referred to as _____.
6. An organization’s _____ is the public image it conveys to its stakeholders.
7. The _____ of a firm include its customers, suppliers, employees, stockholders, neighbors,
and the general public.
8. Putting the customer at the center of all site designs is called a(n) _____ approach to Web
site design.
9. This personal contact approach to identifying and reaching customers is sometimes called
_____.
10. A Web site’s ability to keep visitors at the site and attract repeat visitors is called
_________.

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ACTIVITY 2: BUSINESS ANALYSIS
Identify a company that uses the Internet for marketing, sales, and promotions. Answer the
following questions for the company of your choice.
Questions
1. What is the name of the company?

________________________________________________________________________
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2. What is the URL of the company home page?
________________________________________________________________________
________________________________________________________________________

3. History:
a. Who founded it and when?
b. Initial products/services and markets?
c. Private or public?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

4. What are its main products and services? What is its target market and who are its
customers?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

5. How is the company using the Internet for marketing, sales, and promotions?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

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