Social Networking, Online Auctions

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 Introduction

• Case study: Starbucks

– Views social media as an extension of the customer
relationship
– Integrates mobile technology by accepting payments
from mobile phones
– Provides mobile device app to let customers manage
loyalty program benefits
– Serves as a social media observer rather than
actively advertising

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 From Virtual Communities to Social
Networks
• Online Web communities
– Not limited by geography
– Individuals and companies with common interests
• Meet online and discuss issues, share information,
generate ideas, and develop valuable relationships
• Companies make money by serving as relationship
facilitators
– Combine Internet’s transaction cost-reduction
potential with a communication facilitator role

© Cengage Learning 2015 3

 Virtual Communities

• Virtual community (Web community, online

community)
– Gathering place for people and businesses
– No physical existence
• Early virtual communities
– Bulletin board systems (BBSs)
• Revenue source: monthly fees and selling advertising
– Usenet newsgroups
• Message posting areas on usenets

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 Virtual Communities (cont’d.)

• Current forms
– Web chat rooms
– Sites devoted to specific topics or general exchange
of information, photos, videos
– People connect and discuss common issues,
interests
– Considerable social interaction
– Relationship-forming activities
• Similar to physical communities

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 Early Web Communities

• 1985: WELL (“whole earth ‘lectronic link”)

– Monthly fee to participate in forums and conferences
– 1999: bought by Salon.com
• 1995: Beverly Hills Internet virtual community site
– Offered webcams, free Web site space
– Grew into GeoCities
• Revenue source: advertising, pop-up pages
• 1999: purchased by Yahoo! ($5 billion)
• Closed in 2009

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 Early Web Communities (cont’d.)

• 1995-2001
– Tripod and Theglobe.com offered advertising-
supported virtual communities
– These early communities evolved into social
networking sites of today

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 Social Networking Emerges

• As the Internet and Web grew:

– New experience of sharing online communication
faded
– Specific common interests formed a basis for
interaction
• Social networking sites allow individuals to:
– Create and publish a profile
– Create a list of other users with whom they share a
connection (or connections)
– Control that list
– Monitor similar lists made by other users
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 Social Networking Emerges (cont’d.)

• Early social networking sites

– Six Degrees (1997)
– Friendster (2002)
• Had features found in today’s social networking sites
– Tribe.net
– MySpace (dominant prior to 2008)

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 Social Networking Emerges (cont’d.)

• Current social networking sites

– Facebook
– Google+
– YouTube
• Inclusion of video
– GREE, mixi (Japan)
– Orkut (Brazil, India)
– QQ, WeChat, Weibo (China)

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 Social Networking Emerges (cont’d.)

– LinkedIn
• Dedicated to facilitating business contacts
– Twitter
• Users send short messages (tweets) to other users
who sign up to follow their messages
• Basic idea behind social networking
– People invited to join by existing members
– Site provides directory (without contact information)
– Communication does not occur until intended
recipient approves the contact

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FIGURE 6-1 Social networking Web sites

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FIGURE 6-2 Leading social networking sites around the world

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 Social Networking Emerges (cont’d.)

• Some social networks focused around specific

interests or capabilities
– Flickr
– Pinterest
– Instagram
– Snapchat

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 Web Logs (Blogs) and Microblogs

• Web sites containing individual commentary on

current events or specific issues
• Form of social networking site
• Twitter: microblog
– Very informal; tweets limited to 140 characters
• Early blogs focused on technology topics
• Blogs can be used as a political networking tool
– Starting with 2004 election
– Communicating messages, organizing volunteers,
raising money, meetups

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 Web Logs (Blogs) and Microblogs
(cont’d.)
• Retailers embracing blogs
– Way to engage visitors not ready to buy from site
– Marketing and supply managers saw social
networking benefits of enhancing B2B relationships
• Participatory journalism
– CNN
• Blogs can become businesses in themselves
– Must generate financial support (fees, advertising)

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 Location-Aware Mobile Social
Networks
• Mobile devices transmit their location to Web sites
• Sites use location information to provide customized
advertising and other services
• Examples
– Facebook
– Google+

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 Business Uses of Social Networking

• Types of use by businesses

– Building brand awareness
– Establishing trust
– Announcing new products or services
– Gathering information about customers and potential
customers
• Example: Brooks Running
– Contributes to social media discussions dedicated to
fitness

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Figure 6-3 Social media strategies for business

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 Virtual Learning Networks

• Distance learning platforms for student-instructor

interaction (Blackboard)
• Tools include:
– Bulletin boards, chat rooms, drawing boards
• Massive Open Online Courses (MOOC)
– Coursera
– Udacity

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 Open-Source Software

• Software available for download at no cost

• An example of successful social networking
– Community devoted to the creation, improvement,
and maintenance of the software
• Some software devoted to development of virtual
learning communities
– Moodle
– uPortal

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 Revenue Models for
Social Networking Sites
• Late 1990s
– Revenue created by selling advertising
• Used by virtual communities, search engine sites, Web
directories
• 1998
– Purchases and mergers occurred
– New sites used advertising-only revenue model
• Included features offered by virtual community sites,
search engine sites, Web directories, other information-
providing and entertainment sites
– Web portal goal: every Web user’s doorway to Web

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 Revenue Models for
Social Networking Sites (cont’d.)
• Advertising-supported social networking sites
– Smaller sites with specialized appeal
• Can draw enough visitors to generate significant
advertising revenue
• Example: I Can Has Cheezburger site
• Sites with higher number of visitors can charge more
• Stickiness: important element in site’s attractiveness
– Rough measure of stickiness
• Time user spends at the site

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 Mixed-Revenue and Fee-For-Service
Social Networking Sites
• Most social networking sites use advertising
• Some charge a fee for some services
– Examples: Yahoo! All-Star Games package, Yahoo!
premium e-mail service
• Monetizing
– Converting site visitors into fee-paying subscribers or
purchasers of services
– Concern: visitor backlash
• Examples
– The Motley Fool and TheStreet.com

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 Fee-Based Social Networking

• Google Answers site

– Early attempt to monetize social networking
– Questions answered for a fee
– Google operated service from 2002 to 2006
• Similar free services
– Yahoo! Answers, Amazon (Askville)
• Uclue (paid researchers earn 75 percent of total fee)
– Advocates claim better quality
• Fee-based Web sites can generate revenue by
providing virtual community interaction

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 Crowdfunding Sites

• Small businesses can sell partial ownerships to

investors
• Examples: Kickstarter, IndieGoGo
• Reduces risk to individual investors
– Small amounts of money invested
• Reward-based crowdfunding
– Investors pay in advance for products and services
• To be delivered when funds raised
• Used by artists and charitable organizations
– To help complete a specific project

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 Internal Social Networking

• Provide social interaction among organization’s

employees
• Run on organization’s intranet
• Save money by replacing printed distribution
• Provide easy access to employee information
• Good for geographically dispersed employees
• Adding wireless connectivity

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 Mobile Apps

• Common operating systems emergence

– Occurred due to a change in the way software
applications developed and sold
• Old U.S. mobile phone company revenue strategy
– Control application software (apps)
• Apple turned old revenue strategy on its head
– AT&T agreed to be sole carrier for iPhone
– Apple Apps for iPhone online store
• Independent developers create apps and sell them

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 Mobile Apps (cont’d.)

• Apple AppStore, Google Play

• Some mobile apps are sold for a fee
– Games, puzzles, productivity tools, reference works
– Typically range from $1 to $5 each

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 Mobile Apps (cont’d.)

• Mobile phones used for online banking

• Physicians using smart phones
– To read EKGs
– To manage diabetic patients
• Phones’ global positioning satellite (GPS) service
capabilities
– Allow mobile business opportunities

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 Mobile Payment Apps

• Mobile wallets
– Mobile phones function as credit cards
– Japan’s NTT DoCoMo phones combine capabilities
• Generate significant business
• Widespread credit card use in U.S. but limited use
of mobile phone payments
– 2011: Phone readers offered by American Express,
Visa, MasterCard
– Google Wallet for Android phones introduced
– 2014: Starbucks reported 12% of customers paying
through mobile app
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 Online Auctions

• Business opportunity perfect for the Web

• Auction site revenue sources
– Charge both buyers and sellers to participate
– Sell advertising
• Targeted advertising opportunities available
• Online auctions capitalize on Internet’s strength
– Bring together geographically dispersed people
sharing narrow interests

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 Auction Basics (cont’d.)

• English auctions
– Bidders publicly announce successively higher bids
• Item sold to highest bidder (at bidder’s price)
– Also called ascending-price auction
– Open auction (open-outcry auction)
• Bids publicly announced
– Minimum bid
• Beginning price
– Reserve price (reserve)
• If not met, item removed (not sold)

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 Auction Basics (cont’d.)

• Yankee auction
– Multiple item units offered for sale (bidders specify
quantity)
– Highest bidder allotted bid quantity
– Remaining items allocated to next highest bidders
until all items distributed
– Bidders pay lowest successful bidder price

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 Auction Basics (cont’d.)

• Dutch auctions
– Open auction
• Bidding starts at a high price
• Drops until bidder accepts price
– Also called descending-price auctions
– Seller offers number of similar items for sale
– Common implementation
• Use a clock (price drops with each tick)
• Bidders stop the clock and take items at the given price
• If items remain, the clock is restarted

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 Auction Basics (cont’d.)

• First-price sealed-bid auctions

– Sealed-bid auctions
• Bidders submit bids independently
• Prohibited from sharing information
– First-price sealed-bid auction
• Highest bidder wins
• If multiple items auctioned, next highest bidders
awarded remaining items at their bid price

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 Auction Basics (cont’d.)

• Second-price sealed-bid auction

– Same as first-price sealed-bid auction
– Except highest bidder awarded item at second-
highest bidder price
– Commonly called Vickrey auctions
• William Vickrey: 1996 Nobel Prize in Economics
– Findings:
• Yields higher seller returns
• Encourages all bidders to bid private valuation amounts
• Reduces tendency for bidder collusion

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 Auction Basics (cont’d.)

• Open-outcry double auctions

– Example: Chicago Board of Trade auctions of
commodity futures and stock options
– Buy and sell offers shouted by traders in trading pit
• Each commodity, stock option traded in own pit
• Quite frenzied
• Double auctions (either sealed bid or open outcry)
– Good for items of known quality traded in large
quantities
– No item inspection before bidding

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 Auction Basics (cont’d.)

• Double auctions
– Buyers, sellers submit combined price-quantity bids
– Auctioneer matches sellers’ offers to buyers’ offers
• Starts with lowest price and then goes up
• Starts with highest price and then goes down until all
quantities offered are sold
– Operation format: Sealed bid or open-outcry
– Example: New York Stock Exchange

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 Auction Basics (cont’d.)

• Reverse (seller-bid) auction

– Multiple sellers submit price bids
• Auctioneer represents single buyer
– Bids for given amount of specific item to purchase
– Prices go down as bidding continues
• Until no seller willing to bid lower
– Most involve businesses as buyers and sellers

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FIGURE 6-8 Key characteristics of seven major
auction types

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 Online Auctions and
Related Businesses
• Online auction business: rapidly changing
• Three auction Web site categories
– General consumer auctions
– Specialty consumer auctions
– Business-to-business auctions
• Varying opinions on categorizing consumer auctions
– Business-to-consumer
– Consumer-to-consumer
– Consumer-to-business

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 General Consumer Auctions

• eBay
– Registration required, seller fees, rating system
– Seller’s risk: buyer uses stolen credit card; buyer fails
to conclude transaction
– Buyer’s risk: no item delivery; misrepresented item
– Most common auction format: English auction
• Seller may set reserve price
• Bidders listed: bids not disclosed (until auction end)
• Continually updated high bid amount displayed
• Private auction option available

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 General Consumer Auctions (cont’d.)

• Minimum bid increment

– Amount by which one bid must exceed previous bid
• Proxy bid
– Bidder specifies maximum bid
– May cause bidding to rise rapidly
• eBay stores
– Integrated into auction site
– Sellers generate additional profits

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 General Consumer Auctions:
The Lock-In Effect
• eBay established itself early
• Economic structure is biased against new entrants
• Markets become more efficient as number of buyers
and sellers increase
– Consumers more likely to patronize established sites
• Example: Japanese general consumer auction
– Yahoo! first to enter market
• Now dominates (more than 90% market share)
– eBay maintains low market share (less than 3%)

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 Business-to-Business Auctions

• Evolved to meet specific existing need

– Excess inventory disposal (manufacturing)
• Two methods
– Liquidation specialists: find buyers for unusable items
(If a company needs to liquidate its assets quickly, there are businesses that specialize in liquidation. These businesses
may buy a company’s entire inventory, or assets, and then sell them to other retailers)

– Liquidation brokers: firms that finds buyers for items

• Online auctions
– Logical extension of these inventory liquidation
activities to a new and more efficient channel
(Internet)
– Example: GoIndustry Dove Bid site
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Business-to-Business Auctions (cont’d.)

• Used to fill temporary employment openings

– Example: nursing
• Employers operate their own shift auctions

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FIGURE 6-9 Supply chain characteristics and reverse auctions

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 Auction-Related Services

• Entrepreneurs encouraged by eBay and other

auction site growth
• Provide various kinds of auction-related services
– Escrow services
– Auction directory and information services
– Auction software (for sellers and buyers)

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 Auction Escrow Services

• Buyers’ common concern: seller reliability

– Buyers protect interests in high-value items
• Independent party holds payment until:
– Buyer receives item
– Buyer satisfied item is as expected
• May take delivery of item from seller
– Perform buyer inspection (qualified to do so)
• Charge fees
– Percent of item’s cost; subject to minimum fee

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 Auction Escrow Services (cont’d.)

• Avoid escrow fraud

– Determine if licensed, bonded (licensing agency)
• Other buyer protections
– Check seller’s rating
– Use Web site listings of unreliable sellers

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 Auction Software

• For sellers
– Helps manage online auctions
• Example: AuctionHawk and Vendio
– Seller management software and services
– Automate tasks
– Create attractive page layouts
– Manage hundreds of auctions
• For buyers
– Sniping software to execute last-second bids

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 E-commerce in Action: eBay.com

• World’s largest and most popular online auction

• Major e-commerce success story
• Business model ideally suited to Web
• Derives all revenue from movement of information
• Excellent financial performance
• Business strategy based on expansion in both
geography and scope
• Auction fraud and abused a major challenge
• Track record of more than 5 years of growth and
profitability suggest a bright future
 The Growth and Evolution of Portals

• Portals: most frequently visited sites on the Web

• Are gateways to the more than 8 billion Web pages
• Most of top portals today began as search engines
• Today provide navigation of the Web, commerce, and
content (own and others’)
• Top portal/search engine sites 2005 in terms of
reach:
 Yahoo (including Overture and AltaVista)
 MSN (Microsoft Network)
 AOL (America Online) (including Netscape)
 Google
 Reach of the Top Portals and Search
Engine Sites in the United States

Figure 13.4, Page 779

SOURCE: Based on data from eMarketer, Inc., September 2005.

Types of Portals: General Purpose and
Vertical Market

• Portals are the most frequently visited sites on the Web

• Web portal sites are gateways to more than four billion Web
pages
• Top portal sites include
– Yahoo
– MSN
• General purpose portals: Attempt to attract a very large general
audience and then retain it on-site by providing in-depth vertical
content channels.
• Vertical market portals: Attempt to attract highly focused, loyal
audiences with a deep interest in either community (affinity group)
or specialized content.
• Affinity groups are statistical aggregates of people that self-
identify with one another to some material extent is their attitudes,
value, beliefs, and behaviors.
 Two General Types of Portals: General
Purpose and Vertical Market Portals

Figure 13.5, Page 780

 Portal Business Models

• Major portal revenue sources include:

 ISP services (MSN)
 General advertising revenue/tenancy deals
 Commissions on sales
 Subscription fees
 Revenue per Customer and Market Focus

Figure 13.6, Page 782

 E-commerce in Action: Yahoo! Inc.

• Vision: Global Internet communications, commerce

and media company
• Earns money from advertising, premium content
sales, commissions and corporate services
• Recent financial performance: excellent, driven by
advertising revenues
• 2003: Acquired Inktomi and Overture: return to
search engine roots, and new emphasis on pay-for-
placement search engine marketing
• Future prospects depend on matching Google on
search and extending its lead on content
 Online Communities
• Communities involve:
 A group of people
 Shared social interaction
 Common ties among members
 People who share an area for some period of time
• Communities do not necessarily have shared goal,
purposes, or intentions
• Virtual community: an area online where people who
share common ties can interact with one another
• Debate about relative merits of virtual communities
versus ordinary communities
 Where People Go Online to Network
Figure 13.8, Page 791

SOURCE: Based on data from Pew Internet & American Life Project, 2006; Borzo, 2004,
authors’ estimates.
 Types of Online Communities and Their
Business Models

• General communities: Offer members opportunities to interact

with a general audience organized into general topics
• Practice communities: Offer members focused discussion
groups, help and knowledge related to an area of shared practice
• Interest communities: Offer members focused discussion
groups based on a shared interest in some specific subject
• Affinity communities: Offer members focused discussion and
interaction with other people who share the same affinity (self or
group identification)
• Sponsored communities: Online communities created by
government, non-profit or for-profit organizations for purpose of
pursuing organizational goals
 Commercially Sponsored Communities:
Business Uses of Community
• Sponsored commercial communities can play an
important role as customer relationship
management tools
• Can extend an existing brand name
• Can gather customer feedback and suggestions

Copyright © 2007 Pearson Education, Inc. Chapter 13 -64