Chapter 3:

Selling on the Web: Revenue

Models and Building a Web
Presence

Objectives
In this chapter, you will 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

2

E-BUSINESS MODELS
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 customers
purchasing needs
Customer relationship ability to influence
customers behaviors
3

E-B
USINESS
M
ODELS
Atomic Business Models

(Based on Weill and Vitale 2001, Straub 2004)

Business Models and Their E-Business Assets

E-B
USINESS
M
ODELS
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 tendering
systems (e.g., reverse
auction)
Name your own price
Affiliate marketing
Viral marketing
Group purchasing
Online auctions
Product and service
customization
customization

Electronic
marketplaces and
exchanges
Value-chain integrators
Value-chain service
providers
Information brokers
Bartering
Deep discounting
Membership
Supply chain improvers
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

Electronics
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
8

Books, Music, and Videos

Retailers use the Web catalog model to sell
books, music, and videos
Jeff Bezos: Amazon.com
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 customers preferences and helps
customers match products to their preferences
Virtual model: Build your idealized view of yourself
with custom measurements, etc.

11

Flowers and Gifts

1-800-Flowers:
Godiva:
Harry and David
Mrs. Fields Cookies
12

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

13

Advertising-Supported
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.
Googles 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.
14

Advertising-Supported
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?
15

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

17

Fee-for-Transaction Models
Models where businesses offer services and
charge a fee based on the number or size of
transactions processed
Travel Agents
Automobile sales
Stockbrokers
Insurance sales

Ticket sales
Real estate
Online banking
Online music
19

Fee-for-Transaction Models
What is going on with online service
providers?
Disintermediation: The removal of an
intermediary from a value chain
Reintermediation: The introduction of a
new intermediary
20

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

21

Fee-for-Service Models
Online games
WOW

Concerts and films

Streaming video of concerts and films to
paying subscribers

22

Revenue Models in Transition

Subscription to advertising-supported model (e.g.,
Slate Magazine)
Advertising-Supported to Advertising-Subscription Mixed Model
(e.g., Salon.com)
Advertising-Supported to Fee-for-Services Model (e.g.,
xdrive.com)
Advertising-Supported to Subscription Model (e.g.,
NorthLight.com)
Multiple Transitions (e.g., Encyclopdia Britannica)
23

Revenue Strategy Issues

Channel conflict (or cannibalization)
Sales activities on a companys Web site interfere
with existing sales outlets (e.g., Levi Strauss)

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

29

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
30

Creating an Effective Web

Presence
An organizations presence is the public
image it conveys to its stakeholders
Stakeholders of a firm include customers,
suppliers, employees, stockholders,
neighbors, and the general public
31

Achieving Web Presence Goals

Objectives of the business include:
Attracting visitors to the Web site
Making the site interesting enough that visitors stay and explore
Convincing visitors to follow the sites links to obtain information
Creating an impression consistent with the organizations
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 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
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 sites 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
40

Making Web Sites Accessible

Goals that should be met when constructing
Web sites:
Offer easily accessible facts about the organization
Allow visitors to experience the site in different
ways and at different levels
Sustain visitor attention and encourage return visits
Offer easily accessible information about products
and services
41

Making Web Sites Accessible

What does accessibility really mean? How

do people with disabilities access
webpages?

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
here."
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 http://www.w3.org/TR/WCAG

42

How do you retain customers?

One of the most common factors that influences a
sites 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
understand
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

45

Entrepreneurship and
Business Models

Entrepreneurship and creativity is a

process!
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 Organizational
Context

The Environment

The Entrepreneur

Entrepreneurial
Process

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
Search vs. Discovery

The Rules Change

Demographics
Change

No Need Present
Window is not yet
open

Occasional

Market Pull vs.

Resource or Capacity
Push

Underserved Markets
Social Trends

Strong Loyalties
High Switching Costs

Multiple Causes

New customers to the

market

Satisfied customers

Multiple Effects

Increase in usage
rates
Shortages

Easy for others to

enter with alternatives
Intense competition

New Knowledge

Customers hard to
reach

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

51

Entrepreneurship and
Business Models
Entry Wedges
Other Entry Wedges

New Product or
Service

Exploiting Parallel Momentum

Geographic Transfer
Supply Shortages
Tapping Utilized Resources
Customer Sponsorship
Customer Contract
Becoming a 2nd Source
Parent Co. Sponsorship
Joint Venture
Licensing
Market Relinquishment
Selloff Division
Governmental Sponsorship
Favored Purchasing
Rule Changes

Parallel
Competition

Franchising

Acquisition

X
X
X
X
X
X
X
X
X
X
X

Source: Morris et al. Entrepreneurship & Innovation

52

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?

53

Porters Competitive Forces Model: How

the Internet Influences Industry Structure

54

Summary
Models used to generate revenue on the Web
include:

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

Summary
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
well
Firms must also understand the nature of
communication on the Web
56