E-Business Revenue Models

Revenue Models
• Web business revenue-generating models
• Web catalog
• Fee-for-content
• Fee-for-service
• Fee-for-transaction
• Advertising-supported
• Free for many, fee for few
• Can work for both sale types
• Business-to-consumer (B2C)
• Business-to-business (B2B)
• Can use same revenue model for both types of sales

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Web Catalog Revenue Models
• Adapted from mail-order (catalog) model
• Seller establishes brand image
• Printed information mailed to prospective buyers
• Orders placed by mail or toll-free telephone number
• Expands traditional model
• Replaces or supplements print catalogs
• Offers flexibility
• Orders placed through Web site or telephone
• Payments made though Web site, telephone, or mail
• Creates additional sales outlet for existing companies

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Web Catalog Revenue Models (cont’d.)
• Computers and consumer electronics
• E.g., Dell – product customization; Best Buy – Web site sells same products as
in stores
• Marketing channel
• Pathway to customers
• Advantage of having several marketing channels
• Reach more customers at less cost
• Can combine marketing channels
• Example: in-store online ordering
• Example: mail catalogs with reference to retailer’s Web site
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Fee-for-Content Revenue Models

• Firms owning written information or rights

• Embrace the Web as a highly efficient distribution mechanism
• Sell the digital content
• Sell subscriptions for access to information they own
• Examples
• LexisNexis: offers variety of information services
• Lexis.com: offers original legal information product
• ProQuest: digital copies of academic publications
• Dow Jones newspaper publisher subscriptions

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Advertising-Supported Revenue Models
• Used by network television
• Problem1: measuring and charging site visitor views
• # of visitors, # of unique visitors, # of click-throughs
• Stickiness
• Keeping visitors at site and attracting repeat visitors
• Exposed to more advertising in a sticky site
• Problem2: obtaining large advertiser interest
• Requires demographic information collection
• Characteristics set used to group visitors
• Can obtain large advertiser interest by:
• Using a specialized information Web site
• Draw a specialized audience certain advertisers want to reach
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FIGURE 4-2 Three strategies for an advertising-supported revenue model
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Advertising-Subscription Mixed Revenue
Models
• Subscribers pay fee and accept advertising
• Typically less advertising compared to advertising-supported sites
• Web sites offer different degrees of success
• The New York Times (today)
• Bulk of revenue derived from advertising
• The Wall Street Journal (mixed model)
• Subscription revenue weighted more heavily

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Fee-for-Transaction Revenue Models
• Service fee charged
• Based on transaction number or size
• Web site offers visitor transaction information
• Personal service formerly provided by a human agent
• Online banking and financial services
• No physical product; Easy to offer on Web
• Concerns: Trust and reliability of financial institution

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Fee-for-Transaction Revenue Models (cont’d.)
• Travel
• Travel agency revenue model: receive fee for facilitating a transaction
• Computers also good at information consolidation and filtering
• Web-based travel agencies were new entrants
• Examples: Travelocity, Expedia, Hotels.com, Hotel Discount Reservations, Orbitz
• Generate advertising revenue from ads placed on travel information pages
• Smaller travel agents specialize (cruises, hotels)
• Insurance brokers
• Progressive Web site
• Provides quotes for competitors’ products too
• The General (General Automobile Insurance Services) Web site
• Offers comfortable, anonymous experience

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Fee-for-Service Revenue Models
• Companies offer Web service
• Fee based on service value; Not a broker service; Not based on transactions-
processed number or size
• Examples
• Online games - Sales revenue source
• Advertising (older concept), pay-to-play for premium games, subscription fees
• Professional services
• Limited Web use (e.g., State laws prohibit)
• Major concern - Patient privacy
• Physicians’ online consultations
• For ongoing, established relationship patients

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Free for Many, Fee for a Few
• Economics of manufacturing
• Different for physical and digital products
• Unit cost high percentage of physical products
• Unit cost very small for digital products
• Leads to a different revenue model
• Offer basic product to many for free
• Charge a fee to some for differentiated products
• Examples: e-mail accounts, bakery: free cookies

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Revenue Models in Transition
• Companies must change revenue model
• To meet needs of new and changing Web users
• Some companies created Web sites
• Needed many years to grow large enough to become profitable (CNN and
ESPN)
• Some companies changed model or went out of business
• Due to lengthy unprofitable growth phases
• Find more examples yourself!!!

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Channel Conflict and Cannibalization
• Channel conflict (cannibalization)
• Company Web site sales activities interfere with existing sales outlets

Discussion questions:
• Is it good or bad?
• When is it worth the risk of channel conflict for businesses to
open new channels of sales?
• Should we prevent channel conflict?

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Strategic Alliances
• Strategic alliance
• Two or more companies join forces
• Undertake activity over long time period
• Find examples– !!!

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Creating an Effective Web Presence
• Organization’s presence
• Public image conveyed to stakeholders
• Stakeholders
• Customers, suppliers, employees, stockholders, neighbors, general public

Usually not important until growth reaches significant size- true or

false?

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Identifying Web Presence Goals
• Web business site objectives:
• Attracting Web site visitors
• Keeping visitors to stay and explore
• Convincing visitors to follow 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 about the organization
• Encouraging visitors to return to the site

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Usability Testing
• Usability of a website - includes clear presentation of information, easy navigation,
overall easy to use and understand, placement of menus and information in standard places,
viewable from range of devices etc.
• Importance
• Helps meet Web site goals
• Avoids Web site frustration
• Customers leave site without buying anything
• Simple site usability changes
• Such as- Include telephone contact information
• Learn about visitor needs by conducting focus groups
• Usability testing cost
• Low compared to Web site design costs
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