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Online Business Models


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Presentatie Mary Wolfinbarger over de verschillende businessmodellen

Published in: Economy & Finance

Online Business Models

  1. 1. Business Models Internet Marketing Dr. Mary Wolfinbarger
  2. 3. Business Models <ul><li>A plan for how to use the Internet to make money or increase organizational efficiency </li></ul><ul><li>For awhile, there were more VC $ than investment-worthy businesses (stopped in 2001) </li></ul><ul><li>The availability of VC money coupled with the high cost of customer acquisition resulted in too much money being spent and many losses </li></ul><ul><li>Some of these old plans are being re-reviewed for their potential now </li></ul><ul><ul><li>Why? </li></ul></ul>
  3. 4. Business Models <ul><li>Example: (is this a business model??) </li></ul><ul><li>Sold copies of Titanic for $9.99 (they cost them $15) </li></ul><ul><li>Spent millions advertising the promo </li></ul><ul><li>Burned through $600K/wk – total of 7.5M of VC funds </li></ul><ul><li>But, it was early in the game: they were purchased by a video rental chain (Hollywood Entertainment) for $100M </li></ul>
  4. 5. Business Models <ul><li>Example: </li></ul><ul><li>“ This lack of business model has been in evidence across a wide swath of the Web. The underlying idea – that as long as a company is the Web and perhaps attracting like of traffic, it will eventually, ultimately, somehow turn into a real business – has been replicated across many Web Species .” </li></ul><ul><li>--Evan Schwartz, Digital Darwinism, writing in 1999 </li></ul>
  5. 6. Business Models <ul><li>Two steps required to make money: </li></ul><ul><li>Driving traffic to your site </li></ul><ul><li>“Monetizing” that traffic </li></ul>
  6. 7. Business Models <ul><li>“… offering the lowest prices and becoming the most efficient supplier…is not nearly enough. The only way to differentiate your Web venture is by creating new value-added applications, assembling bundles of information and inventing interactive services that transform mere transactions into unique, personalized experiences that competitors would have a tough time replicating.” -- Digital Darwinism </li></ul>Note: Does this quote make you think of the Virtual Value Chain?
  7. 8. Business Models <ul><li>Content Sponsorship </li></ul><ul><li>Solution Branding </li></ul><ul><li>Dynamic Pricing </li></ul><ul><li>Affiliate Programs </li></ul><ul><li>Bundling </li></ul><ul><li>Mass Customization </li></ul><ul><li>Value-Added Transactions </li></ul><ul><li>Integrated Digital Commerce </li></ul>
  8. 9. Content Sponsorship <ul><li>Create websites </li></ul><ul><li>Attract a lot of traffic </li></ul><ul><li>Sell advertising </li></ul><ul><li>Can be used in combination with other models </li></ul><ul><li>Example: </li></ul><ul><ul><li>Variation 1: software service or agent (e.g. Alexa) which tracks your behavior and sells ad space and/or information </li></ul></ul><ul><ul><li>Variation 2: use content to sell products, e.g. and </li></ul></ul><ul><ul><li>Variation 3: user generated content –,, </li></ul></ul>
  9. 10. Solution Branding <ul><li>Identify a specific set of issues that customers face and develop a set of interactive services that addresses those problems </li></ul><ul><li>Example: TheKnot </li></ul>
  10. 11. Solution Branding <ul><li>These brands save time and simplify life </li></ul><ul><li>“ It is indeed telling that no new soft drinks or beans, soaps, detergents, no new cereals or frozen entrees, no new makes of cars and trucks have been established solely on web…none is really aimed at intricate multi-step problem domains as are many of the emerging brands on the web.” ---Digital Darwinism </li></ul>
  11. 12. Solution Branding <ul><li>Example: </li></ul><ul><li>“ Cybermediates” home improvement (a “dark ages industry”) </li></ul><ul><li>Pulls together everything from high end consumers – contractor names, estimates, product specs </li></ul><ul><li>Search site according to room being renovated </li></ul><ul><li>Contractors are screened </li></ul><ul><li>Sell sponsorships in portfolio areas </li></ul>
  12. 13. Solution Branding <ul><li>Also called a “Metamediary” strategy </li></ul><ul><li>Some sites receive commissions for referrals </li></ul><ul><li>Some sites aggregate sellers/manufacturers in a special niche – e.g. </li></ul><ul><li>Yahoo! provides one-stop website businesses for smaller sellers </li></ul><ul><li>Shopping agents are a related type of “solution” for comparison shopping </li></ul><ul><li> , </li></ul>
  13. 14. Dynamic Pricing <ul><li>Allowing prices to fluctuate freely with supply and demand </li></ul><ul><li>The web is used to “collect demand” </li></ul><ul><li>Example: Band-X matches telecommunications sellers & buyers; takes 1% commission on sales (a B2B example) </li></ul><ul><li>Like a stock exchange for telecommunications capacity </li></ul>
  14. 15. Dynamic Pricing <ul><li>Example: – excess demand is matched with travelers (a “reverse auction”) </li></ul><ul><li>Auctions – eBay, Sharper Image </li></ul>
  15. 16. Dynamic Pricing <ul><li>Companies are often selling excess inventory, or products about to be retired </li></ul><ul><li>Example: HP Printers </li></ul>
  16. 17. Dynamic Pricing <ul><li>Offering consumers different prices at your website is resisted by consumers. </li></ul><ul><li>But, is there a different way to offer individualized prices? (THINK.) </li></ul>
  17. 18. Affiliate Partners <ul><li>Pay commissions to website owners for referrals </li></ul><ul><li>Amazon pioneered the Amazon Associates Program </li></ul><ul><li>How did Amazon got started in the first affiliate program? </li></ul>
  18. 19. Affiliate Partners <ul><li>Amazon’s goals for the program: Word of Mouse! </li></ul><ul><li>Acquire new, loyal customers through referral </li></ul><ul><li>Enable others to participate in bookselling </li></ul><ul><li>Extend Amazon’s editorial influence into unique spheres </li></ul><ul><li>Affiliate partners can be businesses as well </li></ul>
  19. 20. Affiliate Partners <ul><li>Drawbacks: </li></ul><ul><li>It cuts into profits if the customers are not “new” customers </li></ul><ul><li>Putting an affiliate button on your site sends customers off your site </li></ul><ul><li>Difficult to control quality of your partners </li></ul><ul><li>It probably displaces some advertising </li></ul>
  20. 21. Affiliate Partners <ul><li>Product classes w/ depth, variety probably tend to benefit most (books, CDs) </li></ul>
  21. 22. Affiliate Partners/Viral marketing <ul><li>“ Viral marketing” – your biggest fans post your logo, icons and characters on their websites </li></ul><ul><li>Not really an affiliate rel’p, but it could be </li></ul><ul><li>They aren’t paid </li></ul><ul><li>Why do some companies try to control/prevent this? </li></ul><ul><li>Some TV fan sites have substantial fan fiction – e.g. Xena </li></ul>
  22. 23. Bundling <ul><li>Offer unique bundles of information and interactive services </li></ul><ul><li>Charge for access (as opposed to the business model of free content, revenue from advertising) </li></ul>
  23. 24. Bundling <ul><li>Example: Wall Street Journal </li></ul><ul><li>Free content proliferates on net </li></ul><ul><li>How to sell WSJ Interactive ? </li></ul>
  24. 25. Bundling <ul><li>Example: Wall Street Journal </li></ul><ul><li>Answer: </li></ul><ul><li>6 mo free trial – had to create perception of value in the marketplace </li></ul>
  25. 26. Bundling <ul><li>Example: Wall Street Journal </li></ul><ul><li>Answer: </li></ul><ul><li>Created new interactive services regularly to prevent subscriber defection </li></ul><ul><li>Tech Center w/high tech coverage </li></ul><ul><li>Personal Journal (collects stories w/keywords selected by user) </li></ul><ul><li>Email notification for topics in which subscriber has indicated an interest </li></ul><ul><li>Career center </li></ul>
  26. 27. Bundling <ul><li>Example: Wall Street Journal </li></ul><ul><li>Revenue is 50% advertising, 40% subscription, 10% premium services </li></ul><ul><ul><li>Downside: articles don’t come up in search engines </li></ul></ul><ul><li>New York Times model is slightly different </li></ul><ul><ul><li>Free content day of news </li></ul></ul><ul><ul><li>Pay for back articles </li></ul></ul><ul><ul><li>Revenues from advertising, classified (they are dabbling in “behavioral” advertising) </li></ul></ul><ul><ul><li>Email topic alert service -- $29.99 (have access to articles for 90 days) </li></ul></ul><ul><ul><li> </li></ul></ul>
  27. 28. Bundling <ul><li>Example: </li></ul><ul><li>An information bundle – IQ tests, personality tests, includes some major well-known academic tests </li></ul><ul><li>$14.95/mo -- now profitable </li></ul><ul><li>Dating services $19.95/mo </li></ul><ul><li>Also sell advertising </li></ul>
  28. 29. Bundling <ul><li>Research on selling info. bundles suggests that it’s a good strategy – low MC (marginal cost) of info goods is what makes it possible </li></ul><ul><li>The bundle will earn higher profits than selling singly </li></ul><ul><li>Consumers have high value for some goods but not others </li></ul>
  29. 30. Bundling <ul><li>Charging for access can cause people to return </li></ul><ul><li>Keep evolving the value bundle </li></ul><ul><li>Invent ultra-high value services and keep them outside the bundle to offer as a premium product </li></ul>
  30. 31. Bundling <ul><li>Example: ESPN – mixes free, advertising supported services with some pay services </li></ul><ul><li>for a fee can buy exclusive member content, expansive stat library, sports almanacs, fantasy leagues, ESPN Motion </li></ul><ul><ul><li>Sports sites tend to be younger and male </li></ul></ul><ul><ul><li>In January 2003, half of all male internet users between 25-34 visited a sports site </li></ul></ul><ul><ul><li>Paid online sports content, $2 billion in 2003, growth expected to be 20% per year for next 4-5 years </li></ul></ul>
  31. 32. Mass Customization Sell the custom product, than make it <ul><li>Use information rather than inventory </li></ul><ul><li>Example: Dell </li></ul><ul><ul><li>Dell has “negative cash conversion” of 5 days </li></ul></ul><ul><ul><li>Suppliers told Dell’s requirements daily—top 15 suppliers (90% of their supplies) have online procurement </li></ul></ul><ul><ul><li>Products are produced “on the network virtually” before actually produced </li></ul></ul>
  32. 33. Mass Customization <ul><li>Transparency: </li></ul><ul><li>Customers can watch their system being built in real time </li></ul>
  33. 34. Mass Customization <ul><li>Mass customization has not worked well in the past </li></ul><ul><li>Reason? </li></ul><ul><ul><li>High costs of managing unique customer rel’ps </li></ul></ul><ul><li>“ In some sense we are resurrecting the blacksmith, reverting back to the strict definition of the 16 th century of the word ‘manufacture,’ which derives from the Latin manu factus , or made by hand .” </li></ul><ul><li>--Schwartz, Digital Darwinism </li></ul>
  34. 36. Mass Customization <ul><li>Potential Drawbacks: </li></ul><ul><li>Returns of custom products </li></ul><ul><li>Expense of manufacturing </li></ul><ul><ul><li>“ Choiceboard” strategy constrains the number of options needed to manufacture </li></ul></ul><ul><li>Creating “channel strife” </li></ul><ul><ul><li>Example: Nike is now offering some customized products </li></ul></ul>
  35. 37. Mass Customization <ul><li>Lands’ End sells custom chinos and jeans </li></ul><ul><li> </li></ul><ul><li>40% of their online sales are now custom pants </li></ul><ul><li>Costs increase, but ROI can be higher </li></ul><ul><ul><li>Lower inventory </li></ul></ul><ul><ul><li>Items don’t go on sale </li></ul></ul><ul><ul><li>Reduced returns </li></ul></ul><ul><li> (owned by P&G – now out of business) </li></ul>
  36. 38. Value-Added Transactions <ul><li>Add new value to transactions between sellers and buyers </li></ul><ul><li>Example: Instill’s e •store (B2B food buying) </li></ul><ul><li>Model: Charge a fee of $2.50 to buyers for each order processed </li></ul><ul><li>Sign up distributors online – </li></ul><ul><ul><li>their incentive is to reduce catalog costs, paperwork, cost of mishandled orders </li></ul></ul><ul><li>“ eProcurement” </li></ul><ul><li>Food buying is an $150B industry in U. S. alone and 20,000 distributors relied on catalogs, phone calls and faxes </li></ul>
  37. 39. Value-Added Transactions <ul><li>“ Like Instill, if you really want to change the industry, you’ll have to dive into the middle and figure out ways to add tremendous value for buyer and seller .”—Schwartz </li></ul><ul><li>Instill not only organizes buying, buyers can do what-if scenarios, generate reports, figure out how to lessen inefficiencies </li></ul><ul><li>Demand forecasting and collaboration tools have been added to support “supply chain management” (More on this later in course.) </li></ul>
  38. 40. Value-Added Transactions <ul><li>Also possible in B2C: </li></ul><ul><li>Example: E*Trade </li></ul><ul><li>Bill Porter knew industry profits were shockingly fat and business was terribly inefficient </li></ul><ul><li>Early Slogan: “Someday we will all trade this way” </li></ul>
  39. 41. Value-Added Transactions <ul><li>“Price is what hooks them…but this is about more than cheap trade. It’s the customization, the research tools, the portfolio mgmt. services, the comfort factor and the quality of info. that makes them stick around.” </li></ul><ul><li>-- Kathy Levinson, E*Trade </li></ul>
  40. 42. Value-Added Transactions <ul><li>“ Finance is a pure info processing game…A lot of people in the business are doing things that should be done by computers…Our industry will shrink and shrink .” – David E. Shaw, CEO of D. E. Shaw (a super high-tech hedge fund.) </li></ul>
  41. 43. Integrate Digital Commerce in Absolutely Everything <ul><li>All events, all employees, all sales components should tie in with web commerce </li></ul><ul><li>Bricks and Mortar operation should be fully integrated with online operation </li></ul><ul><li>Example: REI has installed banks of computer kiosks in store displaying online catalog at all locations </li></ul>
  42. 44. Integrate Digital Commerce in Absolutely Everything <ul><li>Example: REI </li></ul><ul><li>Results? </li></ul><ul><ul><li>Can order merchandise not in stock </li></ul></ul><ul><ul><li>Deep data can be accessed by customers </li></ul></ul><ul><ul><li>Can print out full color maps of almost any destination on earth in the store </li></ul></ul><ul><ul><li>Typical store visit is 2 hours </li></ul></ul><ul><ul><li>Customers get home and are trained to visit your website </li></ul></ul><ul><ul><li>Local events promoted on web site </li></ul></ul>
  43. 45. Integrate Digital Commerce in Absolutely Everything <ul><li>Example: REI </li></ul><ul><li>Three channels: catalogs, stores, website </li></ul><ul><li>“… [REI’s] focus on the customer is what drove REI to become one of the first companies to accomplish meaningful real-time integration among all channels of distribution.” Digital Darwinism </li></ul>
  44. 46. Integrate Digital Commerce in Absolutely Everything <ul><li>Example: REI </li></ul><ul><li>“ [Many businesses] see the Web as competing with their other lines of businesses. But we take Web orders from the Seattle customers who drive by our stores every day. Many customers are multichannel customers. We can’t choose how are customers want to shop. So we offer our product, any time, any place and answer any question.” – Matt Hyde, Director of REI sales </li></ul>
  45. 47. Integrate Digital Commerce in Absolutely Everything <ul><li>Too many companies run Web as stand-alone enterprise </li></ul><ul><li>Example: Barnes and Noble (couldn’t return books ordered on the web in their store) </li></ul>
  46. 48. Integrate Digital Commerce in Absolutely Everything <ul><li>Need to integrate : </li></ul><ul><li>PCs </li></ul><ul><li>Smart cards (for payment) </li></ul><ul><li>Digital telephones </li></ul><ul><li>Personal Digital Assistants </li></ul><ul><li>Real World Stores </li></ul><ul><li>Cell phones (lots of work to do here!) </li></ul>
  47. 49. Other Business Models that haven’t done that well <ul><li>Virtual Malls (host multiple online merchants) </li></ul><ul><li>Buyer cooperatives ( </li></ul><ul><li>Struggling: ASPs (application service providers) </li></ul>
  48. 50. Other models <ul><li>Netflix? What’s the model here? </li></ul><ul><li> </li></ul><ul><ul><li>A “Long Tail” business? </li></ul></ul><ul><li>Woot! </li></ul><ul><ul><li>How does this maximize the capability of the web? </li></ul></ul><ul><li>User generated content/products (e.g. </li></ul>
  49. 51. A final thought <ul><li>“ In the future, there will be even weirder business models…we won’t just be doing obvious things like taking mail order and taking it on the net .” </li></ul><ul><li>-- Tim Berners-Lee (the CERN physicist who conceived the WWW) </li></ul>