Transcript Session4-MakingMoneyOnTheWeb

Electronic Commerce
Session 4: Making Money On The Web
2
Session Objectives
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The objectives of this session are:
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To describe some of the methods of obtaining
products to sell on the Web
To describe digital products
To describe six revenue models used by Web
businesses to make money
Identifying Products1
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http://www.kbcc.cuny.edu/propre/math/Math_13/BITS.JPG
Before a new Web
business can sell
products on-line they
must first identify
those product which
would yield highest
profits
Identifying Products Cont’d
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Practically any product can be sold on-line
However, that does not mean that it is
profitable to sell any product on-line
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For example, selling a product with a low
value-to-weight ratio to a person who lives in
another continent might be impractical due to
high shipping costs
Remember that the goal of e-commerce is
to make money
Identifying Products Cont’d
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Some wholesale distributors are willing to
ship any of products they distribute directly
to the customer’s home, after they have
paid for it
As an Internet business, if you can find the
customers to buy these products then you
might be able to make money
This approach is called drop shipping
Identifying Products Cont’d
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Although drop shipping may seem
extremely attractive, it does has problems:
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The Internet Business has no way of
ensuring the quality of the product (since
they never see it)
All wholesale distributors are not
legitimate
Identifying Products Cont’d
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Products which are digital in nature (e.g.
software, music, information and computer
games) lend themselves well to ecommerce since:
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There is very little cost involved in
reproducing them
The product can be delivered instantly on-line
(after payment)
Identifying Products Cont’d
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Some of the characteristics of digital products
include:
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Indestructibility
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Transmutability
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A digital product maintains its form and quality forever
The content of a digital product can be changed instantly
Reproducibility
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Digital products can be reproduced, stored and transferred
Revenue Models2
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What are revenue
models?
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http://www.bay13.net/pics/desktop/morepictures/money.jpg
This are models
used by B2C and
B2B e-commerce
initiatives to
generate revenue
Revenue Models Cont’d
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In this session you will learn about the:
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Web catalog revenue model
Digital content revenue model
Advertising-supported revenue model
Advertising-subscription mixed revenue
model
Fee-based revenue models
Web Catalog Revenue Model
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History
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In 1872 Aaron Montgomery-Ward started
selling dry goods to farmers using a one-page
list
Richard Sears and Alvah Roebuck in 1895
began mailing catalogs to farmers and small
residents
Web Catalog Revenue Model Cont’d
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The prospective buyer selects items for purchase
from an on-line catalog and makes the payment
on-line, by telephone or by mail
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alternative payment options are required since some
people are cautious about disclosing credit card
information on-line
The type of items sold by this method include:
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Computers and consumer electronics (e.g. dell.com)
Books, music and videos (e.g. amazon.com)
Clothing (e.g. myvirtualmodel.com)
Digital Content Revenue Model
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Digital products received through
purchasing or subscriptions are received
instantly
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Legal research (e.g. lexis.com)
Digital copies of published documents (e.g.
ProQuest acquired reproduction rights to
digital versions of journals and books)
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Also ACM (Associated for Computer Machinery)
Advertising Supported Revenue
Model
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This model is used by network television in the
U.S. where the audience is provided with free
viewing with advertising messages
The money made from advertising supports the
operation of the business
Before the year 2000 this was an extremely
popular model (between 1994 and 1998 it grew
from US $0 - $2 billion
Advertising Supported Revenue
Model Cont’d
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During 2000-2002 there was no growth in Web
advertising
Since 2002, however Web advertising has started
to grow again but at a slower rate
Only a few high-traffic sites (e.g. Yahoo.com) can
generate significant revenue this way – because
of the large number of visitors
Some information only sites are still successfully
using this model, e.g. www.about.com and
www.howstuffworks.com
Web Advertising Problems
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Web advertising has been hampered by:
1. Identifying ways to measure and charge for
site visitors
Some measurements do exist, e.g. number of
visitors, number of unique visitors, and the
number of click throughs, however it is difficult to
develop a standard
 The key is to make a sticky Web site (the ability to
attract new and repeat visitors to a Web site)
because visitors will be exposed to more ads
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Web Advertising Problems Cont’d
2. Few Web sites have sufficient visitors to
attract large advertisers
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Most successful advertising is targeted at
specific groups based on demographics, e.g.
address, age, gender, income level, type of job,
hobbies and religion (due to privacy issues more
and more people are unwilling to give this
information)
Advertising-subscription Mixed
Model
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Used for many years by newspapers and
magazines (subscribers pay a fee and accept some
level of advertising)
Subscribers are subjected to less advertising than
an Advertising supported Web site
The New York Times and The Wall Street Journal
use this model
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Both of these newspapers use a separate revenue
model for the print and on-line editions
Advertising-subscription Mixed
Model Cont’d
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The New York Times is supported mainly
by advertising, but charges a small
subscription fee for visitors who want to
access crossword puzzles
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A searchable archive (dated back to 1996) is
also provided
A small fee is charged for articles dated back
more than one week
Fee-for-Transaction Revenue
Model
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In this model businesses offer services for which
a fee is charged. The fee is based on the number
or size of transactions they process.
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Transactions can be personalised and executed much
cheaper than traditional transaction service providers
An examples is a travel agent:
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Before, a commission was paid for every ticket sold.
However, with more low cost flights being offered
commissions in many cases have disappeared.
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Many travel agents now charge a flat fee for processing a
ticket on an airline that has reduced or eliminated the fees it
pays to travel agents
Fee-for-Service Revenue Model
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An increasing number of organisations are
charging fees for services provided
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These fees are not based on the size or
number of transactions processed, but rather
on the value of the service provided
e.g. on-line games and entertainment
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Sony’s EverQuest adventure game has greater than
400,000 players. Each player purchased a US$40
software pack and pays US$10 monthly
Revenue Models In Transition
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Many companies have changed their revenue
models in order to remain competitive; some
examples of changes in revenue models are:
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Subscription to Advertising-Supported Model
Advertising-Supported to Advertising-Subscription
Mixed Model
Advertising-Supported to Fee-for-Services Model
Advertising-Supported to Subscription Model
Subscription to AdvertisingSupported Model
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Microsoft State magazine started as an upscale
news and current events publication
First charged an annual subscription fee (only
27,000 subscribers with $500,000 revenue) which
did not cover operational cost
They changed to an advertising-supported site,
although it is uncertain whether this new model is
profitable.
This Web site however is part of the MSN portal
so it probably improves its stickiness
Advertising-Supported to
Advertising-Subscription Mixed
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Salon.com is an upscale online magazine
It started out operating as an advertisingsupported site, but now offers an optional
subscription version of the site
Subscribers pay US$30 a year to view the
Premium version, which is free of advertising and
can be downloaded for later reading
Premium subscribers also gain access to
additional content (music, e-books and audio
books)
Advertising-Supported to Feefor-Services Model
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Xdrive Technologies offered in 1999 free disk
storage space to on-line to users
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Users would see advertising as well as receive
targeted e-mails based on personal information
After two years of operation Xdrive realised that
it could not meet the cost of the service offered
Xdrive subsequently switched to a subscriptionsupported model and began selling the service to
businesses and individuals (US$10 per month for
500MB, US$1300 for 25GB and up to 100 users)
Advertising-Supported to
Subscription Model
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Northern Light started in 1997 as a search engine
which searched the Web as well as its own
database
The user was charged for items in their database,
but Web items were free
The site was therefore a mix between advertisingsupported and a limited fee-based service
In 2002 Northern Light decided to change its
revenue model to subscription supported since the
revenue it was getting was insufficient
References
[1] Malta, Chris, “What Should I sell on my Site?”, 2004. Available online at
http://www.sensiblesoftware.com/articles/a/What-Should-I-Sell-on-my-Site.html
[2] Schneider, Gary, P., “Electronic Commerce: The second wave”, Thomson Course
Technology, Fifth Annual Edition, 2004