Transcript Session 2 - Revenue models

Bachelor of Business
Administration Program
©Mathieu CHAUVET – 2014/2015
1
Learning objectives
In this chapter, we will address elements related to :
 Revenue models
 How some companies move from one revenue model to
another to achieve success
 Revenue strategy issues that companies could face when
selling on the Web
 Creating an effective business presence on the Web
 Web site usability
2
I) Revenue Models
3
Revenue models
 Possible web business revenue-generating models:
 Web catalog
 Digital content
 Advertising-supported
 Advertising-subscription mixed
 Fee-based
 These models can work for various sale types
 Business-to-consumer (B2C)
 Business-to-business (B2B)
4
1) Web-catalogue 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
5
 Development of an additional Marketing channel
 Pathway to customers
 Advantages of having several marketing channels?
 Reaching more customers at less cost
 Possibility of combining various marketing channels

Example: ordering through the website and having the opportunity
to collect the product on stores
 Examples:
 Wallmart
 Dell
 Best Buy: web site basically selling same products as in
stores
6
Combining marketing channels thanks to e-commerce
7
Web catalogue revenue models: for any
type of products?
 Computers and consumer electronics
 Clothing retailers
 Flowers and gifts
 Books, music, and videos
 Most visible electronic commerce examples
 Radioshack, H&M, Fleurop-Interflora, Amazon.com, etc.
 …What about luxury goods and general discounters?
8
 Luxury goods and web-catalogue revenue models?
 Difficult to sell online
Customers want to see product in person or touch
 What you actually buy is also the experience!
 LVMH (Louis Vuitton) or Rolex



Web sites provide information
Shopper purchases at physical store
Heavy use of graphics and animation
 Evian Web site

Presents information in a visually stunning way
9
 General discounters and web-catalogue revenue models?
 Traditional discount retailers (Costco, Kmart, Target, WalMart)



Slow to implement online sales on their Web sites
Had huge investments in physical stores
Now use the Web catalog revenue model as a complement of their
traditional activities or for successful online sales operations
10
2) Digital Content Subscription Revenue
Models
 Firms owning written information or information rights
 Embrace the Web as a highly efficient distribution
mechanism
 Use the digital content revenue model

Sell subscriptions for access to information they own
 Examples:
 Entertainment: Netflix
 Academic research content: ProQuests
 Business content: Dow Jones newspaper publisher
subscriptions
11
3) Advertising-support revenue models
 The real disruption from Internet!
 Providing free programming and advertising messages

Supports network operations sufficiently
 Implies a measurement of site visitor views
 Requires demographic information collection

Characteristics set used to group visitors
 Aim: Keeping visitors at site and attracting repeat
visitors in order to obtain large advertiser
 Examples:
 Web portals (Google, Yahoo, etc.), Travers sites, Webemployment sites, Youtube, etc.
12
Strategies for an advertising-supported revenue model
13
4) Advertising-Subscription Mixed
Revenue Models
 The idea?
Free information attracts subscribers and fulfills mission.
Often assimilated to freemium model
 Typically less or no 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
 ESPN
14
15
Freemium/premium model
 Free for Many, Fee for a Few!
 Leads to a different revenue model
 Offer basic product to many for free
 Charge a fee to some for differentiated products
16
5) Fee-for-Transaction Revenue Models
 Service fee charged
 Based on transaction number or size
 Web site offers visitor transaction information or
protection
 Personal service formerly provided by a human agent
known as an intermediary
 Examples:
 AirBnB
 Ebay
 Ticketmaster
17
Revenue Models in Transition
 Some companies had to change their revenue model
 To meet needs of new and changing Web users
 To compensate lengthy unprofitable growth phases
 Examples:
 Dell
18
Subscription to Advertising-Supported
Model
 Slate magazine
 Upscale news and current events
 Success expectations were high
 Experienced writers and editors
 Acclaim for incisive reporting and excellent writing
 Initial revenue source
 Annual subscription did not cover operating costs
 Now an advertising-supported site
 Part of the Bing portal

Value to Microsoft: increase the portal’s stickiness
19
Advertising-Supported to AdvertisingSubscription Mixed Model
 Salon.com
 Acclaimed for innovative content
 Initial revenue source
 Advertising-supported site
 Needed additional money to continue operations
 Now offers optional subscription version
 Annual fee for Salon premium



Free of advertising
Additional content
Downloadable content
20
Advertising-Supported to Fee-forServices Model
 Xdrive Technologies: offered free disk storage
 Initial revenue source (1999): advertising-supported
 Targeted e-mail advertising
 Did not cover operating costs
 2005: bought by AOL
 Switched to a subscription-supported model
 Xdrive frequently adjusted its monthly fee downward
 AOL closed the service in 2009
 Successful companies: fee based on storage amount used
21
Advertising-Supported to Subscription
Model
 Northern Light search engine includes own database
 Results include Web site links and abstracts of its owned
content
 Initial revenue source


Combination of the advertising-supported model plus a fee-based
information access service
Advertising revenue: insufficient to cover service
 Converted to a new subscription-supported revenue model


Mainly large corporate clients
Individual monthly billing option for articles accessed
22
Multiple transitions
 Encyclopedia Britannica
 Initial Web offerings (1994)


Britannica Internet Guide
Encyclopedia Britannica Online
 Initial revenue source

Paid subscription site had low subscription sales
 Converted to free advertiser-supported site (1999)

Advertising revenues declined
 2001: returned to mixed model with subscription plan and
free content
 Value added: sells reputation and the expertise
23
Revenue strategies issues
 Channel conflict (cannibalization)
 Company Web site sales activities interfere with existing
sales outlets
 Strategic alliance: Two or more companies join forces
 Amazon.com joined with Target, CDnow, ToysRUs…until
ToysRUs and Amazon suing each other
24
II) Analyzing Web Presence
25
Creating an Effective Web Presence
 Organization’s presence
 Public image conveyed to stakeholders (customers,
suppliers, employees, stockholders, neighbors, general
public)
 Effective Web presence
 Critical even for smallest and newest Web operating firms
 Web business site
 Intentionally creates distinctive presences
 Good Web site design provides:


Effective image-creation features
Effective image-enhancing features
26
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
27
 Making Web presence consistent with brand image:
 Different firms establish different Web presence goals
 Coca Cola Web site pages


Usually include trusted corporate image (Coke bottle)
Image: traditional position as a trusted classic
 Pepsi Web site pages


Usually filled with hyperlinks to activities and product-related
promotions
Image: upstart product favored by younger generation
28
 Not-for-profit organizations
 Web presence effort key goals:

Image enhancement and information dissemination
 Successful site key elements


Integrate information dissemination with fund-raising
Provide two-way contact channel
 Web sites used to stay in touch with existing stakeholders,
identify new opportunities for serving them
29
Improving web presence: the web
usability
 Current Web presences
 Few businesses accomplish all goals…
 …But most of them fail to provide visitors sufficient
interactive contact opportunities
Improving Web presence:
 Make site accessible to more people
 Make site easier to use
 Make site encourage visitors’ trust
 Make site develop feelings of loyalty toward the
organization
30
31
Changes of the web regarding usability
 Simple mid-1990s Web sites
 Conveyed basic business information
 No market research conducted
 Web objectives achievement
 Failed due to no understanding for Web presence-building
media
 Web sites designed to create an organization’s presence:
 Contain links to standard information set
 Success dependent on how this information was offered
32
33
A concern for visitors’ needs
 Successful Web businesses:
 Realize every visitor is a potential customer (partner)
 Web presence is an important concern
 Know visitor characteristic variations and reason for visit:





Learning about company products or services
Buying products or services
Obtaining general company information
Following a link into the site while searching for information
about a related product, service, or topic
…
 Visitors
arrive with different needs, experience, and
expectation levels
34
Making Web sites accessible
 Build interface flexibility options:
 Frame use
 Text-only version
 Selection of smaller graphic images
 Specification of streaming media connection type
 Choice among information attributes
 Offer multiple information formats
 Consider goals in Web site construction
35
36
Web presence through trust and loyalty
 Creates relationship value
 Good service leads to seller trust
 Delivery, order handling, help selecting product, after-sale
support
 Satisfactory service builds customer loyalty
 Customer service in electronic commerce sites
 Recurrent problems:


Lack of integration between call centers and Web sites
Poor e-mail responsiveness
37
Assessment of e-commerce websites
 Companies routinely review electronic commerce Web
sites for:
 Usability, customer service, other factors
 Sell the gathered information directly to the companies
operating the Web sites

Include suggestions for improvements
 BizRate.com posts ratings:
 Provides comparison shopping service
 Compiles ratings by conducting surveys of sites’ customers
38
Usability testing and improvement
 A key issue!
 Avoids Web site frustration

Customers leave site without buying anything
 Possibility to develop usability testing
 Simple site usability changes


Include telephone contact information
Staff a call center
 Learn about visitor needs by conducting focus groups
 Usability testing cost

Low compared to Web site design costs
39
Towards a Customer-Centric Web Site
Design…
 Important part of successful electronic business operation
 Focus on meeting all site visitors’ needs
 Customer-centric approach
 Putting customer at center of all site designs


Follow guidelines and recommendations
Make visitors’ Web experiences more efficient, effective,
memorable
 The development of Webby Awards sites
 Examples of good Web site design
40
41
Summary
42
 Various possibilities for Web revenue models
 Models work differently
 Different business types use different models
 Companies change models as they learn more about:

Customers, business environment
 Channel conflict and cannibalization challenges
 One approach: channel cooperation
 Effective Web presence delivers customer value
 Web site visitors arrive with a variety of expectations, prior
knowledge, skill levels, technology
43