Business Models on the web

E-Business Models: Understanding Transaction Models

Overview of Previous Discussion

• The previous session focused on transaction models, exploring how various entities in business interact.

• Discussed the distinction between brick-and-mortar businesses and internet-based businesses, emphasizing that brick-and-mortar companies use the internet as a tool rather than being dependent on it.

Introduction to New Business Models

• Today's discussion will delve into business models developed specifically due to the web.

• Brick-and-mortar organizations exist physically and utilize the internet to enhance their processes, while new models emerged directly from online environments.

The Gartner Hype Cycle and Its Implications

Understanding Technology Progression

• Introduced the Gartner hype cycle as a framework for understanding technology progression over time.

• The cycle includes phases of initial hype followed by disillusionment when expectations are not met, leading to a trough of disillusionment.

Market Dynamics and Dotcom Bubble

• The dot-com boom saw inflated market values driven by high expectations; however, this led to a market bubble that eventually burst.

• Many dot-com companies faced significant losses or went out of business during 2001–2003, despite some surviving like Amazon and eBay.

The Role of Business Models in Survival

Importance of Value Delivery

• Businesses exist primarily to deliver value to customers while generating profits; failure in any component can lead to business closure.

Defining Business Models

• A business model articulates how a company creates and delivers value, outlining revenue structures and cost management essential for sustainability.

Characteristics of Successful Companies

• Companies with effective business models can generate revenue while satisfying customer needs. This is crucial for long-term survival in competitive markets.

Key Components for E-Business Success

Strategic Considerations for Businesses

• Businesses must select appropriate technologies and features for their products/services based on customer benefits.

Business Models on the Web

Overview of Business Models

• Companies design mechanisms to capture and deliver value, creating a cycle that entices payments and converts them into profits.

• Successful web business models include: brokerage model, advertising model, infomediary model, merchant model, manufacturers/direct model, affiliate model, community model, subscription model, and utility model.

• Companies can adopt multiple models; these are not exhaustive as other models may exist.

Brokerage Model

• The brokerage model involves market-makers who connect buyers and sellers without owning products or services. Examples include eBay.

• This model can operate in B2B, B2C, or C2C contexts. Brokers typically charge fees or commissions for transactions.

Types of Brokerage Models

• Marketplace exchanges like Metaljunction facilitate transactions without buying/selling products themselves.

• Priceline.com exemplifies demand collection systems by aggregating airline ticket prices to offer the best deals to customers.

Auction Brokers

• Auction brokers such as eBay and Amazon allow users to bid on items. Transaction brokers like PayPal provide payment services within this framework.

eBay's Revenue Generation

• eBay generates revenue through seller registration fees and variable transaction fees based on sale values.

• Buyers do not pay upfront fees but must complete payments when purchasing items through either "Buy It Now" or auction options.

Buyer Sensitivity

• Buyers are sensitive to additional costs; charging them upfront could deter participation in auctions.

Fraud Risks in Online Auctions

Understanding Online Auction Fraud and Payment Models

The Prevalence of Fraud in Online Auctions

• The auction market is highlighted as a significant contributor to online fraud, indicating the need for awareness and preventive measures.

• eBay's response to fraudulent transactions led to the development of PayPal, which has evolved into a generic payment service beyond just eBay.

How PayPal Works as an Escrow Service

• In transactions, PayPal acts as a third-party escrow service that holds payments until the buyer confirms receipt of the product.

• This model creates a win-win situation: buyers are assured they receive their products before payment is released, while sellers gain trust from potential customers.

• PayPal charges transaction fees for its services, generating revenue while ensuring secure transactions between buyers and sellers.

Transitioning to Advertising Models

• Following the discussion on payment models, attention shifts to advertising models as another successful revenue generation strategy for websites.

• Websites often mix content with advertisements (e.g., banner ads), which serve as primary or sole revenue sources; free services typically have underlying revenue models.

Variations in Advertising Strategies

• Different platforms utilize various advertising strategies based on viewer traffic volume and specialization; examples include Yahoo and Craigslist.

• Google employs sponsored links within news articles, charging companies for ad placements based on clicks or impressions.

Google's Unique Advertising Model

• Google’s model includes auctioning ad space through AdWords; advertisers bid for placement based on keywords relevant to user searches.

• Other platforms like Monster act as brokers by hosting job advertisements from multiple companies while charging fees for both ad placements and candidate connections.

Google's Advertisement Model and Infomediary Insights

Overview of Google's Advertisement Model

• Google operates on an advertisement model that emphasizes targeted advertising through intermediaries known as infomediaries.

• Infomediaries provide specific information to third parties, with DoubleClick being a notable example. This company was acquired by Google and has evolved its business model significantly.

The Role of DoubleClick

• DoubleClick customizes advertisements based on user characteristics captured by platforms like Yahoo, tailoring ads to individual browsing patterns.

• A case study from DoubleClick highlights its success in promoting Universal Pictures' films by raising brand awareness and stimulating pre-booking sales through targeted advertising strategies.

Data Collection and Analytics

• Google Analytics is widely used by companies to gather detailed statistics about customer visits, including behavior patterns and geographic data.

• Companies insert a code into their webpages that allows them to track user interactions, which are then sent to Google for analysis.

User Behavior Insights

• Google's extensive presence across devices enables it to collect vast amounts of data on users, enhancing its ability to recognize and analyze customer behavior effectively.

• Users leveraging tools like DoubleClick can gain insights into what their audience is looking at, ultimately aiding in revenue generation through informed marketing strategies.

Nielsen Ratings Model Comparison