Web Business
Models
Contents
• Introduction to Web Business Models,
• Web Chain of Events and Analysis,
• Customer Life Time Value, Pricing in Virtual World,
• Introduction to E-commerce, Online Distribution and Procurement,
New Intermediaries, Payment Service Providers.
Meaning & Definition
• Business Model - A plan for the successful operation of a business,
identifying sources of revenue, intended customer base, products and
details of financing
• Web Business Model – A web business based on product sales which
involves selling a physical, shippable product online
• It can be B2B, B2C, C2C (B2B and B2C sells and share information whereas
C2C is information or product exchange)
• It can be –
• Selling products from a web site storefront
• Selling products on auction web sites
• Gathering products into an online mall
Online Business Model
2. 3. Info- 4.
1. Brokerage
Advertising mediary Merchant
5. 6. 7. 8.
Manufacture Affiliate Community Subscription
9.
Utility
1. Brokerage Model
Brokers are the market makers:
• They bring buyers and sellers together and facilitate transactions
• Brokers play a frequent role in B2B, B2C and C2C markets
• Usually broker charges a fee or commission for each transactions it enables
Market Place Exchange – offers a full range of services covering the transaction
process, from market assessment to negotiate and fulfillment. Exchanges
operate independently or are backed by an industry consortium (Ex – Orbit,
ChemConnect)
• Buy/Sell Fulfillment – takes customer orders to buy and sell a product or
service, including terms like price and delivery (Ex – CarsDirect, Respond.com)
• Demand Collection system – the patented “name your price” model
pioneered by Pricline.com. Prospective buyers make a final (biding) bid for
a specified good or service, and the broker arranges fulfillment (Ex-
Priceline.com)
• Auction Broker – conducts auctions for sellers (individuals or merchants).
Broker charges the seller a listing fee and a commission scaled with the
value of the transaction. Auction vary widely in terms of the offering and
bidding rules (Ex- eBay)
• Transaction Broker – provides a third party payment mechanism for buyers
and sellers to settle a transaction (Ex – Paypal, Escrow.com)
• Distributor – a catalog operation that connects a large number of product
manufactures with volume and retail buyers. Broker facilitates business
transactions between franchised distributor and their trading partners.
• Search agent – a software agent or robot used to search out the price
and availability for a good or service specified by the buyer or to
locate hard to find information
• Virtual Marketplace – or virtual mall, a hosting service for online
merchants that charges setup, monthly listing and/or transaction fees.
May also provide automated transaction and relationship marketing
services (Ex – zShops and Merchant services at Amazon.com)
2. Advertising Model
• The web advertising model is an extension of the traditional media
broadcast model
• The broadcaster, in this case, a web site, provides content (usually, but not
necessarily, for free) and services (like email, Blogs) mixed with advertising
messages in the form of banner ads.
• The banner ads may be the major or sole source of revenue for the
broadcaster
• The broadcaster may be a content creator or a distributor of content
created elsewhere
• The advertising model works best when the volume of viewer traffic is large
or highly specialized
• Portal – usually a search engine that may include varied content or
services. A high volume of user traffic makes advertising profitable and
permits further diversification of site services. A personalized portal allows
customization of the interface and content to the user. A niche portal
cultivates a well defined user demographic (Ex- Yahoo)
• Classified – list items for sale or wanted for purchase. Listing fee are
common, but there also may be membership fee (Ex – Monster.com,
Craigslist)
• User Registration – content based sites that are free to access but require
users to register and provide demographic data. Registration allows inter-
session tracking of use surfing habits and thereby generates data of
potential value in targeted advertising campaigns (Ex – NYTimes)
• Query based Paid Placement - sells favorable link positioning (i.e.,
sponsored links) or advertising keyed to particular search terms in a user
query such as Overture’s trademark “pay-for-performance” model (Ex –
Google, Overture)
• Contextual advertising / Behavioral Marketing – freeware developers who
bundle adware with their product. For example – a browser extension
that automates authentication and form fill-ins, also delivers advertising
links or pop-ups as the user surfs the web. Contextual advertisers can sell
targeted advertising based on an individual user’s surfing activity
• Content-Targeted Advertising – pioneered by Google, it extends the
precision of search advertising to the rest of the web. Google identifies
the meaning of a web page and then automatically delivers relevant ads
when a user visits that page (Ex- Google)
• Intromercials – animated full screen ads placed at the entry of a site
before a user reaches the intended content (Ex – CBS MarketWatch)
• Ultramercials – interactive online ads that require the user to respond
intermittently in order to wade through the message before reaching
the intended content
3.Infomediary Model
• Data about consumers and their consumption habits are valuable, especially
when that information is carefully analyzed and used to target marketing
campaigns
• Independently collected data about producers and their product are useful
to consumers when considering a purchase
• Some firms function as infomediaries (information intermediaries) assisting
buyers and/or sellers understand a given market
• Advertising Networks – feed banner ads to a network of member sites, there
by enabling advertisers to deploy large marketing campaigns. Ad network
collect data about web users that can be used to analyze marketing
effectiveness (Ex – DoubleClick)
• Audience Measurement Services- Online audience market research
agencies (Ex – Nielsen/Netratings)
• Incentive Marketing – Customer Loyalty programs that provide incentives
to customers such as redeemable points or coupons for making purchases
from associated retailers. Data collected about users is sold for targeted
advertising (Ex – Coolsavings)
• Metamediary – facilitates transactions between buyer and sellers by
providing comprehensive information and ancillary services, without
being involved in the actual exchange of goods or services between the
parties (Ex – Edumunds)
4.Merchant Model
Wholesalers and retailers of goods and services. Sales may be made based on
list price or through auction
Virtual Merchant or e-retailer – is a retail merchant that operates solely over web (Amazon.com)
Catalog Merchant – mail-order business with a web-based catalog. Combines mail, telephone and
online ordering (Lands’End)
Click and Mortar – traditional brick and mortar retail establishment with web storefront (Barnes &
Noble)
Bit Vendor – a merchant that deals strictly in digital products and services and, its purest form,
conducts both sales and distribution over the web (Ex – Apple iTunes Music Store)
5. Manufacture (Direct) Model
• The manufacture or direct model, it is predicated on the power of the web to
allow a manufacturer (i.e., a company that creates a product or services) to
reach buyers directly and there by compress the distribution channel. The
manufacturer model can be based on efficiency, improved customer service,
and a better understanding of customer preferences (Ex –Dell Computer)
• Purchase – the sale of a product in which the right of ownership is transferred to the
buyer
• Lease – in exchange for a rental fee, the buyer receives the right to use the product
under a “terms of usage” agreement. The product is returned to the seller upon
expiration or default of the lease agreement. One type of agreement may include a
right of purchase upon expiration of the lease
• License – the sale of a product that involves only the transfer of usage rights to the
buyer, in accordance with a “terms of usage” agreement. Ownership rights remain
with the manufacturer (Ex – Software licensing)
6. Affiliate Model
• The affiliate model provides purchase opportunities wherever people may
be surfing. It does this by offering financial incentives (in the form of
Percentage of Revenue) to the affiliated partner sites. The affiliates provide
purchase point click-through to the merchant. It is a pay-for-performance
model – if an affiliate does not generate sales, it represents no cost to the
merchant. The affiliate model is inherently well-suited to the web, which
explains its popularity. Variations include banner exchange, pay-per-click,
and revenue sharing programs (Ex – Amazon.com)
• Banner Exchange – trades banner placement among a network of affiliated sites
• Pay-per-click – site that pays affiliates for a user click through
• Revenue Sharing – offers a percent-of-sale commission based on a user click-through in which
the user subsequently purchases a product
7. Community Model
• The viability of community model is based on user loyalty. Users have a high
investment in both time and emotion. Revenue can be based on the sale of
ancillary products and services or voluntary contributions; or revenue may
be tied to contextual advertising and subscription for premium services (as
seen in social networking)
• Open source – software developed collaboratively by a global community of programmers who
share code openly. Instead of licensing code for a fee, open source relies on revenue generated
from related services like system integration, product support, tutorials and user documentation
(Rad Hat)
• Open content – openly accessible content developed collaboratively by a global community of
contributors who work voluntarily (Wikipedia)
• Public Broadcasting – user supported model used by non-profit radio and television broadcasting
extended to the web. A community of users support and site through voluntary donations (Ex –
The classical Station (WCPE.org)
• Social Networking Services – these sites can provide opportunities for contextual ads and
subscription for premium services (Ex – Flickr, Friendster )
8. Subscription Model
• Users are charged for a periodic – daily, monthly or annual fee to subscribe
to a service. It is not uncommon for sites to combine free content with
premium content (member only). Subscription fees are incurred
irrespective of actual usage rates. Subscription and advertising model are
frequently combined
• Content Services – provide text, audio, or video content to users who subscribe for a fee to gain
access to the service (Netflix)
• Person-to-Person Networking Services – are conduits for the distribution of user-submitted
information, such as individuals searching for former schoolmates (Ex- Classmates)
• Trust services – come in the form of membership associations that abide by an explicit code of
conduct, and in which members pay a subscription fee (Ex - Truste)
• Internet Services Providers – offer network connectivity and related services on a monthly
subscription (Ex – America Online)
9. Utility Model
• The utility or on-demand model is based on metering usage, or a “pay
as you go” approach. Unlike subscriber services, metered services are
based on actual usages rates. Traditionally, metering services has
been used for essential services like electricity, water, etc.
• Merged Usage – measure and bills users based on actual usage of a service
• Metered Subscriptions – allow subscribers to purchase access to content in metered
portions (Ex – number of pages viewed)
Basis of Web Business Models
Customer Centric Web Business Models
• The offerings of the Web 2.0 world
• Increased Concentration on current customers
Customer Centric Business Management
• Improving communication flow between organization and consumer
Web Chain of Events
A Web Chain of events is the
sequence of steps taken as the
result of an online contact. It
can be short as a single click or
a hundred page views. At
various steps, different
directions and choices are
possible. The are EVENT
NODES. Eventually web chain
leads to one of the possible end
points, labelled as RESULT
NODES
Web Chain Analysis
Web Chain Analysis
Why Web Chain Analysis?
• Identification of instances when advertisement are noticed/ not
noticed by consumers
• Analysis of impact of an online advertisement in the context of
consumers noticing an advertisement but not clicking it
• Contribution of the online dimension of a brand in influencing a
consumer purchase decision, in addition to already existing
influencers in terms of the generic brand value associated with a
product
• Identification and analysis of new customers who after being affected
by a product brand, venture online and the brand impact is further
strengthened by the online brand presence.
Customer Lifetime Value
Customer Lifetime Value is the present value of future cash flows
attributed to the customer relationship. It depends on:
• the customer’s activity level
• duration
• the firm’s retention spending
• other related costs and benefits attachable to a specific customer or customer
segment.
Customer Value Analysis and the Internet
The Internet can be used as a tool for Customer Value Analysis.
Valuable sources of data are:
• The Consumer Demographic profile
• The Consumer search and browsing history
• The Consumer Click behaviours
• The Consumer Online Transaction
Revenue Benefits
• Advertising Models
• Subscription Models
• Transaction Models
• http://digitalenterprise.org/models/models.html
• https://www.managementstudyguide.com/different-types-of-online
-business-models.htm
