Bowie State University Website Development Discussion Questions
Not all electronic commerce initiatives have the goal of providing revenue; indeed, some are undertaken to reduce costs or improve customer service. Various models that online businesses currently use to generate revenue are considered here. These approaches can work for both business-to-consumer (B2C) and business-to-business (B2B) electronic commerce.
Many companies sell goods and services on the Web using an adaptation of the catalog-based revenue model that is more than 100 years old. The mail order or catalog model is a traditional catalog-based retail revenue model where the seller establishes a brand image, and then uses the strength of that image to sell through printed information mailed to prospective buyers, who place orders by mail or telephone. Many companies have adapted this revenue model to the online world by replacing or supplementing their print catalogs with information on their Web sites. This revenue model is referred to as the Web catalog revenue model. Many of the most successful online businesses using the Web catalog revenue model are firms that were already operating in the mail-order business and simply extended their operations to the Web. Other companies that use the Web catalog revenue model adopted it after realizing that the products they sold in their physical stores could also be sold on the Web.
Digital content revenue model is a model where companies sell rights to access the information they own. This model is used by firms that own written information (words or numbers) or rights to that information. Online video sales have been hampered by three main issues that are now being solved: the large size of video files (which can make download times long and streaming feeds uneven), concerns that such sales might impair other sales of the video and technological barriers that prevent downloaded videos from being played on a variety of devices.
Advertising-supported revenue model is used by US television broadcasters, who provide free programming to an audience along with advertising messages. There are several challenges of using online advertising as the sole revenue source for a Web site. Specifically, there has been little consensus on how to measure and charge for site visitor views, even after almost 20 years of experience with the medium. Another challenge of using online advertising as the sole revenue source for a Web site is that very few Web sites have sufficiently large numbers of visitors to compete with mass media outlets such as radio or television. Two examples of successful advertising-supported sites that appeal to audiences with specific interests are The Huffington Post and the Drudge Report. Similarly, HowStuffWorks has a collection of pages that appeal to an array of visitors with highly focused interests. Figure 3-2 illustrates three strategies – general interest, specific interest, and collection of specific interests – for implementing an advertising-supported revenue model.
Businesses have had varying levels of success in applying the advertising-subscription mixed revenue model and a number of companies, including The New York Times and The Wall Street Journal, have moved to or from this model as they try to find the best way to generate revenue online. Figure 3-3 shows the revenue models used by a number of newspapers and magazines, including those that use the advertising-supported model, the advertising subscription mixed model with substantial content freely available, and the advertising-subscription mixed model with most content available only to subscribers.
Other revenue models include the fee-for-transaction revenue model, used by businesses that offer services for which they charge a fee that is based on the number or size of transactions they process; the fee-for-service revenue models, where the fee is based on the value of the service provided; and the free for many, fee for a few – the revenue model in which a business can find it profitable to offer a digital product to a large number of customers for free, and then charge a small number of customers for an enhanced, specialized, or otherwise differentiated version of the product.
1. Discuss how discount retailers such as overstock.com make use of the Web catalog revenue model. Explain why traditional discount retailers, such as Costco, Kmart, Target, and Wal-Mart were reluctant to implement online sales on their Web sites, which they used originally for general information distribution.
2. Discuss how apparel sellers have adapted their catalog sales model to the Web.
3. Discuss how the legal (LexisNexis), academic and professional content (American Psychological Association and Association for Computing Machinery), and business content (Dow Jones Factiva) fields have been reshaped by the fee-for content revenue models.
4. Discuss how the concept of electronic books has been affected by the fee-for content revenue models. Describe the subscription-based model and the use of portable electronic book readers.
5. Discuss how the online music industry and the online video industry have been affected by the fee-for content revenue models.
6. Explain how many newspapers and magazines sell advertising to cover the costs of converting their print content to an online format and operating the Web site.
7. Discuss businesses that have been reshaped by the fee-for-transaction revenue model.
8. Describe an example of a business that applies the free for many, fee for a few revenue models