A useful way to think about electronic commerce implementations is to consider how they can generate revenue. However, it is important to remember that not all electronic commerce initiatives have the goal of providing revenue; some are undertaken to reduce costs or improve customer service.
There are following revenue models for electronic commerce websites:
Web catalogue revenue models:
In this revenue model, the seller establishes a brand image, and then uses the strength of that image to sell through printed catalogues mailed to prospective buyers. Buyers place orders by mail or by calling a telephone number provided. This revenue model, which is often called the mail order or catalogue model, has proven to be successful for a wide variety of consumer items, including clothing, computers, electronics, household goods, and gifts.
When a company of this type wishes to enter the e-commerce market, they transfer or supplement their catalogue with an online version. When the catalogue model is expanded in this way, it is often called the web catalogue revenue model.
Digital content revenue models:
The web is a new and highly efficient distribution mechanism for firms that own written information (words or numbers) or rights to that information. For example, LexisNexis began as a legal research tool, and it has been available as an online product for years. Today, LexisNexis offers a variety of information services, including legal information, corporate information, government information, news, and resources for academic libraries.
One of the first academic organizations to make the transition to electronic distribution on the web was (not surprisingly) the Association for Computer Machinery (ACM). The ACM Digital Library offers subscriptions to electronic versions of its journals to its members and to library and institutional subscribers. Academic publishing has always been a difficult business in which to make a profit because the base of potential subscribers is so small. Even the most highly regarded academic journals often have fewer than 2000 subscribers. To break even, academic journals must often charge each subscriber hundreds or even thousands of dollars per year. Electronic publishing eliminates the high costs of paper, printing, and delivery, and makes dissemination of research results more efficient and less expensive.
Advertising-supported revenue models:
Most television channel output is enabled by an advertising-supported revenue model. Broadcasters provide free programming to an audience along with advertising messages. The advertising revenue is sufficient to support the operations of the network and the creation or purchase of the programs. Many observers of the web in its early growth period believed that the potential for internet advertising was tremendous. Web advertising grew from essentially zero in 1994 to $2 billion in 1998. However, web advertising was flat or declining in the years 2000 through 2002. Since then, web advertising has once again started to grow, but at much slower rates than in the early years of the web.
The overall success of online advertising has been hampered by two major problems. First, no consensus has emerged on how to measure and charge for site visitor views. It has been difficult for web advertisers to develop a standard for advertising charges because interaction with the web can be measured in a multiple of complex ways. Interaction with a website may be measured in terms of number of visitors, number of unique visitors, number of click-throughs, and other attributes of visitor behaviour.
In addition to the number of visitors or page views, stickiness is a critical element in creating a presence that attracts advertisers. If a website is sticky, people will spend more time on it, visit it often and bookmark it (add it to their list of favorite websites).
As most successful advertising on the web is targeted at very specific groups, the second problem is that very few websites have a sufficient number of visitors to interest large advertisers. The set of characteristics that marketers use to group visitors is called demographic information. This includes personal information such as address, age, gender, income level, type of job held, hobbies and religion.
Advertising-subscription mixed revenue models:
In an advertising-subscription mixed revenue model, which has been used for many years by traditional print newspapers and magazines, subscribers pay a fee and accept some level of advertising. On websites that use the advertising-subscription revenue model, subscribers are typically subjected to much less advertising than they are on advertising-supported sites. Firms have had varying levels of success in applying this model and a number of companies have moved to or from this model over their lifetimes.
Two of the world’s most distinguished newspapers, The New York Times and The Wall Street Journal, use a mixed advertising-subscription model. The New York Times version is mostly advertising supported, but the newspaper has experimented in recent years with charging fees for access to various parts of its site. In 2005, The New York Times began charging a fee for access to its Op Ed and news columns. The newspaper also charges for access to its premium crossword puzzle pages. The New York Times also provides a searchable archive of articles dating back to 1996 and charges a small fee for viewing any article older than one week. The Wall Street Journal’s mixed model is weighted more heavily to subscription revenue. The site allows non-subscriber visitors to view the classified ads and certain stories from the newspaper, but most of the content is reserved for subscribers who pay an annual fee for access to the site. Visitors who already subscribe to the print edition are offered a reduced rate on subscriptions to the online edition.
Fee-for-transaction revenue models:
In the fee-for-transaction revenue model, businesses offer services and charge a fee based on the number or size of transactions they process. Some of these services lend themselves well to operating on the web – companies can offer much of the personal service formerly provided by human agents, as the website can offer visitors similar information they would have previously heard from one of the company’s phone operatives. If consumers are willing to enter transaction information into website forms, these sites can provide options and execute transactions much less expensively than traditional transaction service providers. The removal of an intermediary, such as a human agent, from a value chain is called disintermediation. The introduction of a new intermediary, such as a fee-for-transaction website, into a value chain is called reinter-mediation.
Fee-for-service revenue models:
Companies are offering an increasing variety of services on the web for which they charge a fee. These are neither broker services nor services for which the charge is based on the number or size of transactions processed. The fee is based on the value of the service provided. These fee-for-service revenue models range from games and entertainment to financial advice and the professional services of accountants, lawyers, and physicians.
Creating an effective web presence
In the physical world, businesses have always created a presence by building stores, factories, warehouses, and office buildings. An organization’s presence is the public image it conveys to its stakeholders. The stakeholders of a firm include its consumers, suppliers, employees, stockholders, neighbors, and the general public. Many companies tend not to worry much about the image they project until they grow to a significant size – until then, they are too focused on just surviving to spare the effort. On the web, presence can be much more important. Many consumers and other stakeholders of a web business know the company only through its web presence. Creating an effective web presence can be critical even for the smallest and newest firms operating on the web.
Identifying web presence goals
On the web, businesses and other organizations have the luxury of building their websites intentionally to create distinctive presences. Often, a firm’s physical location needs to satisfy so many other business priorities before it can concentrate on conveying a good presence. However, online, a potential customer needs to interact with a firm’s website to access their goods or services, so the website helps instantly create a first impression of the business. A good website design can provide many image-creation and image enhancing features very effectively – it can serve as a sales brochure, a product showroom, a financial report, an employment ad, and a consumer contact point. Each entity that establishes a web presence should decide: which task they wish their website to accomplish; which features the website can provide; and which of those features are the most important to include.
Goals associated with the establishment of an effective WWW presence include:
- Creating a website that is attractive to many visitors.
- Creating a website with a positive image that is consistent with a company’s established brand.
- Creating a website to reinforce already held positive images regarding a company.
However, businesses must not forget what online users want in return. In the early days of the internet many companies failed to recognize that consumers wanted the same level of reassurance when conducting electronic commerce that they got from dealing with real companies in the real world.
Often details were not placed on websites regarding contacting the companies and prospective consumers often found that emailed queries did not receive a reply. This situation led to a loss of trust between online shoppers and companies. For such trust to be re-established companies wishing to create a WWW presence should include:
- A detailed history of the company including its aims, objectives and personnel.
- A mission statement outlining the strategic objectives of the company and how these objectives will be met.
- A brief statement of the financial position of the company and also its product portfolio.
- Several methods for contacting the organization. These methods should include traditional communication channels such as a telephone number and postal addresses.
What is crucial for companies to remember is that consumers require an unrestricted online dialogue with a firm and its other stakeholders. It is imperative that companies provide meaningful ways for two-way communication to take place between themselves and their consumers.
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