Internet Marketing

Web Business Models

Do You Yahoo?• For 50% of US Web users: YES!!!• A phenomenal Silicon Valley success story• Yahoo! brand extensions provide value add

for users– Yahoo! games– Yahoo! clubs– Yahoo! chat– Yahoo! auctions– Yahoo! Stores

• Yahoo! leverages its brand and ability to draw traffic to generate multiple revenue streams

Most Popular Web SitesYahoo! Leads

Figure 5.1Most Popular Web Sites

51% 50%

35% 34% 33% 32%28% 27% 26% 24%

0%

10%

20%

30%

40%

50%

60%

yahoo.com

aol.com

msn.com

go.com

geocities.com

netscape.com

excite.com

lycos.com

microsoft.com

tripod.com

Yahoo! Brand Extensions

The Success of the Yahoo! BrandFigure 5.2

Topics

• Web benefits to firms• Closed loop marketing

Web Benefits to Firms

• The range of Web benefits– Business models can be based on

improvements in product or service– Business models can be based

directly on generating revenue

• Let’s take a closer look at these broad classes of business models

• Build brand• Build category• Enhance quality

• Reduce costs• Free trial

Improvement-Based Biz ModelsUse the Net to Improve

Products & ServicesEnhancemen

tEfficiency

• Support dealers• Support suppliers• Collect information

Effectiveness

Before We Look at

Revenue-Based Biz

ModelsLet’s Take A

Look At Some Recent

Headlines

Headline

Insert excerpts from a current article out of the business press (e.g. Wall Street

Journal, Wired News, Business 2.0, or Fast Company) that profiles a company and its business model. I usually take excerpts out of the lead paragraph, and highlight

keywords. I’ve found articles on the accumulating losses of a number of e-

tailers that provide an interesting introduction to the subject of making

money on the Web.

Name of Publication - Date

• Sponsorship• Alliances• Banner advertising• Prospect fees• Sales commissions

Revenue-Based Biz ModelsUse the Net to Make Money

Provider Pays

Payment MechanismsWhich Company Bears the

Risk?Sponsorship

Fixed PaymentBanner AdsImpressions

Prospect FeesClick

Through

Sales Commissions

PurchaseRisk Increases for the Web Site Being

Paid

• Sponsorship least risky: fixed payment• Banner Ads: payment depends on impressions• Prospect Fees & Sales Commissions: depend

on success of site and advertiser

The Many Ways to Pay Online

Figure 5.8

Paid

Traffi c

Impressions

Visits

Buyers

Leads

Sponsorship Co- Brand

Downloads

Users

L1 - Time

L2 - I mpressions

L3 - Results

L4 - Expenditure

Possible Payment Approaches

Bargaining Power Determines Who Bears

Risk• Powerful sites shift

risk to advertisers and demand sponsorships

• Powerful advertisers demand accountability and negotiate for prospect fees of a share of transaction revenue

• Sponsorship• Alliances• Banner advertising• Prospect fees• Sales commissions

• Product sales• Pay-per-use• Subscriptions• Bundle sales

Revenue-Based Biz ModelsUse the Net to Make Money

Provider Pays

Customer Pays

Building Value Bundles via Alliances

• The Internet makes it easy to bring a wide range of resources together on a single site

• Fast, cheap way to build a product or service offering (whole product)

• A visit to any search engine illustrates

Note: At this point in the lecture, it’s helpful to go to one of the major portals and identify sponsorships, alliances, affiliates, advertisers

Alliances A Marketing Challenge

• Screen real-estate:– how big will my logo be?– where will it appear?– exclusive deal?

• Revenue sharing• The deal you can make depends on

the bargaining position of each partner

Q: Are these Biz Models mutually exclusive?

No• Companies try to generate

revenues any way they can• Multiple revenue models are

combined on the same site

Closed Loop Marketing

• Marketing is closed loop when specific customer responses to specific marketing actions can be tracked– For example: if an online ad encourages Web

site registration, the campaign is closed loop if users can be tracked from ad exposure to the decision to register

• Closed loop marketing leads to rapid learning– Marketers can experiment with prices, ad

copy, and product features on selected samples of consumers

The Impact of Closed Loop Marketing

• Marketers want two results from user responses– They want consumers to make a choice that leads to

• information• improved customer satisfaction• a transaction

– Marketers want to learn about visitors to their site

Figure 5.10

On the InternetNobody KnowsYou’re A Dog

Web Chains• A Web chain is a click sequence

– Can be as short as a single click– Can be as long as all possible choices

on a Web site•Decision points = event nodes•Ending point = result node

• Common Web chain starting points– Company homepage– Search engine or portal– Banner ads

Web Chain of EventsFigure 5.12

R1: Doesn’t Notice Ad = $0 benefit

Offline Induced Buyer (OIB)

R3: Offline Purchase = (Ad brand + Web Site brand + Offline profit)

No Notice Rate (NNR)

E1: Views Page with Paid

Link

(1-CTR-NNR)

Click-through Rate (CTR)

R2: Notices Ad but doesn’t click

= Ad brand impact

E2: Clicks Through to

Company Web Site = Prospects

BEGIN

(1-PCR) Prospect Conversion Rate (PCR)

E3: Views Web Site but Doesn’t Buy

E4: Visits Web Site and Buys

New Customer (1-RR)

(1-OIB)

R4: No Immediate Purchase = (Ad brand + Web Site brand impact)

Repeat Buyer (RR)

R5: New Customer = (Ad

brand + Web Site brand + Online profit + Future lifetime value)

E5: Loyal Customer

EN

D

Offline Buy Rate (OBR) Online Only (1-OBR)R7: Only buy online = (Ad brand + Web Site brand + Online

profit)

R6: Would have bought offline anyway = (Ad brand + Web Site brand + Online

profit – Offline profit)

Evaluating Web Chains

• Enables marketers to evaluate a wide range of Web strategies and tactics

• Calculate– expected value of an impression– expected value of a prospect– expected value of a new customer– expected value of a repeat buyer

Web Chain Benefits and Probabilities

Five Main Benefits Occur in the Chain• Online contribution: the incremental profit

from an online sale• Offline contribution: incremental profit from

the sale of products through the standard channel

• Ad-brand impact: value to a visitor, who sees the ad but doesn’t click through

• Web site brand impact: value of a visit to the Web site that results in benefits, but not a sale

• Lifetime customer value: future value of profits from a new customer

Evaluating Web Chains

Behavior Rates Impact Values

Variable Level Variable Level

Click- through rate 2.7% Ad- brand impact $0.00

No- notice rate 70% Web site brandimpact

$.0.30

Prospect conversionrate

15% Offline profit $15.00

Repeat buying rate 90% Offline profit $23.00

Offline- induced buyrate

0.05 New customer LTV $125.00

Offline buy rate 0.30

Cost and PerformanceTable 5.5

One of the best uses of Web chain analysis is to compare alternative methods of acquiring

customers

Site Impressions Cost

Cost per

Impression CTR

Cost per

Prospect

Time to

Reach

4000

Prospects

Ad

Network 75,772 $2,075 $0.03 2.70% $1.01

About 2

weeks

Search

Engine 16,670 $1,133 $0.07 5.50% $1.24

About 4.5

weeks

Special

Type 1,887 $52 $0.03 9.50% $0.28

About 23

weeks

From Web Chains to Closed Loops

• There’s a strong connection between Web chains and closed-loop marketing

• A Web chain is closed loop if– the chain extends from the marketing offer to

the desired marketing response– Each step is trackable

• The Internet can be used to close the loop on traditional media advertising if unique identifiers are included with the ad– Dell newspaper ads contain a unique code