NBA 600: Session 9 E-Commerce and Online Communities 18 February 2003 Daniel Huttenlocher.
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Transcript of NBA 600: Session 9 E-Commerce and Online Communities 18 February 2003 Daniel Huttenlocher.
NBA 600: Session 9E-Commerce and Online
Communities
18 February 2003
Daniel Huttenlocher
2
Today’s Class
Finish discussion of online retail from last week
Start topic of online communities– Several companies established to sell
community building software for the Web• Mainly gone or in other businesses now
– Yet online communities remain important aspect of businesses such as eBay, Amazon• Social, learning or sharing aspect
Summarize papers on Internet travel– Growth of business use – “relationship” accts.
3
User Experience is Everything
Online, the brand is the experience– Major part of the offering, e.g. Amazon’s focus– Contrast with kinds of offline brands that are
mainly about experience
No overall design to IBM site in late ’90’s– Hard to use, most common requests were help
button and search box – experience=confusion– Re-designed over 10 weeks, over 100 people
• Common layout, low download time, graphic design, navigability
– First week saw 84% drop in help button, 400% increase in sales (NYT 8/30/99)
4
AMZN Focus on Customer
Company attracts people with customer focus – not just in customer facing roles– Including software developers
Continuous testing in their usability lab– Entire experience, not just Web interaction– Tradeoff of new features versus clutter
Metrics to evaluate each change– Careful evaluation of how changes drive sales
Leading the customer carefully– E.g., with one-click addressing fears by making
clear it was easy to cancel
5
Customer Experience at AMZN
Discovery– Searching, browsing, recommendations,
relatedness, what you’ve done on site
Community– Reviewers, merchants, spending time making
site richer experience
Shopping– The bread and butter, has to be easy and fun
Order monitoring– Sale not over until customer happy with item(s)
• At least if want repeat business
6
Revisiting E-Commerce Failures
Some were just too early– Level of comfort with online shopping– E.g., much furniture bought offline not seen
• But Living.com didn’t make it
Some didn’t fit online model well– E.g., pet supplies
• Low value and high shipping cost items
Some built un-sustainable costs/debt– E.g., Webvan provided value beyond pricing
• FreshDirect giving online grocery a try in NYC
7
FreshDirect Online Grocer
Focus is on food, particularly perishables– Modeled on Dell: provide great choice and use
Internet to deliver that choice• With new manufacturing process for product
Better quality and selection of fresh foods– Prices 10-30% lower than Manhattan stores– Fixed $3.95 delivery fee, minimum $40 order
• Deliver only at night and on weekends
Direct from warehouse to customer– Many items prepared in the warehouse
Raised $120M; goal $225M/yr sales by ’04
8
Summary of Online Retail
Importance of user experience on brand– Requires commitment across the company– Requires common site design, navigation
• But content needs to be accurate, so best under control of individual business group/team
Selection and convenience are big drivers of online commerce– Price secondary focus for successful firms– Perhaps getting less important for consumers
• Driver of choice both online and offline
Online community plays role too – next
9
Online Community
People spending time adding value because they are having fun doing it– Interacting with others
• Shared interests, winning a game
– Audience for their work• Reviews, commentary, open source software
Feedback is critical– Mainly fun if you know you are reaching others
• Amazon has reviewer ratings• Ebay has buyer/seller ratings• Internet Chess club has player rankings
10
Hard to Start a Community
Chicken-and-egg problem– Good content/value is attracted by a good
audience, which is attracted by good content
Helps to do something where people are “obsessive” or “expert”
• Collecting/trading• Book/music/video reviews• Gaming• Writing software• Health problems
Need to balance interests of experts or providers with beginners or consumers
11
Community as Supplement
Amazon is a good example of supplement– Reviews add richness to the user experience
• Can be extremely helpful in making selections
– Reviewers can have immediate impact on shoppers’ decisions
– People rank reviews/reviewers even though they are only indirectly rewarded• Little “free riding” problem compared to what
economists would expect
In contrast newspaper or magazine site– Amateur reviews compete with professionals
• Less obvious means for feedback
12
Community as Addiction
Winning at games– Especially where tangible reward such as
money or property• Including virtual property
– Includes auctions/trading
Ebay a good example: users often refer to themselves as addicted– Buying things don’t need and weren’t looking
for beforehand– Beginners advised to use auto-bidding and
(hidden) “maximum price” • Avoid potentially costly bidding wars
13
Balance of Providers and Users
Ebay has historically had a naturally self-sustaining nature– Many of the participants are collectors which
makes them both buyers and sellers
As Ebay moves to more corporate sellers– Fewer sellers and more buyers– Potential for loss of balance (NYT 11/25/02)
Trading sites need more exact balance– Only one provider and customer per transaction
• In contrast reviews are “consumed” many times In fact should be, to give feedback
14
Community Trust
Ebay’s initial challenge– Building trust to trade with strangers online
• Focused on sense of community and “inherent goodness of people”
Means of running cheaters out of town – Reputation scores based on completed
transactions (+,0,-)• Number of positives minus negatives• About half of transactions result in ratings
High reputation scores– Ebay rewards its highest reputation sellers
• 85,000 points
15
Maintaining Trust
Ebay says fraud less than 1/100th percent– But still moving beyond “community policing”– Highly visible case involved real world too
• Merchant who fled with over $200K also had shop and employees
Poor experiences more common than outright fraud– Sellers now being verified through credit card
or other information• Contract with Verisign
Works in sense that fraud outside higher– Case of fake cashiers check and used Mac’s
16
Value of Reputation
Resnick (UMich) study shows price effect– Controlled study with “matched pairs” of
vintage postcards• Done in conjunction with established seller who
had high reputation• Sold one of each pair as relatively new seller with
little reputation– High reputation seller received closing bids on
average 7.6% higher than unknown sellers
Perhaps surprisingly, a few negative scores had little effect– Treated similar to unknown with a few positives
and no negatives
17
Epinions and Pure Community
Goal to provide “unbiased” reviews of products and services– Contributed by visitors to site– Rated for accuracy and value by other visitors– Want to be better than sites such as Amazon
by having more of a community• Not restricted to items on one site
Changed from advertising revenue model– Clearly not working by late 2000– Main revenue now from referrals to retailers
• Fee per referral and/or for listings
18
Online Travel Assignment
What transaction vs. relationship customers want– Transaction: price focused, own time cheap– Relationship: total cost focused
• Person time expensive, flexibility and convenience key
• Some claimed cost not important or secondary, but data did not support that view
One of largest controllable costs; managed travel Appetite for a lowering total cost
Mixed views on how/where technology could benefit relationship customers
19
Where Technology Good or Bad
Compliance and pre-approval of travel– Easier to apply rules and get approvals, via
email and/or Web
Repeat travel– Store old itineraries, make simple to rebook
Availability of tools for own research and booking where desired– Some postulated that many business travelers
do this already, to double-check agents
Expert human assistance can’t be beat in case of problems en route
20
Evolution of Online Travel
Wide range of views– Little change– Continued dominance of corporate agencies
such as Amex but with help of new technology• Build on relationship and service expertise• Use Internet to provide more information direct
to traveler and to travel coordinator
– New entrants such as Expedia• Build on technology expertise to provide Internet
information wherever possible• Grow or buy relationship and service experts• Particularly for underserved smaller businesses
21
“Hybrid” Travel Agent Model
Internet access as additional valuable means of information access
Continued telephone access to experts– In some ways similar to Dell.com, people
available for higher value tasks
Several argued easier for Amex to build or buy technology expertise than vice versa– Have relationships now, happy customers– But can’t be complacent
• AMEX actively developing technology, started in 1997 with Expedia as partner
• Online booking grew from 5.8 to 13.5% Q1-Q3 ‘02