ELC 498 ELC 498 ELC 498 ELC 498

Day 9Day 9

2

DAY 8 Agenda• Today October 6

– Intro to Online Content Providers -Tony– Boston.com - Steve – Midterm exam Posted in WebCT

• Due Oct 13 at 11AM– Still missing completed grade sheets

• October 13– Midterm Exam Due– CNET 2000 - Jeff

• October 17– BET.com – Donnie

• October 20– BMG Entertainment - Kristin– Recap of Online Content Providers– Intro to Online retailers

• October 24 – Staples.com -Anup

• October 27– Petstore.com -Steve

3

Case study• Proposed

– iVillage Kristin– Monster Donnie– Napster Jeff– Paypal –Steve– eBay - Anup

internet business models

text and cases

tom eisenmann

Online Content Providers

Chapter Three

3-6

McGraw-Hill/Irwin

© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.

Content on the Web

• Greater Value to Consumer– 24/7 Availability– Greater depth (‘click for more’;

backlist/catalog)

3-7

McGraw-Hill/Irwin

© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.

Categories of Providers

• How and why the content will be used– News– Information – Entertainment

• How long is the content relevant?– Quickly obsolete

• News, stock quotes, weather– Longer

• Books, music– Instantly perishable

• Live events

3-8

McGraw-Hill/Irwin

© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.

Categories of Providers

• Who pays?– Indirect

• Advertising– For each use

• Time based gaming– Outright purchase

• Music e-books– Subscription

• Wall street Journal online

• Bandwidth require– Media type

3-9

McGraw-Hill/Irwin

© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.

Value proposition(s)

1. Produce once, distribute widely

2. 24/7 365

3. Information Capacity

4. Personalization

5. “un” bundling

6. Connectivity based Network effects

7. Digital Piracy

3-10

McGraw-Hill/Irwin

© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.

Economics

• New Economics Change the Game– Infinite costless copying– “Blown to Bits”: Artists decoupled from labels;

bundled content decoupled from physical carrier (e.g., newspapers)

– Marginal cost → $0 as user base increases– Advertising revenue grows faster than cost for

producing it

3-11

McGraw-Hill/Irwin

© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.

Cost Categories

• Content development

• Website development

• G&A

• Cost of Ad sales

• Customer Acquisitions Costs

3-12

McGraw-Hill/Irwin

© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.

“Get Big Fast” Payoff Depends On...

• Network effects?– Connectivity based– Software Based – “Tipping”

• Scale Economies– Variable contribution margin >85%– Advertisers pay premium for reach

• Increasing Returns on Demand Side– Follows from user-generated content

• Retention– Web content not subscription-based, so ability to track limited to

registration or cookies

3-13

McGraw-Hill/Irwin

© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.

Payoff From Targeting Ads

• Impact of Registration– Double CPMs– Reduce traffic by one-half– It’s a “wash”

3-14

McGraw-Hill/Irwin

© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.

Strategic Issues

• Should online providers leverage other business models?

• What about Offline incumbents?– Pure Play versus bricks and clicks– Disintermediation?

• What about broadband??

3-15

McGraw-Hill/Irwin

© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.

Content Provider Vertical Portal

• Vertical Portal– Provides links to third-party content– Profits from lead generation and direct selling, not just

advertising

• BET vs. CNET– BET: news/entertainment/information provides

contextual selling opportunities (implies dynamic serving of relevant ads)

– CNET: 30/70 split between ‘staying up to date’ and ‘getting things done’; with latter, customers are closer to purchase decision

3-16

McGraw-Hill/Irwin

© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.

Cross-Platform Linkages

• Evident on BET and CNET– BET: TV, radio?, print, Internet– CNET: TV, radio, Internet

• Synergies– Brand exposure– Drive online traffic through offline promotion– Shared content– Packaged ad sales

3-17

McGraw-Hill/Irwin

© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.

Editors Are Uncomfortable With...

• User-Generated Content

• Sponsor-Supplied Content and Other ‘Church/State’ Conflicts

• Links to Third-Party Information Sources

• 24/7 Schedules– scoops

• Web-Friendly Writing Styles