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