CS155a E Commerce Lecture 10 October 9 2001 B2C E Commerce Continued Acknowledgement H Chiang First Generation B2C Main Attraction Lower Retail Prices B2C Pure Plays could eliminate intermediaries storefront costs some distribution costs etc Archetype www amazon com Basic Problems Encountered Immediately Customer Acquisition Costs are huge Service is technically commoditizable and there are no significant network effects Customers switching costs are tiny Lock in to online book buying is high Lockin to Amazon is low Recall Netscape and IE Competition is fierce in almost all segments Few e tailers are profitable Investors have run out of money and patience Internet Customer Acquisition Costs Customer acquisition cost total spent on advertising and marketing divided by the total number of new customers obtained Amazon com 29 DLJ Direct 185 E Trade 257 Various E Commerce Sites 34 E Tailing is Difficult in Low Margin Businesses Toys e Toys com Typical online order contributes 11 to gross revenues Warehouse marketing website and other fixed overhead is high A pure play e tailer needs to capture at least 5 of the toy market to reach profitability Groceries Webvan com Peapod com Typical online order contributes 9 to gross revenue fulfillment costs are very high Steady customer orders 30 times year McKinsey Salomon Smith Barney s estimate of the value of one steady customer 900 over 4 years Current Theories after first shake out High order frequency and large order size are more important than large customer base E tailers should strive for average order sizes of 50 and concentrate on highmargin product categories 35 Traditional grocery margins 2 3 Concentrate on making transactions profitable not on VC supported marketshare wars Combine e tailing with B M stores Multi Channel Retail B2C w B M Exploit multiple marketing and distribution channels simultaneously B M bricks and mortar stores Customers browse on the web before going to the store Catalog sales telephone tv advertising In 1999 multi channel retailers i e B Ms or traditional catalog companies that also sell online made up 62 of B2C e commerce Mostly high margin sales e g computers tickets and financial service Projected to reach 85 in next 5 years Source Boston Consulting Group Advantages of Multi Channel Retail Leverage existing brands Biggest B M retailers have huge clout Walmart s annual sales are 138B much more than all e tailers combined Profits from existing channels can subsidize e tail start up No need to quit when VCs lose interest Use established distribution and fulfillment infrastructure e g LL Bean Land s End Cross marketing and cross datamining E tailers are Adding Offline Channels Alloy com sold clothes and accessories but it became a hit only after its catalog was launched Drugstore com once dismissed B M retailing but it agreed to sell a 25 stake to Rite Aid not long after rival Soma com was bought by CVS Gateway sells computers through WWW and catalog but it also has 164 stores across U S They carry little stock but they allow customers to get a feel for the product before ordering it Revenue Models for Online Ads Number of Impressions How many times does the user cause the advertiser s content to be displayed Click Through How many times does the user click on the ad to go to the advertiser s site Pay per sale How many times does the user click through and then buy something Top Online Advertisers By Impressions Source Nielsen NetRatings 9 23 01 Impressions millions 0 1 Microsoft C orp 2 Aol Time Warner Inc 3 B ertelsmann Ag 4 Yahoo Inc 5 Providian Financial C orp 6 N extcard Inc 7 C lassmates Online Inc 8 B arnes N oble Inc 9 Ebay Inc 10 Amaz on C om Inc 11 C ablevision Systems C orp 12 C assava Enterprises Ltd 13 C itigroup Inc 14 B ank One C orp 15 Sony C orp 16 Zairmail Inc 17 American R ed C ross 18 American Movie C lassics C o 19 C oolsavings C om Inc 20 Ediets C om Inc 21 Ameritrade H olding C orp 22 B onz i C om Softw are 23 H omestore C om Inc 24 Telefonica Sa 25 Microgaming Jackpot N etw ork 100 200 300 400 500 600 Status as of 4th Quarter 2000 3 of all ads radio twice as big 55 of online ads are by dot coms 79 companies place 1 2 of all online ads Most ads run on 1 site for 3 weeks Portals and Search Engines host more ad impressions than any other type of site 44 63 of ad impressions have a branding focus Top 25 National Advertisers Tota l U S a d spe nding in Ne tw ork TV 1999 Ra nk 1999 Adve rtise r S pot TV Ne tw ork ra dio Na tiona l spot ra dio Inte rne t of Tota l 1 Ge ne ra l M otors Corp 4 040 374 00 887 893 20 503 807 40 5 963 20 28 189 50 25 074 10 0 62 2 P rocte r Ga m ble Co 2 611 766 60 621 527 30 113 294 70 10 265 90 10 838 70 8 039 30 0 31 3 4 5 6 P hilip M orris Cos 2 201 600 90 383 215 50 200 873 10 2 995 30 10 613 00 873 0 04 P fiz e r AT T Corp Da im le rChrysle r 2 142 433 70 1 950 871 20 1 804 055 50 364 704 20 258 716 10 286 520 60 59 059 30 100 987 90 664 880 60 11 805 10 8 249 80 2 068 30 1 425 90 32 705 00 23 610 50 1 254 20 13 644 80 9 958 30 0 06 0 70 0 55 7 Ford M otor Co 1 639 761 50 364 989 10 229 678 40 4 959 40 16 981 00 13 638 50 0 83 8 S e a rs Roe buck Co 1 505 205 50 186 855 70 48 573 40 12 343 00 7 859 90 1 444 40 0 10 9 P e psiCo 1 315 712 50 189 049 90 62 371 00 0 5 454 30 581 3 0 04 10 V e riz on Com m unica tions 1 312 749 00 1 690 50 135 634 90 0 74 497 40 1 876 20 0 14 11 W a lt Disne y Co 1 304 002 20 242 015 30 128 353 70 1 578 80 23 867 90 16 360 50 1 25 12 Tim e W a rne r 1 202 905 90 189 959 60 97 659 40 1 999 20 35 172 00 7 487 40 0 62 13 Dia ge o 1 198 445 20 269 970 40 78 186 80 0 34 430 10 80 7 0 01 14 15 M cDona ld s Corp IBM Corp 1 134 802 30 1 128 462 30 296 766 10 105 545 30 179 444 60 10 526 60 36 9 …
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