CS155b E Commerce Lecture 5 Jan 28 2003 B2C E Commerce Acknowledgement H Chiang Revenue Models Sell goods and services and take a cut just like B M retailers e g Amazon E Trade Dell Advertising Ads only original Yahoo Ads in combination with other sources Transaction fees Sell digital content through subscription e g WSJ online Economist Intelligence Wire E Commerce Retail Sales Estimated Quarterly U S Retail E Commerce Sales 4th Quarter 1999 3rd Quarter 2002 in Billions Source Commerce Dept Estimated Quarterly U S Retail Sales Total and Ecommerce Quarter source U S Commerce Dept at http www commerce gov Total E Commerce of total 4Q99 784 278 5 481 0 7 1Q00 711 600 5 814 0 8 2Q00 771 691 6 346 0 8 3Q00 765 536 7 266 0 9 4Q00 810 311 9 459 1 2 1Q01 724 224 8 256 1 1 2Q01 805 245 8 246 1 0 3Q01 782 088 8 236 1 1 4Q01 856 285 11 178 1 3 1Q02 743 810 9 880 1 3 2Q01 825 243 10 265 1 2 3Q02 827 461 11 061 1 3 Online Holiday Sales 2002 source Nielsen NetRatings data from Nov Dec 2002 Spending Online Millions Market Share 17 8 17 5 14 7 11 6 11 4 First Generation B2C Main Attraction Lower Retail Prices B2C Pure Plays could eliminate intermediaries storefront costs some distribution costs etc Archetype www amazon com 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 high margin 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 2002 multi channel retailers i e B Ms or traditional catalog companies that also sell online made up 69 estimate of B2C e commerce Mostly high margin sales e g computers travel and automotive Multi channel retailers are more profitable on average than web based and store based retailers source Boston Consulting Group Advantages of MultiChannel 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 Full Name Barnes Noble com not the same as Barnes Noble Inc booksellers NYSE BKS Stock Price NASDAQ BNBN 1 11 close 1 24 2003 52 wk range 0 43 to 2 44 No earnings 40 owned by Barnes Noble Booksellers Inc 40 owned by Bertelsmann AG 20 by public shareholders bn com History May 1997 Website launch Business conducted by a wholly owned subsidiary of Barnes Noble Inc October 1998 Web site split off 50 50 joint venture with Bertelsmann March 1999 Incorporated May 1999 IPO 18 share raised 486M largest Internet IPO at the time BNBN Stock Chart source Quicken com as of close 1 24 2003 Stock Price share Volume millions bn com Business Strategy source bn com Investor Relations website Build a profitable e commerce business by focusing on information entertainment and education products and services that can be delivered either physically or digitally Barnes Noble com is trying to become the central website for consumers to purchase information based products Not all products are physical new subsite starting Jan 2003 sells eBook content Increasing bn com s Market Share Leverage Barnes Noble name Use partnerships with media e g Bertelsmann and online e g Yahoo companies Increase partnerships through its affiliate network where websites get a cut when a bn com purchase is made through a partner s link Improve advertising and usercustomization services 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 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 WWW Growing Faster Than Ad Supply Immediate problem Too many pages too few advertisers Price 2 Years Ago 1 per thousands of impressions Price 5 Years Ago 10 to 50 per thousands of impressions Inherent Difficulty with Online Ads Downward Spiral Banner ads easy to ignore Average click through has fallen to less than 1 in 200 Leads to creation of more obnoxious ads e g pop ups Entertaining Getting the right ads requires time effort and money Internet market not large enough to justify it 5 of the world s top 10 advertisers each spent less than 1 million on online ads last year Inherent Difficulty continued Accountability Advertisers can tell immediately whether their ads work High Expectations Well targeted ads cost up to 100 times as much as generic ads But how precisely can one target Discussion Point Will online advertising survive the dot com crash and the unrealistic expectations Will it stabilize as just one more branding medium Current Advertising Statistics Not Easily Available Many sites gather and publish online business statistics including advertising sales etc For example eMarketer com AdResource com Nielsen NetRatings These sites no longer make all information freely available They combine data with business tools as a package they sell to improve a business s online advertising success limit access to paying subscribers publish only older data freely or display only a small part to encourage new