CS155b: E-CommerceRevenue ModelsE-Commerce Retail SalesEstimated Quarterly U.S. Retail Sales: Total and E-commerce (source: U.S. Commerce Dept. at http://www.commerce.gov)Online Holiday Sales, 2002 (source: Nielsen//NetRatings data from Nov.-Dec. 2002)Slide 6Current Theories (after first shake-out)“Multi-Channel” Retail (B2C w/ B&M)Advantages of Multi-Channel RetailSlide 10bn.com HistoryBNBN Stock Chart (source: Quicken.com, as of close 1/24/2003)bn.com Business Strategy (source: bn.com Investor Relations website)Increasing bn.com’s “Market Share”E-tailers are Adding “Offline” ChannelsRevenue Models for Online AdsTop Online Advertisers (By Impressions) Source: Nielsen/NetRatings (9/23/01)Status as of 4th Quarter 2000Top 25 National AdvertisersWWW Growing Faster Than Ad SupplyInherent Difficulty with Online AdsInherent Difficulty (continued)Current Advertising Statistics Not Easily AvailableReading for January 30CS155b: E-CommerceLecture 5: Jan. 28, 2003B2C E-CommerceAcknowledgement: H. ChiangRevenue 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 SalesSource: Commerce Dept.Estimated Quarterly U.S. Retail E-Commerce Sales4th Quarter 1999 – 3rd Quarter 2002, in $BillionsEstimated Quarterly U.S. Retail Sales: Total and E-commerce(source: U.S. Commerce Dept. at http://www.commerce.gov)Quarter Total E-Commerce % of total4Q99 784,278 5,481 0.71Q00 711,600 5,814 0.82Q00 771,691 6,346 0.83Q00 765,536 7,266 0.94Q00 810,311 9,459 1.21Q01 724,224 8,256 1.12Q01 805,245 8,246 1.03Q01 782,088 8,236 1.14Q01 856,285 11,178 1.31Q02 743,810 9,880 1.32Q01 825,243 10,265 1.23Q02 827,461 11,061 1.3Online Holiday Sales, 2002(source: Nielsen//NetRatings data from Nov.-Dec. 2002)Spending Online ($ 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.comCurrent 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 market-share 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 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.•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 shareholdersbn.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 $486M (largest Internet IPO at the time)BNBN Stock Chart(source: Quicken.com, as of close 1/24/2003)StockPrice($/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 user-customization 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 forOnline 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 of4th 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 weeksPortals 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
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