Changes in the economics of information described earlier have created the conditions for entirely new business models to appear, while destroying older business models. Table 10.5 describes some of the most important Internet business models that have emerged. All, in one way or another, use the Internet to add extra value to existing products and services or to provide the foundation for new products and services.
Portal
Portals are gateways to the Web, and are often defined as those sites which users set as their home page. Some definitions of a portal include search engines like Google and Bing even if few make these sites their home page. Portals such as Yahoo, Facebook, MSN, and AOL offer powerful Web search tools as well as an integrated package of content and services, such as news, e-mail, instant messaging, maps, calendars, shopping, music downloads, video streaming, and more, all in one place. Initially, portals were primarily “gateways” to
Portal
Portals are gateways to the Web, and are often defined as those sites which users set as their home page. Some definitions of a portal include search engines like Google and Bing even if few make these sites their home page. Portals such as Yahoo, Facebook, MSN, and AOL offer powerful Web search tools as well as an integrated package of content and services, such as news, e-mail, instant messaging, maps, calendars, shopping, music downloads, video streaming, and more, all in one place. Initially, portals were primarily “gateways” to
the Internet. Today, however, the portal business model provides a destination site where users start their Web searching and linger to read news, find entertainment, meet other people, and be exposed to advertising. Portals generate revenue primarily by attracting very large audiences, charging advertisers for ad placement, collecting referral fees for steering customers to other sites, and charging for premium services. In 2012, portals (not including Google or Bing) generated an estimated $8.5 billion in revenues. Although there are hundreds of portal/search engine sites, the top four portals (Yahoo, Facebook, MSN, and AOL) gather more than 95 percent of the Internet portal traffic because of their superior brand recognition
E-tailer
Online retail stores, often called e-tailers, come in all sizes, from giant Amazon with 2011 revenues of more than $48 billion, to tiny local stores that have Web sites. An e-tailer is similar to the typical bricks-and-mortar storefront, except that customers only need to connect to the Internet to check their inventory and place an order. Altogether, online retail will generate about $224 billion in revenues for 2012. The value proposition of e-tailers is to provide convenient, low-cost shopping 24/7, offering large selections and consumer choice. Some e-tailers, such as Walmart.com or Staples.com, referred to as “bricksand- clicks,” are subsidiaries or divisions of existing physical stores and carry the same products. Others, however, operate only in the virtual world, without any ties to physical locations. Amazon, BlueNile.com, and Drugstore.com are examples of this type of e-tailer. Several other variations of e-tailers—such as online versions of direct mail catalogs, online malls, and manufacturer-direct online sales—also exist.
Content Provider
While e-commerce began as a retail product channel, it has increasingly turned into a global content channel. “Content” is defined broadly to include all forms of intellectual property. Intellectual property refers to all forms of human expression that can be put into a tangible medium such as text, CDs, or DVDs, or stored on any digital (or other) media, including the Web. Content providers distribute information content, such as digital video, music, photos, text, and artwork, over the Web. The value proposition of online content providers is that consumers can find a wide range of content online, conveniently, and purchase this content inexpensively, to be played, or viewed, on multiple computer devices or smartphones.
Providers do not have to be the creators of the content (although sometimes they are, like Disney.com), and are more likely to be Internet-based distributors of content produced and created by others. For example, Apple sells music tracks at its iTunes Store, but it does not create or commission new music. The phenomenal popularity of the iTunes Store, and Apple’s Internetconnected devices like the iPhone, iPod, and iPad, have enabled new forms of digital content delivery from podcasting to mobile streaming. Podcasting is a method of publishing audio or video broadcasts via the Internet, allowing subscribing users to download audio or video files onto their personal computers or portable music players. Streaming is a publishing method for music and video files that flows a continuous stream of content to a user’s device without being stored locally on the device. Estimates vary, but total download, streaming, and subscription media revenues for 2012 are estimated at $19 billion annually. They are the fastest growing segment within e-commerce, growing at an estimated 20 percent annual rate.
Transaction Broker
Sites that process transactions for consumers normally handled in person, by phone, or by mail are transaction brokers. The largest industries using this model are financial services and travel services. The online transaction broker’s primary value propositions are savings of money and time, as well as providing an extraordinary inventory of financial products and travel packages, in a singlelocation. Online stock brokers and travel booking services charge fees that are considerably less than traditional versions of these services.
Market Creator
Market creators build a digital environment in which buyers and sellers can meet, display products, search for products, and establish prices. The value proposition of online market creators is that they provide a platform where sellers can easily display their wares and where purchasers can buy directly from sellers. Online auction markets like eBay and Priceline are good examples of the market creator business model. Another example is Amazon’s Merchants platform (and similar programs at eBay) where merchants are allowed to set up stores on Amazon’s Web site and sell goods at fixed prices to consumers. This is reminiscent of open air markets where the market creator operates a facility (a town square) where merchants and consumers meet. Online market creators will generate about $18 billion in revenues for 2012.
Service Provider
While e-tailers sell products online, service providers offer services online. There’s been an explosion in online services. Web 2.0 applications, photo sharing, and online sites for data backup and storage all use a service provider business model. Software is no longer a physical product with a CD in a box, but increasingly software as a service (SaaS) that you subscribe to online rather than purchase from a retailer, or an app that you download. Google has led the way in developing online software service applications such as Google Apps, Google Sites, Gmail, and online data storage services.
Community Provider
Community providers are sites that create a digital online environment where people with similar interests can transact (buy and sell goods); share interests, photos, videos; communicate with like-minded people; receive interest-related information; and even play out fantasies by adopting online personalities called avatars. The social networking sites Facebook, Google+, Tumblr, LinkedIn, and Twitter; online communities such as iVillage; and hundreds of other smaller, niche sites such as Doostang and Sportsvite all offer users community-building tools and services. Social networking sites have been the fastest growing Web sites in recent years, often doubling their audience size in a year. However, they are struggling to achieve profitability.
E-tailer
Online retail stores, often called e-tailers, come in all sizes, from giant Amazon with 2011 revenues of more than $48 billion, to tiny local stores that have Web sites. An e-tailer is similar to the typical bricks-and-mortar storefront, except that customers only need to connect to the Internet to check their inventory and place an order. Altogether, online retail will generate about $224 billion in revenues for 2012. The value proposition of e-tailers is to provide convenient, low-cost shopping 24/7, offering large selections and consumer choice. Some e-tailers, such as Walmart.com or Staples.com, referred to as “bricksand- clicks,” are subsidiaries or divisions of existing physical stores and carry the same products. Others, however, operate only in the virtual world, without any ties to physical locations. Amazon, BlueNile.com, and Drugstore.com are examples of this type of e-tailer. Several other variations of e-tailers—such as online versions of direct mail catalogs, online malls, and manufacturer-direct online sales—also exist.
Content Provider
While e-commerce began as a retail product channel, it has increasingly turned into a global content channel. “Content” is defined broadly to include all forms of intellectual property. Intellectual property refers to all forms of human expression that can be put into a tangible medium such as text, CDs, or DVDs, or stored on any digital (or other) media, including the Web. Content providers distribute information content, such as digital video, music, photos, text, and artwork, over the Web. The value proposition of online content providers is that consumers can find a wide range of content online, conveniently, and purchase this content inexpensively, to be played, or viewed, on multiple computer devices or smartphones.
Providers do not have to be the creators of the content (although sometimes they are, like Disney.com), and are more likely to be Internet-based distributors of content produced and created by others. For example, Apple sells music tracks at its iTunes Store, but it does not create or commission new music. The phenomenal popularity of the iTunes Store, and Apple’s Internetconnected devices like the iPhone, iPod, and iPad, have enabled new forms of digital content delivery from podcasting to mobile streaming. Podcasting is a method of publishing audio or video broadcasts via the Internet, allowing subscribing users to download audio or video files onto their personal computers or portable music players. Streaming is a publishing method for music and video files that flows a continuous stream of content to a user’s device without being stored locally on the device. Estimates vary, but total download, streaming, and subscription media revenues for 2012 are estimated at $19 billion annually. They are the fastest growing segment within e-commerce, growing at an estimated 20 percent annual rate.
Transaction Broker
Sites that process transactions for consumers normally handled in person, by phone, or by mail are transaction brokers. The largest industries using this model are financial services and travel services. The online transaction broker’s primary value propositions are savings of money and time, as well as providing an extraordinary inventory of financial products and travel packages, in a singlelocation. Online stock brokers and travel booking services charge fees that are considerably less than traditional versions of these services.
Market Creator
Market creators build a digital environment in which buyers and sellers can meet, display products, search for products, and establish prices. The value proposition of online market creators is that they provide a platform where sellers can easily display their wares and where purchasers can buy directly from sellers. Online auction markets like eBay and Priceline are good examples of the market creator business model. Another example is Amazon’s Merchants platform (and similar programs at eBay) where merchants are allowed to set up stores on Amazon’s Web site and sell goods at fixed prices to consumers. This is reminiscent of open air markets where the market creator operates a facility (a town square) where merchants and consumers meet. Online market creators will generate about $18 billion in revenues for 2012.
Service Provider
While e-tailers sell products online, service providers offer services online. There’s been an explosion in online services. Web 2.0 applications, photo sharing, and online sites for data backup and storage all use a service provider business model. Software is no longer a physical product with a CD in a box, but increasingly software as a service (SaaS) that you subscribe to online rather than purchase from a retailer, or an app that you download. Google has led the way in developing online software service applications such as Google Apps, Google Sites, Gmail, and online data storage services.
Community Provider
Community providers are sites that create a digital online environment where people with similar interests can transact (buy and sell goods); share interests, photos, videos; communicate with like-minded people; receive interest-related information; and even play out fantasies by adopting online personalities called avatars. The social networking sites Facebook, Google+, Tumblr, LinkedIn, and Twitter; online communities such as iVillage; and hundreds of other smaller, niche sites such as Doostang and Sportsvite all offer users community-building tools and services. Social networking sites have been the fastest growing Web sites in recent years, often doubling their audience size in a year. However, they are struggling to achieve profitability.
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