laudon traver e-commerce4e chapter11.pptmcs/courses/2008_01/214571/... · 2016. 7. 28. · benefits...

EE-commercebusiness technology societybusiness. technology. society.Fourth Edition

Kenneth C. Laudon

Carol Guercio TraverCarol Guercio Traver

Copyright © 2007 Pearson Education, Inc. Slide 11-1

Chapter 11

Social Networks, Auctions, and Portals


S i l N k F S d hSocial Network Fever Spreads to the ProfessionsProfessions

Class Discussion

How has the growth of social networking enabled the creation of more specific nicheenabled the creation of more specific niche sites?

What are some examples of social network What are some examples of social network sites with a financial or business focus?D ib f t d Describe some common features and activities on these social networking sites.

What feature of social networks best explains their popularity?


p p y


Learning ObjectivesLearning Objectives Explain the difference between a traditional socialExplain the difference between a traditional social

network and an online social network Understand how a social network differs from a portalp Describe the different types of social networks and

online communities and their business models Describe the major types of auctions, their benefits,

and costs, and how they operate Understand when to use auctions in a business Recognize the potential for auction abuse and fraudg p Describe the major types of Internet portals Understand the business models of portalsU de sta d t e bus ess ode s o po ta s


Social Networks and Online Communities

Social networks involve: A group of people A group of people

Shared social interaction

Common ties among members Common ties among members

People who share an area for some period of time

Social networks can be places where people just Social networks can be places where people just “hang out,” share space, and communicate

Online social network: area online where people who Online social network: area online where people who share common ties can interact with one another

P t l d i l t k i l t th Portals and social networks moving closer together as portals add social networking features


Examples: MySpace, Friendster, Flickr, Facebook

Top 10 Social Network SitesFigure 11 1 Page 699Figure 11.1, Page 699


SOURCE: Based on data from eMarketer, Inc., 2007a; Nielsen/NetRatings, 2007.

Ad Spending on Social Networks (inAd Spending on Social Networks (in Millions)


Types of Social Networks And Their Business ModelsBusiness Models General communities: Offer members opportunities to interact with

general audience organized into general topics E g MySpace andgeneral audience organized into general topics. E.g., MySpace and Facebook

Practice networks: Offer members focused discussion groups, help and knowledge related to area of shared practice. E.g., Linux.org, Just PlainFolks (musicians community) and LinkedIn (business)

Interest-based social networks: Offer members focused discussion Interest based social networks: Offer members focused discussion groups based on shared interest in some specific subject. E.g., E-democracy.org and SocialPicks (stock market site)Affi it iti Off b f d di i d i t ti Affinity communities: Offer members focused discussion and interaction with other people who share same affinity (self or group identification such as religion, ethnicity, gender, location). E.g., iVillage (focusing on g y g ) g g ( gwomen)

Sponsored communities: Online communities created by government, non profit or for profit organizations for purpose of pursuing


non-profit or for-profit organizations for purpose of pursuing organizational goals. E.g., Nike, IBM, Westchestergov.com, Tide.com

Social NetworkNetwork Features and TechnologiesTable 11 2 Page 703Table 11.2, Page 703


Auctions

Online auction sites among the most popular i h Iconsumer-to-consumer sites on the Internet

eBay: market leader with 222 million users, 86 ymillion active users in the US, 12 million items listed each day, $6 billion net revenues in 2006 y, $(30% growth from 2005)

Several hundred different auction sites in U S Several hundred different auction sites in U.S. alone

E t bli h d t l d li t il it (f Established portals and online retail sites (from Yahoo, MSN to JCPenny and Sam’s Club) i i l ddi ti t th i it


increasingly are adding auctions to their sites

D fi i d M i h G h fDefining and Measuring the Growth of Auctions and Dynamic PricingAuctions and Dynamic Pricing

Auctions—markets in which prices are variable and based on the competition among participants

h b i lli d t d iwho are buying or selling products and services Types of pricing

Dynamic pricing price varies depending on demand Dynamic pricing – price varies depending on demand of customer and supply of seller; e.g., bartering, negotiating (like stock market and airlines),

Fixed pricing one national price everywhere for Fixed pricing – one national price, everywhere, for everyone; for mass national markets and retail stores

Trigger pricing – adjust prices based on location of consumer; used in m commerce applicationsconsumer; used in m-commerce applications

Utilization pricing – adjust prices based on utilization of product, e.g., auto and health insurances

Personalization pricing – adjust prices based on merchant’s estimate of how much customer values the product


Defining and Measuring the Growth of Auctions and Dynamic Pricing (cont’d)Auctions and Dynamic Pricing (cont d)

Most widely known auctions are consumer-to- Most widely known auctions are consumer-to-consumer (C2C) auctions in which auction house is simply an intermediary markethouse is simply an intermediary market maker, providing forum where consumers –buyers and sellers – can discover prices and trade

2007: C2C auction sites generated $21 billion; B2C auction sites $16 billion (seebillion; B2C auction sites, $16 billion (see next figure)


Projected Growth in Auction RevenuesFigure 11.3, 10g , g


SOURCES: Based on data from eMarketer, 2005; Jupiter Research, 2001; authors’ estimates.

Benefits of Auctions Liquidity – sellers can find willing buyers, and buyers can find Liquidity sellers can find willing buyers, and buyers can find

sellers Price discovery – buyers and sellers can quickly and efficiently

develop prices for items difficult to assess where product isdevelop prices for items difficult to assess, where product is rare

Price transparency – public Internet auctions allow everyone to p y p ysee asking and bidding prices for items

Market efficiency – auctions can lead to reduced prices reduced profits for merchants increasing consumer welfarereduced profits for merchants increasing consumer welfare (one measure of market efficiency)

Lower transaction costs – lower cost of selling and buying dproducts

Consumer aggregation – sellers benefit from large auction sites’ ability to aggregate large number of consumersability to aggregate large number of consumers

Network effects – large auction sites with large number of visitors and products make it likely to find what you want at a good price and highl probable to find a b er for j st abo t


good price, and highly probable to find a buyer for just about anything

Risks and Costs of Auctions for C d B iConsumers and Businesses

Delayed consumption costs buyers must wait until auctions are Delayed consumption costs – buyers must wait until auctions are over, and shipping takes time

Monitoring costs – requires time to monitor biddingP ibl l ti i l d Possible solutions include: Fixed pricing – clicking on the “Buy It Now” button and paying premium price

compared to regular auction priceW t h li t it t it t i ti f i t t Watch lists – permit consumer to monitor certain auctions of interest

Proxy bidding – allows consumer to enter maximum price, and auction software automatically bids for goods up to that price in small increments

E i t t t f t t I t t d Equipment costs – costs of computer system, Internet access, and learning complex operating system cost

Trust risks Possible solution—rating systems (not always successful)

Fulfillment costs – buyers pay costs of packing, shipping, and insurance


Internet Auction Basics

Internet auctions are different from traditional auctionsauctions Tend to go on much longer (usually a week)

H i bl b f bidd h d Have a variable number of bidders who come and go from auction arena

M k t d bi i d i ll i d Market power and bias in dynamically priced markets Where number of buyers and sellers is few or

equal: neutralWh ll b f ll d Where one or small number of sellers and many buyers: seller biasWh ll d f b b bi


Where many sellers and few buyers: buyer bias

Bias in Dynamically Priced MarketsFigure 11.4, Page 715


Internet Auction Basics (cont’d)

Price Allocation RulesRules for establishing winning bids andRules for establishing winning bids and

prices in auctions where there are multiple units for saleunits for sale

Uniform pricing rule: Multiple winners who all pay the same price (normally lowest winning bid)the same price (normally lowest winning bid)

Discriminatory pricing rule: Winners pay different amount depending on what they bid as inamount depending on what they bid, as in uBid.com

From buyer’s point of view uniform pricing is From buyer s point of view, uniform pricing is better, but from seller’s point of view, discriminatory pricing is better


y p g

Types of Auctions English auctions (eBay):

Easiest to understand and most commonEasiest to understand and most common Single item up for sale to single seller Highest bidder wins Highest bidder wins

Traditional Dutch auction (Dutch flower market):market): Public descending price auction, single unit; seller

lowers price until a buyer take the productlowers price until a buyer take the product

Dutch Internet auction (eBay Dutch auction):P bli di i l i l i Public ascending price, multiple units

Final price is lowest successful bid, which sets i f ll hi h bidd ( if i l )


price for all higher bidders (uniform price rule)

Types of Auctions (cont’d)

Name Your Own Price Auctions Pioneered by Priceline Pioneered by Priceline

Users specify what they are willing to pay for goods or services and multiple providers bid forgoods or services and multiple providers bid for their business

P i d t d d d fi d Prices do not descend and are fixed

Requires a commitment to purchase at the first ff d ioffered price


Types of Auctions (cont’d) Group Buying Auctions (Demand Aggregators)

Facilitate group buying of products at dynamically adj sted disco nt prices based on high ol meadjusted discount prices based on high volume purchases

Based on two principles Based on two principles• Sellers are more likely to offer discounts to buyers

purchasing in volume• Buyers increase their purchases as prices fall

Professional Service Auctions—Elance.com Auction Aggregators—use Web crawlers to search

thousands of Web auction sites and accumulate i f ti d t bid ti d ti tinformation on products, bids, auction duration, etc. Unlicensed aggregators prevented by eBay


When to Use Auctions (And For What) In BusinessBusiness

Factors to consider Type of product – rare, unique, commodity, perishable

Product life cycle – early, mature, late

Channel management – conflict with retail distributors; differentiation

T f ti ll b bi Type of auction – seller vs. buyer bias

Initial pricing – low vs. high

Bid increments low vs high Bid increments – low vs. high

Auction length – short vs. long

Number of items single vs multiple Number of items – single vs. multiple

Price allocation rule – uniform vs. discriminatory

Closed vs open bidding


Closed vs. open bidding

Seller and Consumer Behavior at AuctionsAuctions

Seller profits: function of arrival rate, auction length, and b f it t ti ( t fi )number of units at auction (see next figure)

Auction prices not necessarily the lowest Reasons include herd behavior (tendency to gravitate toward,

d bid f ti li ti ith i ti bid )( y g

and bid for, auction listing with one or more existing bids) Herd behavior results in consumers paying higher prices than

necessary for reasons having no foundation in economic realityU i t d d lt f ti i ti i ti Unintended results of participating in auctions: Winner’s regret – winner’s feeling after auction that he/she paid

too much for an itemS ll ’ l t th t ill k h h Seller’s lament – concern that one will never know how much ultimate winner might have paid, or true value to final winner

Loser’s lament – feeling of having been too cheap in bidding and failing to winand failing to win

Consumer trust also an important motivating factor in auctions


Auctioneer ProfitsFigure 11 5 Page 724Figure 11.5, Page 724

P = arrival rate at the auction


SOURCE: Based on data from Vakrat and Seidmann, 1998.

When Auction Markets Fail: Fraud and Abuse in AuctionsAbuse in Auctions

Auction markets are particularly prone to Auction markets are particularly prone to fraud

2007 IC3 statistics: 45% of Internet fraud complaints concerned online p

auctions (merchants’ failure to deliver after payment and consumers failing to pay after shipment

Median lost: $600

Most common fraudulent payment mechanism: money orders and credit cards


money orders and credit cards


The Growth and Evolution of Portals

Portals: most frequently visited sites on the Web Top portals Yahoo AOL MSN have hundreds Top portals, Yahoo, AOL, MSN, have hundreds

of millions of unique visitors worldwide each month

Gateways to the more than 50 billion Web pages Most of top portals today began as search p p y g

engines Today provide navigation of the Web, commerce, y g

and content (news, entertainment, maps, images, social networks, in-depth info)W b t l t d t i it t t l Web portals today want visitors to stay a long time, and most of them succeed.


Top 10 Portal/Search Engine Sites in the United StatesUnited StatesFigure 11.6, Page 729


SOURCE: Based on data from eMarketer, Inc., 2007c.

Types of Portals: General Purpose and Vertical MarketVertical Market

General purpose portals: Attempt to attract General purpose portals: Attempt to attract very large general audience and then retain it on site by providing in depth vertical contenton-site by providing in-depth vertical content channels; e.g., MSN, AOL

Vertical market portals: Attempt to attract highly focused, loyal audiences with deephighly focused, loyal audiences with deep interest in either community (affinity group) or specialized contentspecialized content


Two General Types of Portals: General Purpose and Vertical Market PortalsPurpose and Vertical Market PortalsFigure 11.7, Page 732


Portal Business ModelsPortal Business Models

Major portal revenue sources include: Major portal revenue sources include: ISP services (AOL, MSN) – providing Web access,

and e-mail services for a monthly feeand e mail services for a monthly fee General advertising – charging for impressions

deliveredde e ed Tenancy deals – fixed charge for guaranteed

number of impressions exclusive partnership, p p p,“sole providers”

Commissions on sales – revenue based on sale at the site by independent providers

Subscription fees – charging for premium content


Revenue per Customer and Market FocusFigure 11 8 Page 734Figure 11.8, Page 734


E-commerce in Action: Yahoo! Inc.

Vision: Global Internet communications, commerce and media company

Bunch of services including Yahoo Search, Yahoo Toolbar, Yahoo Search on Mobile, Yahoo Answers, Flickr, Yahoo Video, Yahoo Local, Yahoo Yellow Pages, Yahoo Maps, Yahoo , g , p ,Shopping, Yahoo Auctions, Yahoo Travel, Yahoo Autos, Yahoo Personals, Yahoo News, Yahoo Finance, Yahoo Movies, and etc.

Earns money from advertising (88% in 2008), premium content sales, commissions and corporate services

Recent financial performance: Revenues up significantly but Recent financial performance: Revenues up significantly, but cost of revenues, gross margins, operating margins and earnings down in 2006

Business strategy: growth through foreign market coverage and Business strategy: growth through foreign market coverage and acquisitions (GeoCities, HotJobs, Inktomi, Overture, MusicMatch, etc.)

Future prospects depend on matching Google on search and


Future prospects depend on matching Google on search and extending its lead on content

laudon traver e-commerce4e chapter11.pptmcs/courses/2008_01/214571/... · 2016. 7. 28. · benefits...

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