For Prof. Eliud Peterson only
Salal
is_3003_chapter_10a.pptxIS 3003
Chapter 10A
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Digital goods
Digital goods are goods that can be delivered over a digital network; such goods include videos, music, software, newspapers, books, magazines – in short anything that qualifies as intellectual property, or “works of the mind”
For digital goods, the cost of the source material (the first instance of the item) is very high, e.g., the cost of a song recording, but the marginal cost of each succeeding copy is practically nothing
The Internet has revolutionized the sale of works of the mind; hard copies of books, magazines, newspapers, songs, movies, etc. have essentially disappeared, but the digital distribution of such items has thrived, or at the least been sustained
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In 1999, the CD record sales were $14B; in 2012, record sales were $7.1B – a drop of 50%; in 2003 the Apple iTunes store opened, and since then sales there have been 25B at $0.99 per song; in other words, there has been a massive shift from brick and mortar sales to digital sales
For movies, the situation is different; it is more difficult to download movies than pirated videos, so Hollywood has struck deals with streaming services, such as Netflix, Google, Amazon, and Apple; these deals, however, are not enough to makeup for the loss in DVD sales; such sales fell 50% from 2006-2012;
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There has been a resurgence of music and video since circa 2010; VEVO has been at the front of this activity causing millions of young people to rekindle their interest in such activities; movie viewing has doubled in the year 2011; in 2013, 73M Internet users viewed movies; online movie viewing has increased faster than any other video viewing
The bottom line is that the Internet has become the primary medium for movie distribution
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ecommerce
The U.S. has 189M online shoppers; the worldwide number is 2.6B
Types of ecommerce:
B2C – electronic commerce that involves retail trade, e.g., Barnes & Noble
B2B – electronic commerce between businesses, e.g., ChemConnect
C2C – electronic commerce between consumers, or peers, e.g., Craigslist
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Another classification system is that of platform type:
Tower PC
Mobile wireless
Tablet, iPad, Kindle,
M-commerce, or mobile commerce - the use of handheld, wireless devices to conduct purchases from anywhere, review products, or search for products
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Ecommerce business models
There are several types of ecommerce providers in existence today:
1. e-tailor
2. transaction broker
3. Market creator
4. content provider
5. community provider
6. portal
7. service provider
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Analysis of business models
| category | description | Examples |
| E-tailor | Sells physical items directly to consumer | Amazon Redenvelope.com |
| Transaction broker | Processes online sales transactions | E-trade Charles Schwab |
| Market creator | Provides environment for P2P transactions | E-Bay Priceline |
| Content provider | Creates and provides intellectual content | WSJ Christian Science Monitor |
| Community provider | Online meeting place | Facebook iVillage |
| Portal | Initial point-of-entry for content categories | Bing Google |
| Service provider | Provides sharing services | Dropbox Google apps |
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portals
Could be any of the following:
Search engine
Integrated services and content platform, e.g., AOL
Gateway for certain products, e.g., legal marijuana products, airline travel, hotels/motels, auto repair services
Destination site where any or all consumer needs may be satisfied, such as an online hardware store
The idea for portals is that of amassing large audiences of like minds, attracting advertising catering to similar interests, providing discounts for these specialized users; in 2013, portals, not including Bing and Google, generated $17.5B in display ad revenues; the top four are Yahoo, AOL, MSN, and Facebook
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E-tailors
These are virtual stores which attract customers via name recognition, advertising, and associations; 2011 revenues for Amazon were over $60B; even small stores nowadays have websites that generate online sales
For all of 2013, online revenues created $258B; the value proposition of e-tailors is to provide convenient, low-cost shopping 24/7; even brick-and-mortar stores have successful online operations, but some of the most successful have only online stores
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Content providers
All forms of intellectual property qualify as content, books, newspapers, movies, music, etc.; Intellectual property is any form of human expression
The value proposition for content providers is to extend a wide range of content online, conveniently, inexpensively, and be capable of being played on any, or almost any, device
There is a difference between providers, and creators, and they do not have to be one and the same
Blogging, podcasting, and streaming have all contributed to content provisioning, but based on non-traditional providers, or even amateurs
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Podcasting – is a method of publishing audio and video by filming or recording the material of interest, and then storing it on a server, such as You Tube, and making it available for everyone, or a selected audience; the receivers of such material may download the content onto their devices/computers for later viewing or listening
Streaming – is a method of collecting and distributing audio and video, but differs from podcasting in that it is played over the Internet as a continuous stream, and intended for real time playback; it may be stored at the same time as it is being streamed, for later playback; sometimes, legal issues arise when simultaneous storage and playing are performed
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Transaction broker
These types of vendors are intended to act as a go between the customer, and a specified vendor, such as a stock exchange; Charles Schwab was the first to provide such a service, and it revolutionized the financial trading world; online travel services, such as Priceline are also classified as transaction brokers
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Market creators
Market creators build a digital environment in which buyers and sellers may get together for trading purposes
The users of this digital goods paradigm display their products, search or products, establish prices, and create the market demand
eBay and Priceline are examples of this market type
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Service provider
Service providers – sell services online; like e-tailors that sell products online, service providers do the same with services; these services range from email to software, storage, and any of a thousand, like passports, license renewals, computer-based training, gambling, card games, etc.
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Community providers (social networks)
Community provider – a digital environment where people with similar interests can share those interests; websites like Pinterest, buzznet, classmates.com, deviantart, dailyStrength, Flixster, Flickr, Instagram, etc.
The topics include shared interests, news, imagery, and so on
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Ecommerce revenue models
Revenue model – describes how the company will earn revenue, generate profits, and produce a high ROI
There are 6 such models:
1. advertising revenue model – revenue based on the number and quality of viewers that frequent the website
2. sales revenue model – companies derive revenue based on the sale of goods, or services
3. subscription revenue model – companies derive revenue, at least partially, based on subscription fees for access to content offered by the site
4. Free/Freemium model – companies offer two levels of services, one is free, and the other is fee-based for premium services
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5. transaction fee revenue model – companies receive fees for enabling transactions
6. affiliate revenue model – companies send or enable visitors to websites in return for referral fees, or a percentage of revenues generated from those visitors
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