How The Big Timers Play The Game

Have any of you wondered how internet big timers make money?

It's quite simple actually: they generate income through the many revenue models. Now you are wondering – what the heck is a revenue model?

Strictly speaking, a revenue model is a mold of how companies earn revenue, produce profit, and generate return on their invested capital. There are many revenue models but the most common are:

Sales of Goods or Services Model	The company gains a margin from the sales of goods, services or information
Transaction Fee Model	The company collects a fee for each transaction that is conducted through its e-Business infrastructure
Subscription Fee Model	The company charges a regular fee for the access of information or services provided
Advertising Fee Model	The company provides a platform for others to advertise in its website and collects a fee for it.
Affiliate Fee Model	The company receives payment for referring customers to other web sites
License Fees Model	The company collects a fee for e-Business processes to which the company has rights

Other Revenue Models are Referral Fee Model, Ransom Model and Sponsorships Model.

So with the knowledge of what revenue models are, you can determine how e-commerce giants roll in the cash. I will only be illustrating three companies namely - Google, Amazon.com and eBay
and the few most prominent revenue model that the giants uses.

Google’s Revenue Model

Google generates revenue mainly from advertising. The bulk of the revenue is generated through Google AdWords. Google AdWords allows clients to advertise through Google’s website.the advertisement is usually in text form or a banner ad. Google collects a nominal activation fee (USD 5) and the clients also pay Google based on per-click or per-thousand- impressions. Pay per-click is an internet advertising model which the client only pays when the advertisement is clicked. Pay per-thousand-impression means the client needs to pay for every 1000 times a user views his/her ad and an impression is recorded.

Amazon.com Revenue Model

We deem Amazon.com as one of the most successful companies in e-commerce. It generates income through various revenue models. Amazon.com started out by being an electronic retailer. It sells goods (books, music, video games, electronic gadgets, apparels, etc.) to business and also to customers online. Thus, it applies the Sales of Goods or Services Model.

Besides that, Amazon.com enables customers to sell their goods through its WebStore. Amazon’s WebStore enables customers to create an e-commerce website which is powered by the same

technology and system as Amazon. Amazon charges $59.99 per month for each WebStore (you can have multiple WebStores) plus 7% commission on each transaction made through the WebStore.

(Proceed to http://webstore.amazon.com/?ld=AZNav if interested)

Above that Amazon.com is one of the "originators" of affiliate programs. Amazon receives a referral fee from the affiliates when a customer clicks on their link and purchases goods at the transaction site. Amazon Associates provides publishers the opportunity to display affiliate links and details for Amazon.com products in a variety of formats, including product images, text links, and banners.

eBay's Revenue Model

When I mention eBay, I am focusing on eBay alone not together with its subsidiaries (Half.com. Paypal ,Kikiji.com).

eBay is a platform for customers to buy and sell their goods online (consumer to consumer). In other words eBay is the middle man. eBay focuses on the transaction fee model where it collects commission from its customers when a transaction is done through its website. When you catalog an item on eBay, you're charged an Insertion Fee. You are also charged a Final Value Fee when the item is sold. There are two fee structures based on how the goods are sold. First is the auction-style listing and second is selling the item at a fixed price.

For reference of the fee structure please go to http://pages.ebay.com/help/sell/fees.html%23auction

eBay’s rapid user growth created community, content and search value streams, which in turn created the critical mass for substantial advertising revenue.

So you can now see the difference in the revenue modals used by the three giants. Google’s main revenue generating model is advertising fee while Amazon.com though have many revenue models mainly focuses on the sales of good or services model and finally eBay’s model of focus is the transaction fee model.

History and Evolution of E-commerce

Electronic commerce means doing business online, typically via the Web. It is also called "e-business," "e-tailing" and "I-commerce". Although in most cases e-commerce and e-business are the same, e-commerce implies that goods and services can be purchased online, whereas e-business might be used as more of an umbrella term for a total presence on the Web, which would naturally include the e-commerce (shopping) component.

E-Commerce was birth out of the World-Wide-Web (WWW). Although many people use the terms WWW, but the WWW is just one of the many services available on the Internet. The aspect of the WWW actually is a relatively new aspect of the Internet. While the Internet was developed in the late 1960s, the WWW came into existence more than a decade ago in the early 1990s. Since then, it has grown phenomenally to become the most widely used service on the Internet.

Although the Web has made online shopping possible for many businesses and individuals, in a broader sense, e-commerce has existed for many years. For decades, banks have been using electronic funds transfer (EFT, also called wire transfer), which are electronic transmissions of account exchange information over private communication networks.

Businesses also have been engaging in a form of electronic commerce, known as electronic data interchange, for many years. Electronic Date Interchange (EDI) occurs when business transmits computer-readable data in a standard format to another business.

In the 1960s, businesses realized that many of the documents they exchange related to the shipping of goods such as invoices, purchase orders, and bills of lading and included the same set of information for almost every transaction. They also realized that they were spending a lot of time and money entering these data into their computers, printing paper forms, and then re-entering the data on the other side of the transaction. Although the purchase order, invoice, and bill of lading for each transaction contained much of the same information such as item numbers, descriptions, prices and quantities - each paper form had its own unique format for presenting that information. By creating a set of standard formats for transmitting that information electronically, businesses were able to reduce errors, avoid printing and mailing costs, and eliminate the need to re-enter the data.

An example of an E-Commerce failure and its causes

An example of an E-Commerce failure and its causes

The most famous Dot.com failure - Boo.com (1998-2000)

Boo.com is one of the most famous dot.com companies went bust in the late 90s. The year of 2000 was a turbulent time for the internet economy, but the failure of the clothing e-tailer Boo.com, added anxiousness about the stability and capability of existing or future online retailers.

Boo.com was launched 3rd November 1999, a British Internet company founded by Swedes Ernst Malmsten, Kajsa Leander and Patrik Hedelin, with an approximately with $125 million of funding by investors such as Benetton and Bernard Arnault, chairman of LVMH, Europe largest luxury goods group. With such huge amount of funding, it had not only become the most heavily funded Internet start-up in Europe, but had also become the highest profile.

Poor Web Design and User Experiences

The Boo.com website was broadly criticized as poorly designed for its target shopper and audience. For example, one of the famous criticism - “With products zooming all around the page, customers practically have to play target practice in order select the product they want (ZDNet, 29th November 1999).”

The site was very difficult to navigate and surf around. Shoppers could get lost and find no way back to their starting point. A browsing experience should be made pleasurable, simple and easy to use, and should not hindered by the overuse of technology.

Boo.com used a lot of graphics, pop-up windows, Miss Boo an animated helper and 3D images that only those with a 56k modem could see it without waiting a minutes for it to load. Due to a technology analyst from Forrester Research, points out that only 1% of home surfers in Europe and 2% in the US have such high-speed connections. With such high requirement of connection speed, it will discourage potential customers to shop at this website again.

Although Boo.com looked great, anyone visiting it in November 1999 was confronted with a formidable array of windows.

Poor Marketing

Besides, Boo.com marketed itself as a premium fashion retailer, stocking and providing quality products for the potential shoppers. However, premium products alway came with expensive charges. Traditionally, customers are attracted to buying over the Internet by cheaper pricing instead of expensive charges. Although Boo.com with high technology enabled shoppers to view the items in 3D and gave a distinct visual feel on the products, but they didn’t account the main key of internet buying – lower prices. Furthermore, Boo.com did not wish to offer discounts, as it will devalue their brand and reputation.

Overstaffed, Overpaid, Over here

Boo.com attempted to create a perfect working environment for its employee, with plenty of staffing including a call centre 8 people, and approximately 400 staff in all, which proved to be excessive and expensive. (Financial Times, 18th May 2000)

For a company that employed 400 people when it only estimated it needed 30, such disappointing revenue was hardly enough to keep it running. Perhaps that’s why eight weeks before Boo.com demise, Boo.com had only managed to generate $ 200,000 turnover in 300,000 customers. In addition, the company still needed countless millions in additional funding and spending.

In retrospect, Boo.com simply tried to do too much, too soon. With over half of Britain’s Internet users now on broadband and trust for online shopping much greater than it was in 2000, Boo.com could have seen great success.

Boo.com eventually burned through $160 million before liquidation in May 2000.



What is important is not making it look good but making it fast and easy to use – Mark Baillie

It was a real mish-mash when it went live – Jim McNiven, Kerb

In 2005, CNET called boo.com the sixth greatest dot-com flop.

E-commerce success example and its causes

AirAsia.com is one of the leading example of a successful e-commerce in Asia. AirAsia is a low fare airline in the Asia - AirAsia is one of the pioneers that started implementing online ticketing in the airline industry and has been expanding rapidly since 2001, to become an award winning and the largest low cost carrier in Asia. With a fleet of 72 aircrafts, AirAsia flies to over 61 domestic and international destinations with 108 routes, and operates over 400 flights daily from hubs located in Malaysia, Thailand and Indonesia. To date, AirAsia has flown over 55 million guests across the region

How did AirAsia manage to achieve this in such a short period of time? Several factors have a role in the success of any e-commerce venture, and so does AirAsia.com

One of the reasons why AirAsia.com can draw customers to purchase their air ticket online is because they provide an attractive website. The tasteful use of colour, graphics, animation, photographs, fonts, and white-space percentage may aid success in this respect. As customers log in to airasia.com, they can see the striking red colour background and also two columns to choose which country and the language preference they are comfortable with. Besides, there is also a beautiful picture of airasia pleasant stewardess that welcome visitors that log on to the website.

Apart from that, airasia also provides personal attention to their customers. Personalized web sites, purchase suggestions, and personalized special offers may go some of the way to substituting for the face-to-face human interaction found at a conventional point of sale. In airasia.com, regular customers may join in as a member to be able to log in their personalize web pages to do online purchasing or online reservation. Customers are also greeted by their respective names in the web pages. Besides, customers will be notified personally if there are any latest promotions offered.

In addition, providing a sense of community is also a crucial success factor. For instance, having chat rooms, discussion boards, soliciting customer input, loyalty schemes and affinity programs can help in this respect. Airasia.com provides a blog to serve as a platform for its employee, customers, and suppliers to voice out their comments and feedback regarding the company’s services or problems encountered. This way, airasia can make changes to improve further according to the demand of its customers.

On top of that, providing an incentive for customers to buy and to return is another way to attract customers. Thus, sales promotions to this end for example, coupons, special offers, and discounts make customers feel that the purchase is worth the money they pay for. When the promotion is more worth it compared to the competitors, customers will choose to stay with airasia.

Lastly, the reliability and security of the airasia web site is essential to build customers’ trust. For instance, parallel servers, hardware redundancy, fail-safe technology, information encryption, and firewalls can enhance this requirement. With this backup and safety features implemented, customers will be more confident when performing transaction online to purchase the air tickets.