Page 144 - Electronic Commerce

Selling on the Web

REVENUE MODELS F OR ONLINE BUSINESS

As you learned in Chapter 1, a useful way to think about electronic commerce implemen-
tations is to consider the various strategies that can be used to generate revenue, which are
called revenue models. Not all electronic commerce initiatives have the goal of providing 119
revenue; some are undertaken to reduce costs or improve customer service. You will learn
about those types of initiatives in Chapter 5. In this chapter, you will learn about various
models that online businesses currently use to generate revenue, including Web catalog, digital
content, advertising-supported, advertising-subscription mixed, and fee-based models.
These approaches can work for both business-to-consumer (B2C) and business-to-
business (B2B) electronic commerce. Many companies create one Web site to handle both
B2C and B2B sales. Even when companies create separate sites (or separate pages within
one site), they often use the same revenue model for both types of sales.

Web Catalog Revenue Models
Many companies sell goods and services on the Web using an adaptation of a revenue model
that is more than 100 years old. In 1872, a traveling salesman named Aaron Montgomery Ward
started selling dry goods to farmers through a one-page list. Richard Sears and Alvah Roebuck
began mailing catalogs to farmers and small-town residents in 1895. Both Montgomery Ward
and Sears, Roebuck & Company grew to become dominant retailers in the United States by the
1950s, with retail stores serving urban markets and the catalog business well established in
serving rural and small-town markets. The general acceptance of the mail order catalog
business built a solid base for the Web-based version that would evolve from it in the 1990s.
In the traditional catalog-based retail revenue model, the seller establishes a brand
image, and then uses the strength of that image to sell through printed information mailed
to prospective buyers, who place orders by mail or telephone. For more than a century,
this revenue model, called the mail-order or catalog model, has been successful for a wide
variety of consumer items, including apparel, computers, electronics, housewares, and
gifts. Other companies that succeeded as mail-order businesses in the twentieth century
include J.C. Penney, LL Bean, and Hickory Farms.
Many companies have adapted this revenue model to the online world by replacing
or supplementing their print catalogs with information on their Web sites. This revenue
model is called the Web catalog revenue model. Most customers today place orders
through the Web site, but in the early years of electronic commerce, many shoppers used
the Web to obtain information about products and compare prices and features, and then
made their purchases by telephone. Types of retail businesses that use the Web catalog
revenue model include sellers of computers, consumer electronics, books, music, videos,
jewelry, clothing, flowers, and gifts. Many general merchandisers also use the Web catalog
revenue model. B2B sellers have also been avid adopters of the Web catalog model. Items
such as tools, electrical and plumbing parts, and every imaginable industrial supply item
from sandpaper to valve gaskets are now offered for sale online.
Many of the most successful online businesses using the Web catalog revenue model
are firms that were already operating in the mail-order business and simply extended

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