SOCIAL NETWORKS,AUCTIONS, AND PORTALSChapter 11

Learning Objectives• 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 fraud• Describe the major types of Internet portals• Understand the business models of portals• Explain the difference between a traditional social network

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

communities and their business models

Online Auctions• Online auction sites are among the most popular consumer-to-

consumer (C2C) e-commerce sites on the Internet, although the popularity of auctions and their growth rates have slowed in recent years due to customers’ preferences for a “buy-now” fixed-price model

• The market leader in C2C auctions is eBay, which has 130 million active users in the US and over 350 million items listed on any given day within 18,000 categories

• In the US alone, there are several hundred auction sites, some specializing in unique collectible products, and others have adopting a more generalist approach

• Increasingly, established portals and online retail stores – from Yahoo and MSN to JCPenney and Sam’s Club – are adding auctions to their sites

Auctions• Auctions are markets in which prices are variable and

based on the competition among participants who are buying and selling products (dynamic pricing)

• Auctions are useful in situations where the price of an item is not known because it is rare, unique, or subject to wide fluctuations in demand or supply

• The purpose of an auction is to identify reservation prices – the lowest price a seller is willing to accept, or the highest price a buying is willing to pay

• There are several auction types that each attempt to efficiently identify the participant’s reservation prices

Auction Types• Price taking (fixed pricing)• English auction• Dutch auction• Name your own price• Sealed bid

• First price• Second price

• Double auction

Newer Forms of Dynamic Pricing• Trigger pricing

• Used in m-commerce, adjusts prices based on the location of the consumer

• Utilization pricing• Adjusts prices based on utilization of the product

• Personalization pricing• Adjusts prices based on the merchant’s estimate of how much the

customer truly values the product

Benefits of Auctions• Liquidity

• Convert unique items to cash

• Price discovery and market efficiency• Efficiently match supply and demand to find market value for an

item

• Price transparency• Participants can monitor auctions as they occur

• Lower transaction costs• Consumer aggregation and network effects

• Large auction markets are more valuable to participants

Risks and Costs of Auctions for Consumers and Businesses• Delayed consumption costs• Monitoring costs

• Can be reduced by watch lists, proxy bidding, etc.

• Equipment costs• Trust risks• Fulfillment costs

Fraud and Abuse in Online Auctions• Online and offline auction markets are particularly prone

to fraud• According to the Internet Crime Complaint Center (IC3),

Internet auction fraud was one of the top 10 types of fraud, but in 2012 it represented only 10% of total Internet fraud because other Internet crimes had grown so rapidly

E-Commerce Portals• Portals are the most frequently visited sites on the Web if

only because they typically are the first page to which many users point their browser on startup

• The top portals such as Yahoo, MSN, and AOL have hundreds of millions of unique visitors worldwide each month

• Web portals are gateways to the more than 100 billion Web pages available on the Internet

• Millions of users have set Facebook a their home page, choosing to start their sessions with news from friends

• Perhaps the most important service provided by portals is that of helping people find the information they are looking for on the Web

E-Commerce Portals (cont.)• Early portals were primarily search engines, but portals

have evolved into much more complex websites that provide news, entertainment, maps, images, social networks, in-depth information, and education

• Portals today seek to be a sticky destination site, not merely a gateway through which visitors pass

• Portals also serve important functions within a business or organization

• Enterprise portals help employees or members navigate to important content, such as HR information, corporate news, or organizational announcements

• blueView is an enterprise portal

Portal Value• Because the value of portals to advertisers and content

owners is largely a function of the size of the audience each portal reaches, and the length of time visitors stay on the site, portals compete with one another on reach and unique visitors

• Reach is defined as the percentage of the Web audience that visits the site in a month

• Unique visitors is defined as the number of uniquely identified individuals who visit in a month

• Portals are inevitably subject to the network effect• How does this affect their business strategy?

Social Networks and Online Communities (Past)

• From the beginning, the Internet was intended to be a community-building technology that would allow scientists to share data, knowledge, and opinions in a real-time online environment

• The early online communities involved a relatively small number of Internet aficionados, and users with intense interests in technology, politics, literature, and ideas

• The technology was largely limited to posting text messages on bulletin boards sponsored by the community, and one-to-one or sending one-to-many e-mails

Social Networks and Online Communities (Present)• By 2002, the nature of online communities had begun to

change• User-created blogs became inexpensive and easy to set

up without any technical expertise• Photo sites enabled convenient sharing of photos• Beginning in 2007, the growth of mobile devices enabled

sharing of riche media such as photos, music, and videos• Suddenly there was a much wider audience for sharing

interests and activities, and much more to share

Social Networks and Online Communities (Present)• A new culture emerged as well• Online communities broadened to include a much wider set of

people and tastes, especially pre-teen, teens, and college students who were the fastest to adopt many of these new technologies

• The new social network culture is very personal and “me” centered, displaying photos and broadcasting personal activities, interests, hobbies, and relationships on social network profiles

• Today’s social networks are as much a sociological phenomenon as they are a technology phenomenon

• Currently, social network participation is one of the most common usages of the Internet (about two-thirds of all Internet users in the US, 163 million people)

What is an online social network?• Social networks involve:

• A group of people• Shared social interaction• Common ties among members• People who share an area for some period of time

• Online social networks are a variation of traditional social networks facilitated by the Internet with some differing characteristics including the removal of geographic and time limitations

The Future of Social Networks• Social networking in 2013 is one of the most popular online

activities• Will it stay that way or grow even more popular?• Will the industry become more concentrated (Facebook

increasing their market share), or become less concentrated?• Many young users report “network fatigue”• The financial future of social networks is to become advertising

and sales platforms, but they are not yet proven advertising platforms that drive sales

• The relationship between “like” and sales is not clear yet• As social networks attempt to monetize their huge audiences,

user resentment grows• Use of users private information also creates feelings of betrayal

and fear