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Social Networks, Auctions & Portals. Chapter 11
Social Networks & Online Communities The Internet was designed originally as a
communications medium to connect scientists in computer science departments around the continental United States.
The early online communities involved a relatively small number of web aficionados, and users with intense interests in technology, politics, literature, and ideas.
Social Networks & Online Communities
By 2002 the nature of online communities had begun to change Cell phones and mobile internet
devices provided widespread access, making it possible to communicate with friend and relatives and keep track of one another in a way not possible before.
Social Networks & Online Communities
Currently, social network participation is one of the most common usages of the internet. about 44% of all internet users in the
united states have at one time or another gone online to social network site.
The growth of social networks and online communities Myspace, with 60 million visitors a month, was the
largest social network in terms of unique visitors, while social networks originally attracted mostly internet users under 35,(with average incomes of more than $75,000),and most have college degrees(eMarketer,Inc,2008).
By 2011, Facebook has taken over its competitors and now is the most popular Social Networking website:
• More than 500 million active users • 50% of active users log on to Facebook in any given
day • Average user has 130 friends • People spend over 700 billion minutes per month on
The growth of social networks and online communities
The top 4 portals (Yahoo, Google, AOL and MSN) generate about $12 billion annually in revenue.
Social networking sites in the United States in 2008 were expected to generate a total of about $1.4 billion in advertising revenue, up from about $920 million in 2007 (eMarketer,Inc,2008).
Types of social networks and their business models
1. General communities offer members opportunities to interact with a general audience organized into general topics.
2. Practice networks ,offer members focused discussion groups, help, information, and knowledge relating to an area of shared practice.
Types of social networks and their business models
3. Interest-based social networks ,offer members focused discussion groups based on a shared interest in some specific subject, such as business careers, boats, horses, health, skiing, and thousands of other topics.
4. Affinity communities, offer members focused discussions and interaction with other people who share the same affinity.
Types of social networks and their business models
5. Sponsored communities, are online communities created by government, nonprofit, or for-profit organizations for the purpose of pursuing organizational goals.
Social network features and technologies Social networks have developed
software applications that allow users to engage in a number of activities. Not all sites have the same features, but there is an emerging feature set among the larger communities.ChatMessagingPhoto tag
Online Auctions
Online auction sites are among the most popular consumer-to consumer (C2C) e -commerce sites on the internet, the market leader in C2C auctions is e Bay.
Defining & Measuring The Growth of Auctions and Dynamic Pricing Auctions are markets in which prices are
variable and based on the competition among participants who are buying or selling products and services.
Auctions are one types of dynamic pricing, in which the price of the product varies, depending directly on the demand characteristic of the customer and the supply situation of the seller.
Forms Of Dynamic Pricing On The Internet Trigger Pricing: used in m-commerce
applications, 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 merchants estimate of how much the customer truly values the product.
Types of Auctions
The most widely known auctions are consumer-to consumer (C2C)auctions, in which the auction house acts as an intermediary market maker, providing a forum where a consumers can discover prices and trade.
Business –to Consumer (B2C) auctions, in which auction house sells goods it owns, or controls using various dynamic pricing models.
Why are auctions so popular?
The internet provides a global environment and very low fixed and operational cost for the aggregation of huge buyer audiences composed of millions of consumers worldwide who can use a universally available technology.
Benefit of Auctions
Liquidity: the internet enormously increased the liquidity of traditional auctions that usually required all participants to be in a single room. Now sellers and buyers can be located anywhere around the globe.
Price discovery: Public Internet auctions allow everyone in the world to see the asking and bidding prices for items. Still may be more than one world price for a given item (there are inter-market price differences).
Market efficiency: Auctions can, and often do, lead to reduced prices, and hence reduced profits for merchants, measure of market efficiency. Provide consumers the chance to find real bargains at potentially give-away, provide access to a very wide selection of goods that would be impossible for consumers to physically access by visiting stores.
Benefit of Auctions
Lower transaction costs: Online auctions can lower the cost of selling and purchasing products, benefiting both merchants and consumers. Internet auctions have very low (but not zero) transaction costs.
Consumer aggregation: Sellers benefit from large auctions sites ability to aggregate a large number of consumers who are motivated to purchase something in one market space.
Network effects: Here are a lot of people from all world, lower transaction costs, higher efficiency, and better price transparency.
Delayed consumption costs: Shipping will take additional time.
Monitoring costs: Participation in auctions requires your time to monitor bidding.
Equipment costs: Internet auctions require you to purchase a computer system, pay for internet access, and learn a complex operating system.
Trust risks: Online auctions are the single largest source of Internet fraud. Using auctions increases the risk of experiencing a loss.
Fulfilment costs: The buyer pays fulfilment costs of packing, shipping, and insurance, whereas at a physical store these costs are included in the retail price.
Risk and cost of auctions of customers and business
Auction fraud is the leading source of commerce complaints to federal law enforcement officials.
Merchants face considerable risks and costs as well. Non payment, false bidding, bid rigging, monitoring, transaction fees charged by the auction site, credit card transaction processing fees
Risk and cost of auctions of customers and business
Market-Maker Benefits
There are only 1-3 large auction sites (eBay, BidZ, Amazon) which dominate, and hundreds of smaller auction sites being barely profitable, because they lack sufficient sellers and buyers to achieve liquidity.
Auction sites carry no inventory and do not perform any fulfilment activities – they need no warehouses, shipping or logistical facilities. For example, eBay has expended into three lines of
business: • marketplaces (the original business), • payments (PayPal), • and communications (Skype).
Which means eBay earns revenue in several ways: transaction fees, listing fees, financial service and advertising fees
Types and examples of auctions
Internet auctions are very different from traditional auctions.
Traditional auctions are relatively short-lived, and have a fixed number of bidders, usually present in the same room.
Online Internet auctions, in contrast, can go on much longer (a week), and have a variable number of bidders who come and go from auction arena.
Types and examples of auctions
One/Few
BUYERS
One/Few Many
Market Neutral(Negotiation)
Seller Bias(eBays Auction)
SELLERS
ManyBuyer Bias
(Priceline and Sealed Bidding)
Market Neutral(Stock Exchanges)
Public Vs. Private Information In Dynamically Priced Markets
Private information – in some dynamic markets, the price being is secret , and are known only to one party, bidders don’t know what other are bidding, and must bit their ‘best’ price;
Public information - in auction bid price usually is public information. Here the risks are that bidders agree offline to limit their bids, that sellers use shills to submit false bids, or that seller’s use driving price up. In matching price sellers don’t sell bellow floor prices on auction items which they will not sell.
1. English auctions:
Features: • single item up for sale to single seller• multiple buyers• time limit
ascending-price auction, starting from a low price;highest bidder wins (bidding increases until no
bidder is willing to bid higher).
Reserve price: minimum bid
Major auction types
Major auction types
2. Traditional Dutch auction:(Dutch flower market)
Features:
① descending-price auctions:
starting from a high price, bidding automatically decreases until the bidder accepts the price.
② good for moving large numbers of items.
Major auction types
3. Dutch Internet auction:
Multiple units (perfect for sellers that have many identical items to sell);
Public ascending price; Final price is lowest successful bid, which
sets price for all higher bidders; Bidders also specify the quantity they
want to buy.
Major auction types
4. First-price sealed-bid auctions:
Features: • secret bidding process• the highest bidder pays the amount of the
highest bid. • Bidders submit their bids independently and
don’t share information with each other.
Major auction types
5. Second-price sealed-bid auctions
Features: • secret bidding process• the highest bidder pays the amount
of the second-highest bid
Major auction types
6. Name your own price auctions
Users specify what they are willing to pay for goods or services and multiple providers bid for their business
Prices do not descend and are fixed
Major auction types
7. Group buying auctions (demand aggregators)
Group buying of products at dynamically adjusted discount prices based on high volume purchasesTwo principlesSellers more likely to offer discounts to buyers purchasing in volumeBuyers increase their purchases as prices fall
Major auction types
8. Professional service auctions
Example: Elance.com (a sealed-bid, dynamic-priced market for freelance professional services; a reverse Vickrey-like auction)
Major auction types
9. Auction aggregators (Mega auctions)
• Use Web-crawlers to search thousands of Web auction sites and accumulate information on products, bids, auction duration, etc.
When to use online auctions (for what) in business.
There are many different situations in which auctions are an appropriate for business to consider. The objective of consumers is to receive the greatest value for the lowest cost. Switch perspectives now to that of a business.
Remember the objective the objective for business using auctions is to maximize their revenue (their share of consumers surplus) by finding the true market value of products and services, a market value that hopefully is higher in the auction channel than in fixed-price channels.
Factors to consider when choosing auctions
Factors to consider when choosing auctions
Consideration Description
Type of product Rare, Unique, Commodity, perishable.
Stage of product life cycle Early, Mature , Late
Channel Management issues Conflict with retail distributors; differentiation
Type of auction Seller vs Buyer bias
Initial pricing Low vs High
Bid increment amounts Low vs High
Auction Length Short vs long
Number of items Single vs Multiple
Price allocation rule Uniform vs Discriminatory
Information sharing Closed vs open bidding
Online Auctions Type of product: Online Auctions are most commonly used for rare and
unique products for which prices are difficult to discover, and there may have been no market for the goods.
Product Life cycle: for the most part business have traditionally used auctions for goods at the end of their life cycle and for products where auctions yield a higher price than fixed-price liquidation sales.
Channel management: established retailers such as JCPenney, Wall-Mart, and manufacturers in general, must be careful not to allow their auction activity to interfere with their existing profitable channels. For this reason items found on established retail-site auctions tend to be late in their product life cycle, or have quantity purchase requirements.
Type of auctions: Several types of online auctions are possible. In an English auction the initial price starts low and is bid up by successive bidders. In a Dutch auction, multiple identical items are offered in one auction, with all winning bidders paying the same price -- the highest price at which all items will be sold (treasury bills, for example, are auctioned this way). Currently almost all online auctions use the English auction method.
Initial pricing: research suggests that auction items should start out with law initial bid prices in order to encourage more bidders to bid . The lower the price, the larger the number of bidders will appear. The larger the number of bidders, the higher the prices move.
Online Auctions Bid Increments: Its generally safest to keep bid increments low so as
to increase the number of the bidders and the frequency of their bids.
Auction Length: The longer auctions are scheduled, the larger the number of bidders and the higher prices can be go. However once the new bid arrival rate drops off and approaches zero, bid prices stabilize.
Number of items: when business has a number of items to sell, buyers usually expect a ”volume discount” and this expectation can be cause lower bids in return. Therefore, sellers should consider breaking up very large bundles into smaller bundles auctioned at different time.
Price allocation rule: Most Buyers believe it is “fair” that everyone pey the same price in a multi-unit auction, and a uniform pricing rule is recommended. The idea that some buyers should pay more based on their differential need for the product is not widely supported. Therefore sellers who want to price discriminate should do so by by holding auctions for the same goods on different auctions markets, or at different times, to prevent direct price comparison.
Closed vs Open bidding: Closed bidding has many advantages for the seller, and sellers should use this approach whenever possible because it permits price discriminations without offending buyers. However, open bidding carries the advantage of “herd effects” and “winning effects” in which consumers competitive instincts to “win” drive prices higher then even secret bidding would achieve.
Auction Prices: Are they the lowest? It is widely assumed that auction prices are lower than
prices in other fixed-price markets. There are many reasons why auction prices might be
higher than those fixed-price markets for items of identical quality, and why auction prices in one auction market may be higher than those in other auction markets.
A considerable body of previous research has shown that consumers are not driven solely by value maximization, but instead are influenced by many situational factors, irrelevant and wrong information, and misperception when they make market decisions.
Consumer trusts in Auctions Auction sites have the same difficulties
crating a sense of consumers trust as all other e-commerce web sites, although in the case of auction sites, the operators of the market place do not directly control the quality of goods being offered and can not directly vouch for the integrity of customers. This opens the possibility for criminal actors to appear as either the sellers or buyers.
When Auction Markets fail: Fraud and Abuse in Auctions
Markets fail to produce socially desirable outcomes (maximizing consumer welfare) in 4 situations: Information Asymmetry. Monopoly Power. Public Goods Externalities.
Online and offline auction market are particularly prone to fraud, which produces information asymmetries between seller and buyer and among buyers, which in turn causes auction markets to fail.
E-COMMERCE PORTALS
Portals are the most frequently visited sites on the web.
The top portals such as yahoo, aol, and msn they have hundreds of millions visitors worldwide each month.
50 billion web pages available on the internet to help the people to find the information they are looking for on the web. Portals are places where people linger for a long time.
Portals also serve important function within a business or organization.
Most corporations universities and other formal organizations have enterprise portals, for example university has a portal through which u can register 4 courses , find out class rooms assignments, and perform and host of other important activities.
The growth and evaluations of portals Web portals have changed a great deal from their
initial function and rule. Early portals expected visitors to stay only a few
minutes at the site. At the first few people understood how a web search
site could make money by passing customers onto other destinations
Advertising search sites recognizing the potential for e-commerce, expanded their offerings from simple navigation to include commerce
Investment Game-Health these three characteristics have become the basic definition of portal sites since 2006.
Types of Portals
General Purpose Portals: some general pusposes such as msn.com, and AOL.com offers,
telecommunications providers Web search engines Free emails Personal homepages Chat rooms Community building software
Vertical Market: vertical content channels on general purpose portal sites offer contents such as ESPN.com, and Bloomberg.com offers,
Sport scores Automobile Infogormations Auctions Stock Takers Health Tips
Top 5 Portal/ Search Engines in the US
Battle of the portals
What is the difference between AOL, MSN, YAHOO, and GOOGLE? Google does not have its own content and all the
others do, and google has google earth, google maps, images, and videos.
Google is a place you visit on your way somewhere else the other portals are places you go to and hang around for awhile, google is not a content company but an indexer of all other people’s contents, they all have decided to become the primary gateway to the internet for the entire world.
Portal Business Models
Portal receives income from a number of different sources. The revenue base of portals is changing and dynamic with some of the largest sources of revenue declining.
The business strategies of both general and vertical portals have changed greatly because of the rapid growth in search engine advertising and intelligent ad placement networks Ex. Google’s AdSense, which can place ads on
thousands of web sites based on the content of the web site.
The general portal sites (AOL, MSN, and Yahoo) did not have well developed search engines. But attempting to provide more premium content focused on sub-communities of their portal audience.
Typical Portal Revenue SourcesThe table below summarizes the major portal revenue sources.
TYPICAL PORTAL REVENUE SOURCES
PORTAL REVENUE SOURCE DESCRIPTION
ISP services Providing web access and email services for monthly fee
General advertising Charging for impressions delivered
Tenancy deals Fixed charge for guaranteed number of impressions, exclusive partnership, “sole provider”
Commission on sales Revenue based on sales at the site by independent providers
Subscription fees Changing for premium content
E-COMMERCE IN ACTION YAHOO! INC Was found as a search engine in 1994 by 2
Stanford students David Filo and Jerry Yang. It has grown into a $7billion online brand name juggernaut.
Yahoo has had unprofitable periods in the past but in 2002 to 2005, their net income grew in leaps and bounds from 42million to $1.89billion driven resurgence in internet advertising , the spread of broadband connections and information
E-COMMERCE IN ACTION YAHOO! INC The Vision
Yahoo vision was an investor relations documents and securities filing as a leading global internet brand and one of the most trafficked internet destinations worldwide.
Seeks to provide internet services that are essential and relevant to users and business through its global audience of users and advertisers
E-COMMERCE IN ACTION YAHOO! INC Business Model
Yahoo gives away some user service for free such as search, basic photo and videos sharing, maps local weather etc and earns money from marketing services mostly advertising and subscription fees for premium content. Approximately 88% of yahoo’s revenue in 2007 was from the sale of advertising. 12% from other fees.
E-COMMERCE IN ACTION YAHOO! INC Financial Analysis
Yahoo net revenue grew into $6.9billion. Its revenue doubled. It was aided by the general acceptance of the internet in the broader population producing King size Audience which has expanded internet advertising. Yahoo main source of revenue is advertising .
They maintain this level of growth-• Yahoo cost of Revenue consist mainly of traffic
acquisition cost – which involves payment made to affiliates who have integrated its search and or display any advertising into their website and payment made to companies that direct traffic to yahoo websites.
• Fees paid to third party content provider• Internet connection charges • Expenses for website production and delivery
costs
E-COMMERCE IN ACTION YAHOO! INC Yahoo’s cost of revenue has slowly
increased and its gross margin from 2006-2007.
Yahoo’s operating margins are positive but failing. In 2005 their net margin was 36%
while in 2007 it has fallen to 9.5%.
How could this happen?
E-COMMERCE IN ACTION YAHOO! INC The revenue growth in 2005-2007 was an acceptable 36%
(but it was not spectacular when compared to Google) and the cost of producing its services proportionately not changing by looking at operational expenses. Sales and marketing went up 56%
Yahoo doubled its R&D budget in an effort to build a more powerful search engine and a new display advertising system called APT.
Yahoo got sloppy and let its corporate bureaucracy (general and administrative ) cost balloon by 85%
Yahoo free cash flow remained $1.7b to $1.9b in 2007 it ended with $12.2billion total assets . 2billion was cash and short term investments, $2.4billion in current liabilities
Yahoo balance sheet is strong and could support aggressive expansion plans. This makes yahoo an attractive take over target
E-COMMERCE IN ACTION YAHOO! INC COMPETITION
Yahoo’s primary competition is Google, Microsoft and to a lesser extent, Time Warner (AOL)
• Yahoo lacks the direct billing relationship with the user which is a threat to yahoo and a strength to AOL/Time Warner operation and Microsoft MSN.
• Google’s acquisition on YouTube makes it even more dangerous competitor.
E-COMMERCE IN ACTION YAHOO! INC SOCIAL AND LEGAL CHALLENGES
As a portal, the main legal challenge faced by yahoo is the nature of the content it makes available and the ownership of content posted by others on its servers.
The digital copy right ACT is intended to reduce the liability of online service provider for listing or linking the third party web sites.
It may be held liable s online activities of individuals utilizing its services.
Changes in regulation and user privacy and protection of user data could affect Yahoo market efforts.
E-COMMERCE IN ACTION YAHOO! INC TECHNOLOGY
Yahoo licensed technology and related databases from a variety of third party providers for various functionality e.g. technology underlying the delivery of news, stock quotes and other financial information, chat services, street mapping, telephone listing, streaming capabilities and other services.
Outsourcing the bulk of its technical operations lessens the risk of a major malfunction.
Maintenance of the internet Infrastructure is one of yahoo success and growth.
Online securities issues like Spyware, Viruses and worms, denial of services attacks, could negatively impact yahoo.
E-COMMERCE IN ACTION YAHOO! INC FUTURE PROSPECTS OF YAHOO
Yahoo turned to Google for a lifeline agreement that will pour out $500 million a year into yahoo in return for allowing Google to place text ads on Yahoo’s search pages.
Yahoo great strength is, it is still the world’s leader in Online Content and online audience size.
It has assumed leadership in Asia, and done far better there than Google, eBay, or MSN.
Yahoo future depends on developing an alliance with Google on search (and search engine marketing), and extending its lead in content.
Thank you!
