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Introduction to the Internet Unit Outline The Yahoo Story A Variety of Perspectives The Internet The Web Hierarchy of Effects Explanation Internet Business Models The Web and the Economy The Yahoo Story “Jerry’s Guide to the World Wide Web” Human compiled index Yahoo! Index Advertising revenues nearly $100 million Stock rose from $13 to $172 per share between April 1996 to July 1998 The Yahoo Story Way to go Jerry (Yang) and Dave (Filo)! Current Yahoo! Stock price? Yahoo! A Variety of Perspectives A technology Social space Marketing tool Information publishing Economic, social and business contexts The Internet A network of computers (similar to a telephone system) WWWeb was a “child” of the internet and the part of the internet that can be “surfed” The child is now larger than the parent When people say “internet” usually they mean WWW The Internet as Technology Bits are the essential building blocks of digital information Takes on a zero or one value Grouping bits forms more complex information The Internet is all about moving bits from place to place The Internet as Technology (Cont.) Speed is important Internet is currently too slow Video on demand is the holy grail The Internet as Technology (Cont.) WWW was developed to make it easier for users to exchange bits A point and click graphical interface Sound, picture and video elements The Internet as Social Space A place where users communicate – e-mail – Usenet – Web • • • • • Chat rooms Conferencing Video conferencing Internet phone Interactive games Geocities The Internet as a Marketing Tool The Marketing Concept – An organization exists to satisfy customer wants and needs while meeting organization objectives Mass customization of communications and products is now possible Increasingly smaller target markets – A target market of one! The Internet as a Marketing Tool (Cont.) Used in Marketing for – Information gathering for planning – New products – Digital distribution channel and electronic storefront – Promotion that allows for two-way communication 50 million users in four years (television took 13) The Web In 1991 the National Science Foundation decided to allow commercial use of the Net Three stages – Information publishing – Transaction-based systems – Mass customization The Web - Information Publishing Business began with informational home pages (brochureware) Evolved to new product for some businesses (magazines, newspapers) People do research on the WWW Selling ads and sponsorships supports the content The Web - Information Publishing (Cont.) Portals – Entry points to the web – Index and retrieve information from other content providers – Largest is Yahoo! The Web - Transaction-Based Systems Allows firms to communicate and sell online More difficult (and expensive) – Online storefronts – Business to business commerce The Web - Transaction-Based Systems (Cont.) Web page must link to backend computer systems to validate and manage transactions and inventories Backend because the user never interacts with them directly The Web - Mass Customization Mass Customization – Creating systems that can personalize messages to a target audience of one. Two kinds - automatic and manual The Web - Mass Customization (Cont.) Automatic customization – Software tailors content to user based on info about user’s historical surfing behavior – Example is Amazon.com – Ethically controversial – What is the benefit delivered? The Web - Mass Customization (Cont.) Manual customization – Relies on explicit instructions from user – Common in the news delivery service – Example is CNN Interactive Lavidge & Steiner’s Hierarchy of Effects Model Awareness (think) Knowledge (think) Liking (feel) Preference (feel) Conviction (do) Purchase (do) What is Involvement? The extent to which something is somehow important to the consumer Driven by risk – Financial – Social – Performance – Psychological Impact of Involvement The greater the level of involvement, the greater the – time spent in search – effort expended in search Hierarchy of Effects Explanation High Involvement Awareness Cognitive (think) Knowledge Liking Affective (feel) Preference Conviction Purchase Conotive (do) Hierarchy of Effects Explanation Low Involvement Awareness Cognitive (think) Knowledge (low levels) Purchase Conative (do) Conviction Liking Preference Affective (feel) Internet Business Models Hierarchy of Effects Cognitive and Attitude Transactive Behavior (Revenue Generating) Business Model Stakeholder communication Branding lead generation Customer service E-mail databases Sell product Electronic publishing Sell Content Sell ads Agent services Internet Business Models Stakeholder Communications – information about the company and its brands (www.mcdonalds.com) – stockholders, consumers, employees, suppliers, media, government are all stakeholders – When the web site is stricly informational, this is brochureware Internet Business Models Branding – Selecting a brand name and/or mark and supporting with marketing communication – Object is to build brand equity - brand advertising – Internet has not been strong, but predicted growth - what do you think? Internet Business Models Sales promotions – Build short-term sales • Coupons (J. Crew) • Sampling (Hallmark) Internet Business Models Lead generation – Company uses e-mail or its web site to gather names of potential customers (HermanMiller) Internet Business Models Customer Service – Information for customers (Rollerblade) – Feedback mechanisms for communication with customers • e-mail - and databases, avoid spam • Customer satisfaction surveys Internet Business Models Sell Product – Online transactions – Largest segment business to business markets (about 2/3s of all dollars) but – Consumer transactions growing Internet Business Models Electronic Publishing – A subset of selling products – Media create online versions of product and either • 1) charge a subscription rate and/or • 2) sell advertising space • New York Times Internet Business Models Agent Services Firm acts as middleman but never takes posession – Aggregators (advertising, travel, commodities) (Travelocity) – Intermediaries (searching for lowest prices) – Syndicated selling (commisions to other web sites for customer referrals) (Amazon) Internet Business Models Agent Services – Be aware that the internet is a global medium! The Web and the Economy Real cost of a product is the nominal cost + search costs (Stigler) The cost of information is decreasing radically as a result of information on the web How does cheaper information lead to greater wealth? The Web and the Economy Internet Stocks are Up! Internet stocks are up (with some recent - late spring 1999 - fluctuations) This, despite the fact that most inernet companies are NOT making money Stock trading online is big The Web and the Economy New Media Revenues New media industry “combines elements of computing technology, telecommunications, and content to creaate products and services which can be used interactively by consumers and business users” (Coopers & Lybrand 1977, p.16) The Web and the Economy Reduced Inflation Commerce Department believes digital technology has helped keep inflation in check (from 3.1% down to 2%) Conflict between lower cost of information and bidding up of goods and services? The Web and the Economy Efficiency and Effectiveness Efficiency: minimized input to output ratio Effectiveness: making the right choices in order to maximize the company’s competitive advantage The Web and the Economy Gains to Efficiency Purchasing – automation, lower costs, downward price pressures through online bidding Inventory management – JIT and electronic ordering, reduced inventory holding costs Cycle times (new product development) Customer service (cost shifting?) Sales and marketing The Web and the Economy Gains to Effectiveness Purchasing – locating hard-to-find components Inventory management – Incorporate latest technology Cycle times (new product development) – Respond quickly to changes in the marketplace Customer service – Greater satisfaction, likelihood of repeat purchase Sales and marketing – Superior service, greater customer satisfaction The Web and the Economy Jobs – New media payrolls increased to $2.73 BILLION by mid 1997 – Number of new media companies grew by 16% and the number of employees grew by 31% – Marketing and sales positions in new media have quintupled during the 18 months ending in mid1997 – 31% of new media managers own equity in the business – New media companies represent the largest and fastest growing U.S. Industry sector in 20 years