E- Business Ninth Edition

E- BusinessNinth Edition

Chapter 7Virtual Communities

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Virtual Communities

• Virtual community (Web community, online community)– Gathering place for people and businesses

• No physical existence

• Early virtual communities– Bulletin board systems (BBSs)

• Revenue source: monthly fees and selling advertising

– Usenet newsgroups• Message posting areas on usenets

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Virtual Communities (cont’d.)

• Current forms– Web chat rooms– Sites devoted to specific topics or general exchange

of information, photos, videos– People connect and discuss common issues,

interests– Considerable social interaction– Relationship-forming activities

• Similar to physical communities


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Social Networking in the Second Wave of Online Communities

• As the Internet and Web grew:– Experience of sharing new online communication faded– New phenomenon in online communication began

• Multiple common bonds joined people with all types of common interests

– Internet became a tool to facilitate communication

• Social networking sites– Allow individuals to create and publish a profile, create

a list of other users with whom they share a connection (or connections), control that list, and monitor similar lists made by other users


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Social Networking in the Second Wave of Online Communities (cont’d.)

• Social networking sites– Six Degrees (1997); Closed in 2000.– Friendster (2002)

• Had features found in today’s social networking sites– LinkedIn: devoted to business connections– Tribe.net– YouTube: popularized video inclusion– MySpace: popular with younger Web users– Twitter

• Users can send short messages to other users who sign up to follow their messages (tweets)


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• Basic idea behind social networking– People invited to join by existing members– Site provides directory

• New members work through friends established in the community


FIGURE 7-1 Social networking Web sites


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• Web logs (Blogs)– Web sites containing individual commentary on

current events or specific issues– Form of social networking site

• Encourages interaction among people• Visitors add comments

• Early blogs focused on technology topics• 2004: blogs used as political networking tool• 2008: all major candidates using blogs

– Communicating messages, organizing volunteers, raising money, meetups


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• Retailers embracing blogs to engage site visitors– Bluefly.com online discount apparel retailer

• Flypaper blog

– Ice.com online jeweler• Blogs may encourage potential customers to visit online

store

• Business uses– CNN

• Blog information included in television newscasts


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• Business uses (cont’d.)– Newspapers

• Inviting information and opinion contributions

• Targeting 18- to 35-year-old generation

– Participatory journalism• Trend toward having readers help write the online

newspaper

• Blogs can become businesses in themselves– Must generate financial support (fees, advertising)


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• Social networking Web sites for shoppers– Social shopping

• Practice of bringing buyers and sellers together in a social network to facilitate retail sales

– Example: craigslist• Operated by not-for-profit foundation

• All postings free (except help wanted ads)

– Example: Etsy Web site• Marketplace for selling handmade items

• We Love Etsy: Etsy buyers, sellers share information


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• Social networking Web sites for shoppers (cont’d.)– Social networking sites form communities based on

connections among people– Idea-based virtual communities

• Communities based on connections between ideas

– Idea-based networking• Participating in idea-based virtual communities

• Examples: del.icio.us site, 43 Things site


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• Web portals– Combine portal and social networking features– Typical portal offerings

• Search engines, directories, free e-mail, news stories, weather reports

– Social networking elements• Games and chat rooms

• Allow site visitors to interact with each other

– Examples:• Yahoo!, AOL, MSN


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Revenue Models for Social Networking Sites

• By late 1990s:– Revenue created by selling advertising

• Used by virtual communities, search engine sites, Web directories

• 1998– Purchases and mergers occurred– New sites still used advertising-only revenue-

generation model• Included features offered by virtual community sites,

search engine sites, Web directories, other information-providing and entertainment sites

– Goal: be every Web surfer’s doorway to the Web


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Revenue Models for Social Networking Sites (cont’d.)

• Advertising-supported social networking sites– Smaller sites with specialized appeal

• Can draw enough visitors to generate significant advertising revenue

• Example: I Can Has Cheezburger site

– Recall from Chapter 3:• Sites with higher number of visitors can charge more

• Stickiness: important element in site’s attractiveness

– Rough measure of stickiness• Time user spends at the site


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FIGURE 7-2 Popularity and stickiness of leading Web sites


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• Advertising-supported social networking sites (cont’d.)– Social networking sites

• Members provide demographic information• Potential for targeted marketing: very high

– High visitor counts• Can yield high advertising rates

– Second-wave advertising fees• Based less on up-front site sponsorship payments• Based more on revenue generation from continuing

relationships with people who use the social networking sites


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• Mixed-revenue and fee-for-service social networking sites– Most social networking sites use advertising– Some charge a fee for some services

• Examples: Yahoo! All-Star Games package, Yahoo! premium e-mail service

– Monetizing• Converting site visitors into fee-paying subscribers or

purchasers of services

• Concern: visitor backlash

– More examples: The Motley Fool and TheStreet.com


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• Fee-based social networking– Google Answers site

• Early attempt to monetize social networking• Questions answered for a fee• Google operated service from 2002 to 2006

– Similar free services• Yahoo! Answers, Amazon (Askville)

– Uclue (paid researchers earn 75 percent of total fee)• Advocates claim better quality

– Fee-based Web sites can generate revenue by providing virtual community interaction


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• Microlending sites– Function as clearinghouses for microlending activity– Microlending

• Practice of lending very small amounts of money

• Lend to people starting or operating small businesses (especially in developing countries)

– Microlending key element• Working within social network of borrowers

• Provide support, element of pressure to repay

– Examples: Kiva and MicroPlace


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Mobile Commerce

• Short messaging service (SMS)– Allows mobile phone users to send short text

messages to each other

• 2008: United States developments allowing phones as Web browsers– High-speed mobile telephone networks grew

dramatically– Manufacturers offered range of smart phones with

Web browser, operating system, applications


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Mobile Operating Systems and Applications

• Japan and Southeast Asia mobile commerce– Much larger online business activity

• Had high-capacity networks early on

– Mobile wallets• Mobile phones functioning as credit cards

– Japan’s NTT DoCoMo phones combined capabilities• Generate significant business


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Mobile Operating Systems and Applications (cont’d.)

• United States mobile commerce capabilities began in 2008– Smart phone and high-capacity network introductions

• Mobile commerce smart phone examples– Apple iPhone, Palm Pre, several BlackBerry models

• Use the Android operating system

• Provide serious U.S. mobile commerce for the first time


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Mobile Operating Systems and Applications (cont’d.)

• Mobile commerce browser display options– Wireless Application Protocol (WAP)

• Allows Web pages formatted in HTML to be displayed on devices with small screens

– Display a normal Web page on the device• Made possible by increased screen resolution

• Example: Apple iPhone

– Design Web sites to match specific smart phones• Much more difficult to accomplish


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The Future of Mobile Commerce

• Companies wanting mobile user commerce– Review Web sites for compatibility

• May create separate Web sites for mobile users

• Mobile phones for online banking– In early stages in the United States

• Physicians using smart phones

• Phones’ global positioning satellite (GPS) service capabilities– Allow mobile business opportunities


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Online Auctions

• Business opportunity perfect for the Web

• Auction site revenue sources– Charging both buyers and sellers to participate– Selling advertising

• Targeted advertising opportunities available

• Online auctions capitalize on Internet’s strength– Bring together geographically dispersed people

sharing narrow interests


Auction Basics

• From Babylon to the Roman Empire to Buddhists

• Common activity of 17th century England– Sotheby’s (1744), Christie’s (1766), colonial auctions

• Auction: seller offering item for sale – Bids: price potential buyer willing to pay– Bidders: potential buyers– Private valuations: amounts buyer willing to pay– Auctioneer: manages auction process– Shill bidders: work for seller or auctioneer

• May artificially inflate price


Auction Basics (cont’d.)

• English auctions– Bidders publicly announce successively higher bids

• Item sold to highest bidder (at bidder’s price)

– Also called ascending-price auction– Open auction (open-outcry auction)

• Bids publicly announced

– Minimum bid• Beginning price

• If not met: item removed (not sold)



• English auctions (cont’d.)– Reserve price (reserve)

• Seller’s minimum acceptable price• Not announced• If not exceeded: item withdrawn (not sold)

– Yankee auction• Multiple item units offered for sale (bidders specify

quantity)• Highest bidder allotted bid quantity• Remaining items allocated to next highest bidders until

all items distributed• Bidders pay lowest successful bidder price



• English auctions (cont’d.)– Seller drawback

• Small increments of bids Seller may not obtain maximum possible price

– Buyer drawback• Winner’s curse psychological phenomenon

– Bidder gets caught up in competitive bidding excitement– Bids more than their private valuation



• Dutch auctions– Open auction

• Bidding starts at a high price

• Drops until bidder accepts price

– Also called descending-price auctions– Seller offers number of similar items for sale– Common implementation

• Use a clock (price drops with each tick)

• Bidders stop clock and take items at the given price

• If items remain: clock restarted



• Dutch auctions (cont’d.)– Often better for the seller– Quickly move large numbers of commodity items– Successful examples:

• Google initial public offering stock sale (2004)

• LookSmart stock repurchase



• First-price sealed-bid auctions– Sealed-bid auctions

• Bidders submit bids independently

• Prohibited from sharing information

– First-price sealed-bid auction• Highest bidder wins

• If multiple items auctioned: next highest bidders awarded remaining items at their bid price



• Second-price sealed-bid auction– Same as first-price sealed-bid auction– Except highest bidder awarded item at second-

highest bidder price– Commonly called Vickrey auctions

• William Vickrey: 1996 Nobel Prize in Economics– Findings:

• Yields higher seller returns

• Encourages all bidders to bid private valuation amounts

• Reduces tendency for bidder collusion



• Open-outcry double auctions– Example: Chicago Board of Trade auctions of

commodity futures and stock options– Buy and sell offers shouted by traders in trading pit

• Each commodity, stock option traded in own pit

• Quite frenzied

• Double auctions (either sealed bid or open outcry)– Good for items of known quality traded in large

quantities– No item inspection before bidding



• Double auctions– Buyers, sellers submit combined price-quantity bids

• Auctioneer – Matches sellers’ offers

• Starts with lowest price and then goes up– To buyers’ offers

• Starts with highest price and then goes down until all quantities offered are sold

• Operation format– Sealed bid or open-outcry

• Example: New York Stock Exchange



• Reverse (seller-bid) auction– Multiple sellers submit price bids

• Auctioneer represents single buyer

– Bids for given amount of specific item to purchase– Prices go down as bidding continues:

• Until no seller willing to bid lower

– Occasionally operated for consumers– Most involve businesses as buyers and sellers


FIGURE 7-4 Key characteristics of seven major auction types


Online Auctions and Related Businesses

• Online auction business: rapidly changing

• Three auction Web site categories– General consumer auctions– Specialty consumer auctions– Business-to-business auctions

• Varying opinions on categorizing consumer auctions– Business-to-consumer– Consumer-to-consumer– Consumer-to-business


Online Auctions and Related Businesses (cont’d.)

• General consumer auctions• eBay: registration required, seller fees, rating

system– Seller’s risk: stolen credit cards; buyer fails to

conclude transaction – Buyer’s risk: no item delivery; misrepresented item– Most common auction format: English auction

• Seller may set reserve price• Bidders listed: bids not disclosed (until auction end)• Continually updated high bid amount displayed• Private auction option available



• General consumer auctions (cont’d.)– Another eBay auction format: Dutch auction– Both formats require minimum bid increment

• Amount by which one bid must exceed previous bid

– Proxy bid• Bidder specifies maximum bid

• May cause bidding to rise rapidly

– eBay stores• Integrated into auction site

• Sellers generate additional profits



• eBay’s success due to unspecified audience– Also spends $1 billion each year to market and

promote Web site

• Major determinants of Web auction site success– Attracting enough buyers and sellers

• Yahoo! Auction operation closed in 2007

• Amazon.com with “Auctions Guarantee”– Offered buyer protection through escrow service– Closed in 2006

• Overstock.com (still active)


• Future challengers to eBay– Must overcome lock-in effect

• New auction participants inclined to patronize established marketplaces

– Example: Japanese general consumer auction• Yahoo! first to enter market

– Now dominates (more than 90% market share)

• eBay maintains low market share (less than 3%)



• Specialty consumer auctions– Identify special-interest market targets– Create specialized Web auction sites

• No need to compete with eBay

– Examples:• JustBeads.com, Cigarbid.com, Winebid



• Consumer reverse auctions

• Reverse bid– Visitor describes desired items or services– Site routes visitor to participating merchants

• Reply to visitor by e-mail

• Offer item at particular price

– Buyer accepts• Lowest offer

• Offer best matching buyer’s criteria

• All these types of sites now closed


E- Business Ninth Edition

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