Introduction to the Internet. Unit Outline n The Yahoo Story n A Variety of Perspectives n The Internet n The Web n Hierarchy of Effects Explanation n.

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

Knowledge

Liking

Preference

Conviction

Purchase

Cognitive (think)

Affective (feel)

Conotive (do)

Hierarchy of Effects Explanation

Low Involvement

Awareness

Knowledge

Liking

Preference

Conviction

Purchase

Cognitive (think) (low levels)

Affective (feel)

Conative (do)

Internet Business Models

Hierarchy of Effects Business Model

Cognitive and Attitude

Stakeholder communicationBranding lead generationCustomer serviceE-mail databases

Transactive Behavior (Revenue Generating)

Sell productElectronic publishing Sell Content Sell adsAgent 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 EconomyInternet 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 EconomyNew 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 EconomyReduced 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 EconomyEfficiency 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 EconomyGains 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 EconomyGains 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 EconomyJobs

– 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 mid-1997

– 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