E-Business Management and Strategies - Case Study Example

1. INTRODUCTION TO BUSINESS MODELS Rappa (no defines a business model as “the method of doing business by which a company can sustain itself – that is, generate revenue. The business model spells-out how a company makes money by specifying where it is positioned in the value chain.” Timmers (1998) adopts a broader perspective to include other stakeholders and defines a business model as “an architecture for the product, service and information flows, including a description of the various business actors and their roles; and a description of the potential benefits for the various business actors; and a description of the sources of revenues.” Novak and Hoffman (2001), without departing from the common elements of revenue for the business and customer value of the above definitions, propose a customer-centric framework for understanding and implementing business models. Just as many areas of the Internet are still not yet clear-cut, so is the term “business models”. On the internet today, there are various categories of business models. Some models mean the same thing but are given different names by their creators. With the evolution of the internet, many new models have emerged. At the same time, some do not stay long and have gone. Rappa (no date) identifies nine generic forms of business models, including the brokerage model, advertising model, infomediary model, merchant model, manufacturer model, affiliate model, community model, subscription model, and utility model. Timmers (1998) classifies business models by positioning them along the two dimensions of the degree of innovation and functional integration. In Novak and Hoffman (2001)’s customer-centric framework, for any business model to be successful, it must integrate customer models, value models, and revenue models. In this paper, the customer-centric framework of Novak and Hoffman (2001) will be adopted as each of the three subsidiary model answers questions such as who are the communities or customers served by the firm, how the firm attracts target audience, and where does the revenue for the firm come from respectively. 2. A THEORETICAL FRAMEWORK: NOVAK AND HOFFMAN’S CUSTOMER-CENTRIC BUSINESS MODEL According to Novak and Hoffman (2001)’s customer-centric framework, a successful business model consists of customer models, value models, and revenue models. A customer model is a segmentation of the users of the electronic business. The four groups of users are businesses, consumers, agents, and employees. Each customer model consists of two groups of users. The most common type of customer model seen on the internet today would be businesses to consumers. Businesses to businesses and consumers to consumers are not uncommon as well. Therefore, fourteen segmentations of customer models are possible, as shown by Figure 1. Figure 1 Customer Models Business (B) Consumer (C) Agent (A) Employee (E) Business (B) B:B B:C B:A B:E Consumer (C) C:B C:C C:A C:E Agent (A) A:B A:C A:A A:E Employee (E) E:B E:C E:A E:E Novak and Hoffman, 2001 The value model of Novak and Hoffman (2001)’s framework seeks to address how firms can attract target audience by providing them value. The twelve possibilities of how the web can create value are by offering brokerage service, content, search tools, incentives, freeware, communication, control, outsourcing, entertainment, transactions, affiliate opportunities, and communities. Of course, any model would not have commercial feasibility if it does not generate revenue for the firm. The revenue model identifies the revenue stream of the firm conducting electronic business. The seventeen revenue models are transaction fees, hosting fees, referral fees, subscription fees, license fees, pay-per-view, pay-per-performance, micropayment, advertising, sponsorships, ransom model, margin on sales of goods or services, sale of customer data, offline customer response, efficiency and effectiveness gains, value-added services (linux model), and virtual real estate. Various value models and revenue models can be created for each customer model, as shown in Figure 2. Figure 2 Value, Revenue and Customer Model Integration Revenue Model Trans. Fees Referral fees Hosting fees Subscribe PPV Micropay Ads Sponsor Margin Data sale Offline Real estate Value Model Brokerage Content Search Incentive Communication Outsourcing Entertainment Transaction Freeware Affiliates Community Novak and Hoffman, 2001 3. APPLICATION OF NOVAK AND HOFFMAN’S CUSTOMER-CENTRIC BUSINESS MODEL TO HARPO, INC. AND ROBIN HAMMAN In this section, Novak and Hoffman (2001)’s customer-centric business model is used to evaluate and compare the business models adopted by Harpo, Inc. and Robin Hamman, identify the communities served by the web sites, and describe and contrast how the sites attract their target audiences. These tasks are accomplished by first the identification of the customer models that will provide a brief introduction to each organization and the communities served by them. This is followed by identification and analyses of the revenue models and the value models of the web site of Robin Hamman (www.cybersoc.com) to describe how it attracts its target audiences. Finally, the revenue models and the value models of the web site of Harpo, Inc. (www.oprah.com) will be identified and described. The last paragraph compares and contrasts the models adopted by Robin Hamman with those adopted by Harpo, Inc. Robin Hamman is a cybersociologist. He researches, writes, engages in freelance consulting, and gives speeches, presentations, lectures and interviews relating to cybersociology (Hamman, ca. 2006). The web site www.cybersoc.com is set up and developed by Robin. The communities served by Robin are fellow cybersociologists, parties who want to purchase content in cybersociology, and advertisers. It is a business (Robin) to business (content buyer) model and also a employee to employee (or rather, professional to professional) model. Oprah Winfrey is a distinguished and influential talk show host, magazine founder and editorial, producer, and cable network cofounder (Harpo, Inc., ca. 2006). Oprah is the chairman of Harpo, Inc. that co-publishes the “O, The Oprah Magazine” with Hearst, Harpo Productions, Inc. that produces “The Oprah Winfrey Show” and develops the web site oprah.com, and other business ventures under the Harpo brand name (Harpo, Inc., ca. 2006). Harpo, Inc. in turn controls Harpo Productions, Inc. and in fact all entertainment interests of Oprah (Yahoo, 2006). Hence, this paper shall analyze the business models of Harpo, Inc. as a group and not differentiate between the various Harpo entities. The communities served by Harpo, Inc. are the television viewers of “The Oprah Winfrey Show” and “Oprah after the Show”, the readers of “O, The Oprah Magazine”, subscribers of “Oprah’s Book Club”, Oprah’s fans, television stations, and advertisers. This is mainly a business to consumer model, and to a small extent, a consumer to consumer model1. As evident from the content displaying the portfolio of Robin’s work and his resume, Cybersoc.com is adopting mainly a offline customer response model and a efficiency and effectiveness gains model. The online presence is mainly a complement of Robin’s brick and mortar business (Rappa, no date) rather than an innovation of a business built on the web (Timmers, 1998). The internet is a form of low cost marketing to a wide audience due to its wide reach. It is effective as well, since the target audience of Robin is mostly professionals who use the internet frequently and who in fact study about life on the internet. Some advertisements can be seen on the web site, indicating sources of advertising fees for Robin. However, the advertisements are few and are probably enough to cover only Robin’s hosting fee, as he himself claimed. Robin also maintains a list of cybersociology professionals through the distribution list that he is maintaining. He could have sold the data to conference organizers, journal publishers, and parties wishing to purchase a list of potential cybersociology customers, though he claims that his site is a not for profit one. A variation of the affiliate model can be seen adopted by Robin on one of his blogs, whereby he offers Cybersoc.com readers an increased chance of winning an online photo storage account if they create links to his web site. The value model is content. The site contains resources for cybersociology such as links to a webzine also developed and maintained by Robin, blogs written by Robin, links to be included in the distribution list for cybersociology events and news, as well as academic and industry links. This generates the traffic flow for his advertising model. The web site of Harpo, Inc. is a content rich medium providing previews of the television program “The Oprah Winfrey Show”, previews of the program “Oprah after the Show”, local listing that informs viewers the time, the date, and the channel the show is on, information about Oprah, such as her bio and her life, content rich information on various aspects of life such as spirit and self, relationships, food and home, and mind and body and provides further relevant links to other areas of her sites. Besides content, the web site also allows users to send e-cards, which only meets the needs of its customers to communicate but also provides entertainment. Through these value models, the company increases traffic flow to its web site and earns revenue through advertising fees. Besides, the previews of the shows and other information about the show will result in offline customer response of actually viewing the program. As a result, the increased ratings will allow Harpo, Inc. to charge a premium price for its production (Mullman, 2005). Reservation information for “The Oprah Winfrey Show”, such as reservation availability, taping schedule and age requirement, other common questions, what reservation holder needs to know, and cancellation policy, provides not only content, but also offline customer response if tickets are still available, and efficiency and effectiveness gains if no more tickets are available. Efficiency and effectiveness gains are achieved by the elimination of telephone inquiries since the information is now provided on the web site. Archives of previous shows and related articles provide customers with content on the surface. But actually, it is a form of ransom model. Under this area, Harpo, Inc. allows customers 30 seconds of free online video viewing. If customers like it, they can then order the tape or transcripts online, which is a pay-per-performance model. Customers pay for every tape or transcript ordered online. In turn, the customers benefit from the ability to perform online transactions, at anytime from anywhere in the world. “O, The Oprah Magazine” is yet another content rich section of the web site featuring articles and recipes from the current and past issues. Here, Harpo, Inc. is again using the ransom model by whetting the customer’s appetite with excerpts from the magazines. To read the whole magazine, the customer can subscribe to it online. The pay-per-performance model then comes into play, with Harpo, Inc. earning revenue each time the customer subscribes to the magazine. Besides, efficiency & effectiveness can be achieved too by eliminating the manual deciphering of handwriting of customers on physical subscription forms then transferring the data into electronic databases, reducing billing and shipping errors. Other efficiencies include 24 hours reach to a global market and low cost marketing and sales. Upon joining Oprah’s Book Club, customers will receive an incentive of 10% off featured titles on Amazon.com. Beside the financial incentive, the convenience of online transactions is another value to the customer. Amazon.com enjoys increased sales by using the affiliate model. While Harpo, Inc. will get referral fees whenever consumers purchase a book from Amazon.com by clicking on the banner. In addition, Harpo, Inc. also showcases Kid’s reading list, Oprah’s favorite books, books featured in “The Winfrey Oprah Show” and “O, The Oprah Magazine”. Again, value is created for all stakeholders. For the consumers, they get content. For Harpo, Inc., it gets advertising fees. Finally, the publishers garner offline customer response. “The O List” works on the same models and basis, except that instead of featuring books, this list features a list of Oprah’s favorite things. Oprah’s Workshop is an online workshop with Oprah designed to help consumers live their “best life”. Harpo, Inc. extends a free trial to members – the ransom model. Customers benefit from being able to consume the entire service from payment through to attending the workshop itself without ever having to step out of their homes. This is a full-fledged transaction model. Harpo, Inc., on the other hand, earns revenue through pay-per-performance and acquires efficiency and effectiveness gains as even customers as far away as the other side of the globe can now attend the workshop when it would not have been possible without the internet. The oprah.com web site also allows viewers of “The Oprah Winfrey Show” to contribute their comments and ideas to the shows, as well as share their stories and get a chance to be featured on the show. This represents communication value to the customers. However, to enjoy the convenience of communication online, consumers have to fill in a form with their personal information. The following statement “…we may also use personal identification information for internal or external marketing and promotional purposes. On occasion, for example, we may send you e-mails to introduce a product or service that we think might be of interest to the users of our sites” (Harpo, Inc., ca. 2006) on its privacy policy implies that it is earning referral fees from the customer data that it has collected. The data it collects from the customers is in turn used to improve their “experience of these activities, including to remember … preferences, customize the content and advertisements” (Harpo, Inc., ca. 2006). Operating on a similar value model based on communication, readers of “O, The Oprah Magazine” wishing to obtain advice from the editor of the magazine or feedback to them their opinions of the magazine no longer have to submit questions by post. They can now submit the questions online. Again, readers asking questions to the editors have to submit their personal information online. In addition to the referral fees described above, this statement “neither Hearst Communications, Inc. nor any party that Hearst shares the information with will be subject to any obligation of confidentiality, nor will they be liable for any use or disclosure of any information that you submit” (Harpo, Inc., ca. 2006) appearing right below the form leads me to conclude that Harpo, Inc. is adopting the sale of customer data revenue model. Besides the communication model, Harpo, Inc. is also using other value models in conjunction with its revenue models of sale of customer data and referral fees. The Oprah.com is the embodiment of other such value models. Oprah.com membership is required in order to access certain areas of the site such as posting on message boards, writing in daily journals, joining Oprah’s Book Club, and receiving newsletters and oprah alerts. Of course, customers must submit personal information when applying for membership to join Oprah.com. In return, they receive entertainment by participating in communities such as posting on message boards, joining the O Groups, and writing in online journals. They will also receive content in the form of newsletters. In conclusion, it can be seen that in addition to the offline customer response model and the efficiency and effectiveness gains model adopted by Robin, Harpo, Inc. is adopting other revenue models as well. Moreover, it is also offering more than just content to its customers. It also provides customers the ability to perform and close transactions online, the opportunity to participate in online communities, and entertainment. Compared to Robin’s web site, Harpo, Inc.’s web site is more innovative and multifunctional (Timmers, 1998). It makes use of many attributes of the web to offer new products and services that are impossible offline. For example, it takes advantage of the multimedia characteristics of the internet to offer previews of shows with the objective of generating traffic and obtaining offline customer response, recognises and benefits from the value and importance of customer information in the electronic era, and reaps the benefits of 24 hours accessibility to the internet by facilitating online sale and payment transactions. Also, the internet is not just a tool for marketing but rather represents a whole new business. The Oprah’s Workshop is an example. It’s marketing, sales, payment, and delivery are all done on the internet, reaching out to the global market. 4. RECOMMENDATIONS Robin’s model is sustainable if he only has the goal of generating just enough revenue to cover his hosting costs. If Robin is to transform his online business into a for-profit entity, he should consider building other business models to increase revenue and customer value. He is already faring very well in offering content. He used to maintain a community chat room online, but has removed it due to difficulty in maintenance. So a community model is infeasible. He might start to adopt the sale of customer data model or the referral fee model, since readers data are readily available. He can limit the access to his works and articles by implementing the ransom model and the pay-per-view model. Lastly, unlike Harpo, Inc.’s web site where one page fosters and integrates with another page, Robin’s web site has no connection between the webzine and the blogs other than a simple link. He should rectify this. As for Harpo, Inc., there is still space for improvements on its business models. For example, it can adopt the pay-per-view model such that videos and transcripts of past issues of “The Oprah Winfrey Show” can be viewed online on demand, on top of being able to order the video tapes on demand. The same model can be applied to “O, The Oprah Magazine”. Basically, the current models are sustainable as long as the charms of Oprah. As privacy policy increasingly takes on center stage with the evolution of the internet, Harpo, Inc. has to pay attention to any changes in privacy policies of various countries to ensure that it abides by the laws while adopting the sale of customer data model. REFERENCES Hamman, R., 2006. Cybersoc.com [online]. London. Available from: http://www.socio.demon.co.uk/who.html [Accessed 15 February 2006]. Harpo Productions, Inc., 2006. Oprah.com [online]. Chicago. Available from: http://www2.oprah.com/index.jhtml [Accessed 15 February 2006]. Mullman, J., 2005. Winfrey’s Rating Game [online]. Chicago Business. Available from: http://www.chicagobusiness.com/cgi-bin/news.pl?id=15577 [Accessed 15 February 2006]. Novak, T.P. and Hoffman, D.L., 2001. Profitabity on the Web: Business Models and Revenus Streams [online]. Vanderbilt University. Available from: http://www.chicagobusiness.com/cgi-bin/news.pl?id=15577 [Accessed 15 February 2006]. Rappa, M., no date. Business Models on the Web [online]. Available from: http://digitalenterprise.org/models/models.html [Accessed 15 February 2006] Timmers, P., 1998. Business Models for Electronic Markets [online]. European Commission, Directorate-General III. Available from http://www.imse.hku.hk/imse2016/Readings/Essential/BusinessModel-Geoffrion/Timmers/98_21_n.html [Accessed 15 February 2006]. Yahoo, 2006. Harpo, Inc. Company Profile [online]. Available from: http://biz.yahoo.com/ic/42/42591.html [Accessed 15 February 2006]. Read More