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The Internet as a Marketing
Environment

A look into changing marketing concepts in
a computer mediated environment

 

6. COMPETITIVE ELEMENTS - BUSINESS MODELS ON THE INTERNET

Discussion about the Internet as a model for perfect free economy has evolved. Many have proposed that a perfect global, networked competitive environment takes place with the advent of the Internet. "Internet will help businesses move towards the ideal of perfect competition with the buyers and sellers having complete and ready information about one another."[Ref.333] A Forrester report says that the Internet creates a frictionless business environment, removing barriers to communication and other obstacles[Ref.334]. This can be justified by arguments emphasizing globalizing pricing, price knowledge and product knowledge, lack of benefit of scale in some instances and by other such notions. Also vocal opponents of this ‘Net as a free economy’- argument exist, for instance Business Week columnist Kuttner[Ref.335]. One fact is evident. Small can be beautiful, since the Internet real estate is drastically less expensive than conventional square footage. Therefore commercial barriers of entry on the Internet are smaller than elsewhere. Small niche market with enough demand can be found for all kinds of products and services by expanding the geographic span or put in Stine’s liturgy, by enlarging the threshold value of the goods.

6.1 BUSINESS MODELS

The competitive environment of the Net consists of business models that are used to justify on-line presence in this Virtual Transaction Space (VTS). Viability of business approach is important not just for the companies themselves, but also for further development of the medium. McDonald has classified alternative sources of economic viability as follows: 1) advertising, 2) transactional revenues, and 3) access payments. Access payments can be either cover price, subscription or entry charge[Ref.336]. The most common business model is to use the Web as an advertising medium – to put advertising messages before the Web audience and thereafter produce transactions[Ref.337]. It must be noted that with advertising model McDonald means that the site is receiving traffic-generating advertising or sponsorship advertising revenue to support it. In his typology target advertising strategy falls in the category of transaction based business model.

6.2 CLASSIFICATION OF WEB BUSINESSES

Much of the early Internet business research was interested of the topic of classifying commercial Web sites. As the Internet is a real community, a mediated market, so the companies and other participants have a mediated telepresence. Real companies have therefore virtual representations of themselves on their homepages. It has become necessary to study Web site models to understand the competitive environment of the Web. Classifications that have sprung up from the minds of Net researchers represent the ecosystem of the Net. These typifications try to convey the relationships between different food-chain members of commercial players.

In table 19, a summary of important classifications of Web businesses is brought forward. This division into five groups is the result of the process of making this summary. The basic distinction of sites made by Hoffman and Novak and Chatterjee is between destination sites and traffic control sites. Here this idea is developed further. Both of these types are split into half, depending on what the revenue source is. Fifth category is formed of companies that have Net as central revenue source and which contribute to the development of the Net. Under this five-part division the different concepts proposed by researchers are further looked at. Such is the diversity of proposed concepts of Web site models, that no synthesis is pursued in this work. Not all listed definitions fit perfectly with others in the same category. Terminology varies depending on what is the emphasis and viewpoint of the researcher. The definition that is considered the most important is shown first in every category.

In the classification of Hoffman & Novak & Chatterjee destination sites include "On-line Storefronts, Internet Presence Sites, and Content Sites. These comprise the ultimate ‘destinations’ competing for consumers' share of visits on the Web."[Ref.343] In the typology presented in table 19, on-line storefront and Internet presence sites are grouped together, since their dependency of the Net and business purpose (Ho’s typology), is the same. If these types of destination sites include advertising, it is of the target ad type, only content sites may have traffic-generating ads.

These Web sites are based on a simple promotional business model, where presence on the Internet, a brief summary of product offerings and contact information are typical. Two major types exist: Internet presence and on-line storefront. Both variations are final destination sites that usually gain much less traffic than content sites due to their much smaller amount of content. Therefore they can not live on selling advertising space of their own. On-line storefronts (Table 20) focus on direct product offering. Internet presence sites (Table 21) offer the simplest form of on-line presence, a simple homepage.

6.2.1.2 Content based destination sites

Content based destination sites offer a large array of most often topic-related content. They frequently try to build information consumership and further enhance relationship with the consumer. A corporate site may very well be a content site, but many times content sites are topic-related information sources which try to pull large amounts of visitors at the same time living on sponsorship or advertising revenue. Some firms try to manage by charging subscription fees. This applies especially to small startups selling memberships to virtual erotic ‘picture clubs’ or other sites in high-demand, limited-supply markets. Generally speaking, publishing companies are the leaders of content based destination sites, but many corporate sites do not lack far behind in popularity.

"The purpose of [Web Traffic Control Sites] is to direct consumers to various Destination Sites. There are three major categories of these: Malls, Incentive Sites, and Search Agents."[Ref.364] They most often support themselves by providing space for traffic-generating advertising.

In this work it is proposed that these sites need to be categorized differently from what Hoffman and Novak suggest. A major division is made between advertising revenue based and transaction based sites. Advertising based traffic control sites can be further divided into search agents (Table 23), directories (Table 24) and cybermalls (Table 25). Another group is traffic control sites which pursue direct sales goals. There are many types of these cybermediaries (Table 26).

Sponsorship based traffic control sites offer an easy access to content of users liking. The most popular of the bunch are search agents providing keyword searches. Directories on the other hand offer easy way to check for sites of interest under a specific topic. Finally, malls represent a collection of business links and rent virtual real estate for them.

All these types live on selling advertising space, or in the case of malls rent virtual real estate.