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10 Social Networks and Communities
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1 e-commerce Kenneth C. Laudon Carol
Guercio Traver business. technology. society. eighth edition Copyright © 2012 Pearson Education Chapter 10 Social Networks, and Communities
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2 Copyright © 2012
Pearson Education Slide 10-4 Social Network Fever Spreads to the Professions Class Discussion How has the growth of social networking enabled the creation of more specific niche sites? What are some examples of social network sites with a financial or business focus? Describe some common features and activities on these social networking sites. What feature of social networks best explains their popularity? SocialPicks for stock investors, DailyStrength.org for health care professionals, LawLink for lawyers, Sermo for physicians, Inmobile.org for wireless industry executives, AdGabber for advertising professionals, LinkedFA for financial advisors Encourage members to intensely discuss realities of their professions and practices, sharing successes and failures, and developing network for career advancement Ability to reveal group attitudes and opinions, values, and practices Class Discussion Copyright © 2012 Pearson Education Slide 10-5
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3 Copyright © 2012
Pearson Education Slide 10-6 Learning Objectives Explain the difference between a traditional social network and an online social network Understand how a social network differs from a portal Describe the different types of social networks and online communities and their business models Describe the major types of auctions, their benefits, and costs, and how they operate Understand when to use auctions in a business Recognize the potential for auction abuse and fraud Describe the major types of Internet portals Understand the business models of portals Copyright © 2012 Pearson Education Slide 10-7 Social Networks and Online Communities Internet began as community building technology for scientists, researchers to share data, knowledge, and opinions in a real-time online environment Early communities limited to bulletin boards, newsgroups; e.g., the Well (first online community formed in 1985 in San Francisco by a small group of people) Today: Mobile devices; sharing of photos, video; blogs have created new era of social networks Social networks now one of most common Internet activities
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4 Copyright © 2012
Pearson Education Slide 10-8 What Is an Online Social Network? Online area where people who share common ties can interact Social networks involve: 1. A group of people 2. Shared social interaction 3. Common ties among members 4. People who share an area for some period of time Participants do not necessarily share goals, purposes, or intentions Portals and social networks: Moving closer together Portalsadding social network features, e.g., chat groups, bulletinboards,free Web site design and hosting Community sites, e.g.,iVillage (site devotedto women’s issues), adding portal-like services Searching News E-commerceservices Copyright © 2012 Pearson Education Slide 10-9 The Growth of Social Networks and Online Communities Top 10 social networks account for over 90% social networking activity (see next Fig.) Facebook users: Over 50% are 35+ Unique audience size: Top four U.S. social networks(FB, LinkedIn,Twitter, MySpace): 264 million/month Top four portal/searchengines (Google, Yahoo,MSN, AOL): 650 million/month Annual advertising revenue U.S. social network sites: $3.08 billion Top four portal/searchengines (Google, Yahoo,Microsoft, AOL): $19 billion Social networking sites fastest growing form of Internet usage, but still not as powerful as search engines/portals in terms of unique visitors, overall reach, and ad dollars generated
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5 Copyright © 2012
Pearson Education Slide 10-10 Top 10 Social Network Sites, 2011 Figure 10.1, Page 678 SOURCES: Based on data from eMarketer, 2010; Hitwise, 2010. Copyright © 2012 Pearson Education Slide 10-11 Turning Social Networks into Businesses Early networking sites relied on subscriptions Today primarily advertising (see next Fig.) Profound impact of social networks on businesses Marketing and branding tool Facebook pages, “fans” Twitter feeds Listening tool Monitoringonline reputation Extension of CRMS
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6 Copyright © 2012
Pearson Education Slide 10-12 Copyright © 2012 Pearson Education Slide 10-13 Types of Social Networks and Their Business Models General communities: Offer opportunities to interact with general audience organized into general topics, e.g., MySpace, Facebook Advertising supported by selling ad space on pages and videos Practice networks: Offer focused discussion groups, help, and knowledge related to area of shared practice, e.g., Linux.org and LinkedIn (business) May be profit or nonprofit; rely on advertising or user donations
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7 Copyright © 2012
Pearson Education Slide 10-14 Types of Social Networks and Their Business Models (cont.) Interest-based social networks: Offer focused discussiongroups based on shared interest in some specific subject, e.g., E-democracy.org and SocialPicks (stock market site) Usuallyadvertising supported Affinity communities: Offer focused discussionand interaction with other people who share same affinity (self or group identification), e.g., iVillage and Oxygen (focusing on women), BlackPlanet (African American community) Advertising and revenues from sales of products Sponsored communities: Created by government, nonprofit, or for-profit organizations for purposeof various purposes,e.g., increasing information available to citizens (Westchestergov.com), online auction site (eBay), product site (Tide.com), sharing knowledge within corporate (IBM, Cisco, HP) Copyright © 2012 Pearson Education Slide 10-15
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8 Copyright © 2012
Pearson Education Slide 10-18 Online Auctions Online auction sites are among the most popular consumer-to-consumer sites on the Internet eBay: Market leader with 97 million active users in the US, 200 million items listed each day, $4.8 billion net revenues from its Marketplaces segment in 2010 Several hundred different auction sites in United States alone Established portals and online retail sites (from Yahoo, MSN to JCPenny and Sam’s Club) increasingly are adding auctions to their sites Copyright © 2012 Pearson Education Slide 10-19 Defining and Measuring the Growth of Auctions and Dynamic Pricing Dynamic pricing Airline tickets, coupons, college scholarships Prices based on demand characteristics of customer and supply situation of seller Many types of dynamic pricing Bundling of digital goods – including low-demand products in a bundle “for free” to increase total revenues Trigger pricing – adjust prices based on location of consumer; used in m-commerce applications Utilization pricing– adjust prices based on utilization of product, e.g., auto and health insurances Personalization pricing – adjust prices based on merchant’s estimate of how much customer values the product, e.g., higher prices paid for hard-covered books by fans of writers
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9 Copyright © 2012
Pearson Education Slide 10-20 Defining and Measuring the Growth of Auctions and Dynamic Pricing (cont.) Auctions: One form of dynamic pricing C2C auctions (most widely known) Auction house an intermediary market maker, providing forum where consumers – buyers and sellers – can discover prices and trade B2C auctions Business owns assets; often used for excess goods Auctions can be used to Sell goods and services Allocate resources among independent agents (bidders), e.g., workers bidding for task assignments Copyright © 2012 Pearson Education Slide 10-21
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10 Copyright © 2012
Pearson Education Slide 10-23 Benefits of Auctions Liquidity– sellers can find willing buyers, and buyers can find sellers Price discovery – buyers and sellers can quickly and efficiently develop prices for items difficult to assess, where product is rare Price transparency – public Internet auctions allow everyone to see asking and bidding prices for items Market efficiency – auctions can lead to reduced prices reduced profits for merchants increasing consumer welfare (one measure of market efficiency) Lower transaction costs – lower cost of selling and buying products Consumer aggregation – sellers benefit from large auction sites’ ability to aggregate large number of consumers Network effects – large auction sites with large number of visitors and products make it likely to find what you want at a good price, and highly probable to find a buyer for just about anything Copyright © 2012 Pearson Education Slide 10-24 Risks and Costs of Auctions for Consumers and Businesses Delayed consumption costs – buyers must wait until auctions are over, and shipping takes time Monitoring costs – requires time to monitor bidding Possible solutions include: Fixed pricing – clicking on the “Buy It Now” buttonand paying premium price comparedto regular auctionprice Watchlists – permit consumer to monitorcertain auctions of interest Proxy bidding– allows consumerto enter maximumprice, and auction softwareautomaticallybids for goods up to that price in small increments Equipment costs – costs of computer system, Internet access, and learning complex operating system cost Trust risks Possible solution—rating systems Fulfillment costs – buyers pay costs of packing, shipping, and insurance
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11 Copyright © 2012
Pearson Education Slide 10-25 Market-Maker Benefits No inventory No fulfillment activities No warehouses, shipping, or logistical facilities eBay makes money from every stage in auction cycle Transaction fees based on amount of sale Listing fees for display of goods Financial services fees from payment system, e.g., PayPal Advertising or placement fees where sellers pay extra for particular display or listing services Copyright © 2012 Pearson Education Slide 10-26 Internet Auction Basics Different from traditional auctions Last much longer (usually a week) Variable number of bidders who come and go from auction arena Market power and bias in dynamically priced markets Neutral: Number of buyers and sellers is few or equal Seller bias: Few sellers and many buyers Buyer bias: Many sellers and few buyers
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12 Copyright © 2012
Pearson Education Slide 10-27 Bias in Dynamically Priced Markets Figure 10.3, Page 694 Copyright © 2012 Pearson Education Slide 10-28 Internet Auction Basics (cont.) Price Allocation Rules – Rules for establishing winning bids and prices in auctions where there are multiple units for sale Uniform pricing rule: Multiple winners who all pay the same price Discriminatory pricing rule: Winners pay different amount depending on what they bid, as in uBid.com From buyer’s point of view, uniform pricing is better, but from seller’s point of view, discriminatory pricing is better Public vs. private information Prices bid may be kept secret Bid rigging – bidders communicate prior to submitting their bids, and rig their bids to ensure lowest price is higher than it might otherwise be Open markets Price matching – sellers agree to set floor prices on auctionitems below which they will not sell
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13 Copyright © 2012
Pearson Education Slide 10-29 Types of Auctions English auctions (eBay): Single item up for sale to single seller Highest bidder wins Seller bias: single seller and multiple buyers competing against one another Traditional Dutch auction (Dutch flower market): Public descending price auction Uses a clock that displays starting price Clock ticks down price until buyer stops it Sellerbias Dutch Internet auction (eBay Dutch auction): Public ascending price, multiple units Final price is lowest successful bid, which sets price for all higher bidders (uniform price rule) Copyright © 2012 Pearson Education Slide 10-30 winners 3
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14 Copyright © 2012
Pearson Education Slide 10-31 Types of Auctions (cont.) Name Your Own Price Auctions Pioneered by Priceline Users specify what they are willing to pay for goods or services and multiple providers bid for their business Prices do not descend and are fixed Consumer offer is commitment to buy at that price e.g., Priceline Enables sellers to unload unsold excess capacity Buyer bias: Multiple sellers compete against one another Copyright © 2012 Pearson Education Slide 10-32
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15 Copyright © 2012
Pearson Education Slide 10-33 Types of Auctions (cont.) Group buying auctions (demand aggregators) Group buying of products at dynamically adjusted discount prices based on high volume purchases Based on two principles Sellersmore likelyto offer discounts to buyers purchasing in volume Buyers increase their purchases as prices fall Buyer bias Professional service auctions Sealed-bid, dynamic-priced market for freelance professional services from legal and marketing services to graphics design and programming Sealed bids are submitted and the winner is the low-cost provider of services Buyer bias Example: Elance.com, SoloGig Copyright © 2012 Pearson Education Slide 10-34
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16 Copyright © 2012
Pearson Education Slide 10-35 Copyright © 2012 Pearson Education Slide 10-36 Table 10.7, p 701
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17 Copyright © 2012
Pearson Education Slide 10-37 Seller and Consumer Behavior at Auctions Seller profit: A function of arrival rate, auction length, and number of units at auction (see next Fig.) Auction prices not necessarily the lowest Reasons include herd behavior (tendency to gravitate toward, and bid for, auction listing with one or more existing bids) Herd behavior results in consumers paying higher prices than necessary Unintended results of participating in auctions: Winner’s regret – winner’s feeling after auction that he/she paid too much for an item Seller’s lament – concern that one will never know how much ultimate winner might have paid, or true value to final winner Loser’s lament – feeling of having been too cheap in bidding and failing to win Consumer trust an important motivating factor in auctions Copyright © 2012 Pearson Education Slide 10-38 Auction Profits Figure 10.4, Page 703 SOURCE: Based on data from Vakrat and Seidmann, 1998. N = arrival rate at the auction
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Pearson Education Slide 10-39 When Auction Markets Fail: Fraud and Abuse in Auctions Markets fail to produce socially desirable outcomes in four situations: Information asymmetry, monopoly power, public goods, externalities Auction markets prone to fraud Most common: Failure to deliver, failure to pay In 2010, 6% Internet fraud complaints concern online auctions Copyright © 2012 Pearson Education Slide 10-40
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Pearson Education Slide 10-41 Copyright © 2012 Pearson Education Slide 10-42 E-commerce Portals Most frequently visited sites on Web Original portals were search engines As search sites, attracted huge audiences Today provide: Navigation of the Web Commerce Content (owned and others’), e.g., news, entertainment, maps, images, social networks, in-depth info Compete on reach and unique visitors Enterprise portals Help employees find important organizational content
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Pearson Education Slide 10-43 Top Five Portal/Search Engines in United States SOURCE: Based on data from comScore, 2011.Figure 10.5, Page 708 Copyright © 2012 Pearson Education Slide 10-45 Types of Portals General purpose portals: Attempt to attract very large general audience Retain audience by providing in-depth vertical content channels e.g., Yahoo, MSN Vertical market portals: Attempt to attract highly-focused, loyal audiences with specific interest in: Community (affinity group); e.g., iVillage Focused content; e.g., ESPN.com
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Pearson Education Slide 10-46 Two General Types of Portals: General Purpose and Vertical Market Portals Figure 10.6, Page 712 Copyright © 2012 Pearson Education Slide 10-48
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Pearson Education Slide 10-49 Revenue per Customer and Market Focus Figure 10.7, Page 714 Copyright © 2012 Pearson Education Slide 10-50
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