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Subject: Introduction to e-Commerce
Overview of Lesson Plan: In this first lesson, students participate in Internet-based research activities to become familiar with e-Commerce websites and business models. They learn the various ways businesses make money using the Internet and explore some of the common characteristics shared by some of the most successful e-Commerce sites on the World Wide Web. Students can refer to these various business models throughout the year.
Suggested Time Allowance: 80 minutes
Objectives:
Students will:
- Define the term "e-commerce business model."
- Learn four key objectives that help create a successful e-commerce website.
- Review different e-commerce business models:
- Explore www.mtv.com, a website that uses a niche portal business model similar to that of the one your class will use for their ScoresUp.com site.
Resources:
Review the following articles, "New Economy or Old Economy, a Shakeout id a Shakeout," at www.ebizchronicle.com/wharton01/29_shakeout.htm and, "Creating Value through e-Commerce Business Models," found at www.ebizchronicle.com/wharton/18_creating_value.htm. They will also help you to set the stage for you and your students. (The main website that these articles come from is found at www.ebizchronicle.com. You will most likely want to use this site for reference throughout the year as well.)
As in most lessons, arrange access to the Internet and Microsoft Internet Explorer (4.0 or higher), or Netscape Navigator (6.0 or higher)
Note: The websites listed throughout this curriculum are merely suggestions. Please substitute or complement the provided websites as you feel appropriate. Also, it may be necessary to meet with your school's network administrator prior to class to make sure any filtering software used by your school is adjusted so that the third party websites referenced in this curriculum can be accessed.
Activities:
- Discuss the term "Business Model" with your class. Make sure they understand that, in simple terms, a Business Model explains how a business attracts customers and makes a profit. Explain that businesses will succeed only if they can create and deliver something (a product or service) that has value. Furthermore, explain that a successful business is one that can get a high enough price for its product or service so that it can pay all of its costs and still make a profit. At this point in the discussion, talk about the crash of dot.com companies. Make sure the class understands that the dot.com businesses that failed were mostly those that were not meeting their own sales and profit/loss expectations.
- Explain to the class that the websites of most successful e-commerce business models have 4 common characteristics:
- They make it easier for users to do something
- They offer users something of value, often times for free
- They incorporate features & benefits that generate repeat visits and use
- They differentiate themselves from competition
- Go to www.ebay.com and ask your class if any of them have used the site. Ask any student who has used eBay to describe the purpose of the site. What you want the class to understand about eBay is that it provides an electronic marketplace for people who want to sell things and people who want to buy things. Tell the class that eBay is considered by many business experts to be the most successful e-commerce site ever. In 2002, eBay's net revenues reached $1.21 billion, a 62% increase over the year before. More importantly, eBay's profits rose to $249 million last year, which represented a phenomenal 176% increase over the prior year.
Then ask your class how eBay's Business Model achieves the four characteristics of successful websites as discussed above.
What does the eBay website make easier?
Correct answers could include:
- Makes it easier for people to sell.
- Makes it easier for people looking to purchase something to find the item for sale.
- Makes it easier to buy the item, often times at a lower price.
- Makes it safer to do business with people you haven't met.
What does eBay offer free to users?
Correct answers could include:
- It is free for buyers to submit bids on eBay.
- It is free to monitor the progress of auctions on eBay.
- It is free to use eBay's search engine to find items for sale that you have an interest in purchasing.
How does eBay generate repeat usage?
Correct answers could include:
- The bidding process is an absolutely marvelous repeat usage generator. Once a bid is placed at eBay, bidders are compelled to keep returning to the site to see how their bid is holding up.
- It requires all Sellers and Bidders to register when trying to sell an item or attempting to submit a bid at the site the first time. Then, eBay's software makes it very easy to submit bids in the future.
- eBay has worked hard to establish a user environment that is secure, private, and as safe from fraud as possible. This makes buyers and sellers receptive to using eBay should they perform a transaction.
- eBay has a unique variety of products for sale and has become one of the first places shoppers look when they want to purchase something at the best possible price.
How does eBay differentiate itself from competition?
Correct answers could include:
- Unlike Amazon.com, users don't buy a product, but bid on it. This adds an excitement and competition to the shopping process that cannot be easily replicated by other on-line merchants.
- Users of eBay can easily find out the established purchase price of a product from other on-line and brick & mortar merchants but they don't know the cost of the same product at eBay until the winning bid has been posted. How many times have you heard someone say "You could probably buy it cheaper on eBay."
- eBay offers variety, ease of use, and security for both bidders and sellers.
- Since eBay was one of the first online auction websites, it had first mover advantage, which was instrumental in building its market share. First mover advantage is the advantage gained by the first significant company to move into a new market.
How does this site make money?
eBay makes money by charging sellers who use to site a very reasonable fee. eBay is able to keep this fee low because their website is designed to generate and efficiently process massive numbers of transactions at very little cost to the company. eBay also charges for several specialized services available at their site, including the rental of electronic storefronts to sellers with many saleable items and an on-line bill payment service that facilitates credit card transactions between eBay buyers and sellers. eBay also generates revenue by selling advertising space at their site.
Before leaving the eBay website, explain to your students that eBay was one of the first e-Commerce websites to generate a profit, which was over $11 million as early as 1996. Point out that one of the biggest reason's that eBay's online auction business model is a success is because eBay does not have to produce, store (in inventory), or ship the products that are sold at the site, thereby greatly reducing their operational expenses. Explain that the next site the class will visit, Amazon.com, generated more than three times the net revenues that eBay did in 2002 ($3.9 billion versus $1.2 billion) but managed to lose $149 million while eBay was generating a $249 million profit during that same period.
If you plan on using the on-line auction feature of your ScoresUp.com website, let your students know they will have the opportunity to run their own on-line auction.
- Go to www.amazon.com. Explain to your class that based on the 2002 net revenues and profits of both eBay and Amazon, Amazon spent $1.04 for every $1.00 of revenue it made, while eBay spent just 87 cents for every $1. See if any of your students can explain why this cost was higher for Amazon. The primary reason is that Amazon is an online retailer who spends money on keeping inventories in its warehouse. Another reason is that instead of concentrating on their core competency, books and music, Amazon expanded their business to additional product lines. Essentially, Amazon expanded at breakneck speed to include additional product lines such as electronics and kitchenware and spent a tremendous amount of money on this expansion.
Next ask your class how Amazon's business model achieves the four characteristics of successful websites as discussed above.
What does Amazon make easier?
Correct answers could include:
- Makes it easier for people to shop with features such as one-click shopping.
- Makes it easier for people to get detailed information about the products they are interested in.
- Makes it easier for people to compare the features, benefits, and prices of competitive products.
- Makes it easier to save money.
What does Amazon offer free to users?
Correct answers could include:
- Detailed product information.
- Product ratings and reviews.
- Free services and site features (e.g. free chapters from books, samples of songs from CDs, e-cards, review restaurant menus, wedding registries, movie show times.)
How does Amazon generate repeat usage?
Correct answers could include:
- Like eBay, first-time purchasers at Amazon must register and once they do, Amazon's software stores the information so that repeat purchases will take just seconds.
- Amazon's software tracks each users purchasing behavior and generates e-mail messages that notifies users when a similar or related item becomes available or goes on sale. For example, everyone who purchased Reuben Studdard's first single on CD-ROM at Amazon can expect to receive an e-mail when the site begins accepting orders for the American Idol's first complete album.
- Promotions such as the Gold Box.
How does Amazon differentiate itself from competition?
Correct answers could include:
- Offers its products at the lowest possible price.
- Has a large variety of products.
- Has an extensive database that tracks purchases.
Before leaving Amazon.com, re-visit reasons for why the site has lost money. Explain once again that unlike eBay's auction model, Amazon's business model is basically retail, meaning that they purchase goods from manufacturers and wholesalers at one price and sell them to end users at a higher price. As a result, Amazon has to spend millions of dollars handling the products they resell. They have to pay for shipping the products from their suppliers, storing the products in warehouses, preparing shipments of the products to customers, boxes, packaging material, etc.
Point out that one of the reasons Amazon is still around even though it has lost billions of dollars is because it has been successful increasing its sales every year. One of the ways it has increased sales is through rapid expansion into new product categories (i.e. from just selling books to selling music, videos, electronics, toys, etc.). However, as mentioned previously, each new product category forces Amazon to spend money to support it. Also explain that Amazon's management has done a good job convincing investors that rapid and costly expansion into new product categories, while showing as a loss now, will soon pay off with huge and steady profits.
If you plan on using the ScoresUp.com on-line store with the class, tell them so now. Explain that like www.amazon.com, they will have to figure out how to make money operating an online storefront.
- Go to www.nytimes.com. Make sure you are a NY Times online subscriber prior to this class - it's free. At the home page, attempt to go to the complete article for today's top headline. When you do, you will be taken to a page asking you to become an on-line subscriber.
Then ask your class how the NY Times' business model achieves the four characteristics of successful websites as discussed above.
What does the NY Times website make easier?
Correct answers could include:
- Makes it easier for people to access the news and information in each day's edition. Previous to the online version being available, the only way a user could possibly read the newspaper was to get the hard-copy issue in their hands. With the online version, anyone with access to the Internet can read the latest issue anywhere in the world.
- Makes it easier for users to get access to additional information that the paper edition doesn't have. For example, the online version includes video feeds, slide shows, on-line chats with columnists and writers, and links to additional sources of related data available on-line.
- Makes it easier to customize the information in the online paper to the user's specific needs. For example, instead of reading through the thousands of stocks to find how well your personal portfolio is doing, the online version lets you establish a personal portfolio that automatically compiles and reports the information for you.
What does NY Times offer free to users?
Correct answers could include:
- Users enjoy complete access to each day's online version for free.
How does NY Times generate repeat usage?
Correct answers could include:
- By offering a new version of the complete online edition of its newspaper for free every day of the year.
- By making it possible to easily e-mail articles from each day's edition to anyone who has e-mail connectivity.
- Users can sign-up for e-mail newsletters on topics of specific interest to them.
- Name recognition.
- By offering a personalized newspaper. An interactive news-tracking service that lets users personalize their own daily version of the paper by selecting the topics they wish to read about. This personalized version is then delivered every day to the user's e-mail in-box.
How does NYTimes.com differentiate itself from competition?
Correct answers could include:
- Unlike most newspapers, the content of the online version of the NY Times is updated several times during each day, bringing users breaking news as it happens.
- Use of the same product features that have enabled the hard-copy version of the newspaper to differentiate itself. I.e., excellent op-ed and featured writers, in-depth coverage of a wide variety of events on an international and national scale, a widely respected Sunday Magazine supplement and the immensely popular Crossword Puzzle.
Ask students how the NY Times can make money if the subscription is free.
Browse through the site to get answers to this question. As you do, you should hear the response "advertising" quickly. When you do, click on one of the ads found at the site and show the class what happens.
Then go back to the NY Times.com home page and click on "Media Kit" (one of the menu choices along the left-hand side of the home page). Then click on "audience and usage." Review the numbers with your class, stressing that the on-line version of the NY Times has over 11 million registered users and attracts 2.7 million visits per month. This means that advertisers get a tremendous amount of exposure. Explain that an ad that runs for about one month at the NY Times site currently costs approximately $70,000.
Explain that NYTimes.com business model depends heavily on Advertising revenues. Tell students that the site attracts a tremendous number of users by providing them with huge amounts of quality news coverage that changes on a daily basis. The site makes money by selling access to their 11 million users via advertising.
You can also point out that NYTimes.com generates money from its free membership base by selling them additional services, such as access to archive articles, software that permits users to do the daily crossword puzzle, and products in the site's on-line store.
Before leaving this site tell your class that they will have the opportunity to publish their own news and information product that focuses strictly on the programs, events, achievements, talents and activities that take place every day in your high school.
- Go to www.MTV.com. Explain to the class that this site is an example of a niche portal site. Portal websites are those used as entryways to the World Wide Web. Some of the most popular portal sites in operation today are Yahoo.com, MSN.com, and Excite.com. Common features of portal sites include a search engine, news, sports, weather reports, travel guides and tools, maps, stock reports, etc. Most of the top portal sites today have personalization features that permit users to personalize the typical portal tools so that they reflect their specific areas of interest.
MTV.com is an example of a successful niche portal website. The MTV television network has become a highly demanded channel for a huge segment of the world's teenage population, relaying programming that is decided upon by the network. MTV.com, however, makes it possible for the online user to personalize what they see, hear, and read to their own specific musical tastes.
MTV.com's target audience is music fans who are in their teens and twenties. It features in-depth, original content. This includes music premieres and exclusives, convergent shows, original programming for specials, and much more. MTV.com is consistently ranked the No. 1 music content site in the teen demographic according to Media Metrix, a well-known statistics reporting firm.
What does the MTV.com website make easier?
Correct answers could include:
- Find information about the music and artists the user is most interested in.
- Find out when and where the user's favorite musical artists are performing.
- Sample and purchase the newest recordings.
- Communicate with people from around the world who share the same musical interests.
What does MTV.com offer free to users?
Correct answers could include:
- The ability to personalize features of the site based on musical tastes.
- Downloads of free music from new and established artists.
- Product ratings and reviews.
- Chats hosted by top recording artists.
How does MTV.com generate repeat usage?
Correct answers could include:
- Like all good e-commerce sites, MTV requires visitors to join/register before using their most popular site features or purchasing a product at the site.
- MTV.com's software permits users to set personal preferences and also tracks each user's purchasing behavior. The site uses this information to generate e-mail messages that notifies users when a similar or related item becomes available or goes on sale.
- The site let's users sample new recordings for free, so that they wll come back and purchase the complete CD. If users don't come back soon enough, they receive an e-mail that reminds them.
How does MTV.com differentiate itself from competition?
Correct answers could include:
- It focuses on the teenage demographic, which is known to spend its money on music-related interests.
- Exclusive content that is not available anywhere else.
- Special events and programming that takes advantage of its direct ties to one of the world's most favorite television networks devoted to music.
- It covers a wide expanse of musical related and cultural interests.
- Now to tell your class the exciting news about how they have the opportunity to operate their own real-world e-commerce company that will operate a live website that generates real revenues.
Tell them that their site will be a niche portal site targeted at people who want to know what's happening in your high school. They decide, as a class, what their actual business model will be and will develop a business plan that explains how the model will be executed. Let them know that it will be possible for them to conduct their own on-line auctions, like eBay, operate a retail on-line storefront, like Amazon, sell advertising space, like NYTimes.com, and promote special events, like MTV.com.
Assignment:
- Ask students to think about and list the things happening inside your school that would be of interest to different segments of your community. Ask student to also list ways to get people interested in what's going on inside your high school and how to obtain information that will be used as content for your website.
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