Introduction to the Internet

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Introduction to the Internet
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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

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The Yahoo Story

• Jerrys 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

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The Yahoo Story

• Way to go Jerry (Yang) and Dave (Filo)!
• Current Yahoo! Stock price?
• Yahoo!

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A Variety of Perspectives

• A technology
• Social space
• Marketing tool
• Information publishing
• Economic, social and business contexts

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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

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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

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The Internet as Technology (Cont.)

• Speed is important
• Internet is currently too slow
• Video on demand is the holy grail

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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

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The Internet as Social Space

• A place where users communicate
• e-mail
• Usenet
• Web
• Chat rooms
• Conferencing
• Video conferencing
• Internet phone
• Interactive games

Geocities
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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!

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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)

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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

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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

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The Web - Information Publishing (Cont.)

• Portals
• Entry points to the web
• Index and retrieve information from other content
  providers
• Largest is Yahoo!

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The Web - Transaction-Based Systems

• Allows firms to communicate and sell online
• More difficult (and expensive)
• Online storefronts
• Business to business commerce

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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

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The Web - Mass Customization

• Mass Customization
• Creating systems that can personalize messages to
  a target audience of one.
• Two kinds - automatic and manual

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The Web - Mass Customization (Cont.)

• Automatic customization
• Software tailors content to user based on info
  about users historical surfing behavior
• Example is Amazon.com
• Ethically controversial
• What is the benefit delivered?

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The Web - Mass Customization (Cont.)

• Manual customization
• Relies on explicit instructions from user
• Common in the news delivery service
• Example is CNN Interactive

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Lavidge SteinersHierarchy of Effects Model

• Awareness (think)
• Knowledge (think)
• Liking (feel)
• Preference (feel)
• Conviction (do)
• Purchase (do)

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What is Involvement?

• The extent to which something is somehow
  important to the consumer
• Driven by risk
• Financial
• Social
• Performance
• Psychological

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Impact of Involvement

• The greater the level of involvement, the greater
  the
• time spent in search
• effort expended in search

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Hierarchy of Effects Explanation
High Involvement
Awareness
Cognitive (think)
Knowledge
Affective (feel)
Liking
Preference
Conviction
Conotive (do)
Purchase
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Hierarchy of Effects Explanation
Low Involvement
Cognitive (think) (low levels)
Awareness
Knowledge
Conative (do)
Purchase
Conviction
Liking
Affective (feel)
Preference
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Internet Business Models
Hierarchy of Effects
Business Model
Cognitive and Attitude
Stakeholder communication Branding lead
generation Customer service E-mail databases
Sell product Electronic publishing Sell
Content Sell ads Agent services
Transactive Behavior (Revenue Generating)
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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

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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?

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Internet Business Models

• Sales promotions
• Build short-term sales
• Coupons (J. Crew)
• Sampling (Hallmark)

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Internet Business Models

• Lead generation
• Company uses e-mail or its web site to gather
  names of potential customers (HermanMiller)

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Internet Business Models

• Customer Service
• Information for customers (Rollerblade)
• Feedback mechanisms for communication with
  customers
• e-mail - and databases, avoid spam
• Customer satisfaction surveys

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Internet Business Models

• Sell Product
• Online transactions
• Largest segment business to business markets
  (about 2/3s of all dollars) but
• Consumer transactions growing

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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

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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)

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Internet Business Models

• Agent Services
• Be aware that the internet is a global medium!

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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?

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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

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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)

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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?

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The Web and the EconomyEfficiency and
Effectiveness

• Efficiency minimized input to output ratio
• Effectiveness making the right choices in order
  to maximize the companys competitive advantage

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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

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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

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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