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EC4E_Ch_01_WA_11-23.qxd 12/10/2007 5:16 PM Page 1
PART 1
CHAPTER 1
The Revolution Is Just Beginning
CHAPTER 2
E-commerce Business Models and
Concepts
Introduction
to E-commerce
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CHAPTER
11
The Revolution Is
Just Beginning
LEARNING OBJECTIVES
After reading this chapter, you will be able to:
■ Define e-commerce and describe how it differs from e-business.
■ Identify and describe the unique features of e-commerce technology and
discuss their business significance.
■ Recognize and describe Web 2.0 applications.
■ Describe the major types of e-commerce.
■ Discuss the origins and growth of e-commerce.
■ Understand the evolution of e-commerce from its early years to today.
■ Identify the factors that will define the future of e-commerce.
■ Describe the major themes underlying the study of e-commerce.
■ Identify the major academic disciplines contributing to e-commerce.
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MySpace and Facebook:
Its All About You
ow many people watched
the final episode of the
Hmost popular American
television show in history, the Sopranos?
Answer: about 12 million (out of a
total television audience size of 111
million). Only once in American history
has a television show drawn more
simultaneous viewers—13 million for
NBC’s “America’s Got Talent” premiere
in 2006. How many people visit
MySpace each month? About 70 million.
There are now more than 100 million
personal profiles on MySpace. Almost 40
million visit MySpace’s closest social
network rival, Facebook, each month.
Facebook has 27 million active members and more than 35 million profiles online.
At MySpace, users spend an average of 30 minutes, and at Facebook, 24 minutes, about as
long as a half-hour television show.
MySpace and Facebook, along with other “social” sites such as YouTube,
Photobucket, and Second Life, exemplify the new face of e-commerce in the
21st century. When we think of e-commerce we tend to think of selling things online, a
retail model based on selling physical products. While this iconic vision of e-commerce is
still very powerful, and online retail is the fastest growing form of retail in the United
States, growing up alongside is a whole new value stream based on selling services—not
just goods. It’s the service model of e-commerce.
What are these services and how much are they worth? How can you make money
selling online services and how much can you make? Here, a little background will
help.
The idea behind MySpace was to create a Web site that would make it possible
for people to talk about the things they loved, and do it in a personal way—a sort of
bulletin board combined with the capability of building your own Web pages with
ease. The vision was that people would like to talk about themselves, even promote
themselves, and find others online to talk with. Founders Tom Anderson and
Chris DeWolfe started the business in January 2004, experienced an immediate
unparalleled growth spurt, and today MySpace is among the top five most visited
3
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4 CHAPTER 1 The Revolution Is Just Beginning
sites on the Internet, and on some days, in the top spot, rivaling and surpassing
Google, Amazon, and eBay! Only Yahoo consistently draws more visitors.
MySpace is supported by advertising. That’s where audience size is critical: a
very large number of firms are willing to pay premium prices to contact 100 million
people. For instance, Procter & Gamble used MySpace to launch new products by
linking their product pages to the MySpace pages of musicians whose visitors have
the right demographics. Toyota used MySpace to set up a profile of its Yaris car, and
users can become “friends” of Yaris.
In July 2005, Rupert Murdoch’s News Corporation bought MySpace for what
then was thought to be an outrageous price of $580 million. Even more unusual was
the buyer. Here was a traditional newspaper and television company buying an
Internet venture that at the time was not profitable. In retrospect, many believe the
real value of MySpace was in the billions of dollars. In August 2006, MySpace struck
a deal with Google for $900 million, allowing Google to display short text ads next
to search results generated by MySpace. In one year, Murdoch had made back his
investment and then some. Analysts believe that MySpace will have $300 million in
revenue for 2007, and $450 million in 2008. News Corporation does not report the
financial results of MySpace. No one knows if MySpace is profitable, and Murdoch
isn’t saying.
MySpace was not a new vision—other sites such as Friendster preceded it.
But MySpace learned from Friendster’s limitations. MySpace allowed bands and
artists to promote themselves on the site, while Friendster banned self-promoting
bands and artists. At MySpace, users could find the bands they liked and share that
with their friends, starting a word-of-mouth buzz that promoted the bands, but also
promoted MySpace as the place to find great music. Because it allows users to post
just about anything they want, the site has copious amounts of vulgarity, pornography,
and just poor use of language, and it has been banned from many business firms, as
well as schools. Nevertheless, more than half of the MySpace audience is older than
34 years.
MySpace has rivals. In fact, it has spawned hundreds of more focused, niche
social networks. There are investor, teen, business, career, family, fishing, music and
travel networks, just to name a few. But its largest rival is Facebook. Founded as
thefacebook.com at Harvard by student Mark Zuckerberg as a hobby, the idea behind
Facebook was to create an online digital version of the traditional student class
picture or “facebook.” It quickly became popular at Harvard, expanded to Yale and
Stanford, and then to the nation’s 3,000 plus college campuses, creating a “social
networking phenomenon” on campus. About 90% of college students in the United
States have a Facebook profile, along with lists of favorites, activities, and
accomplishments. Like MySpace, Facebook quickly developed into a general-purpose
platform for conducting social life.
Originally restricted to college students, and relying on fixed templates rather
than user-designed Web pages, Facebook was easily eclipsed by MySpace in terms of
sheer numbers of subscribers. In 2006, in an effort to expand its subscriber base,
Facebook made itself available to anyone, not just college students, and opened up its
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