E-Commerce. Marketing and E-Commerce subject at the International Master in Industrial Management. Guest speaker: Francisco Hernández Marcos Universidad Politécnica de Madrid Politecnico di Milano Kungliga Tekniska högskolan

1. E-Commerce
Marketing and E-Commerce
International Master in Industrial Management
Francisco Hernández Marcos
fran.me
Madrid, 19th January 2012

2. About me SHAMELESS
SELF-PROMOTION
Education:
Universidad Politécnica de Madrid, UNED, London
Business School, University of Chicago
Firms I worked for full-time :
Abengoa, McKinsey&Co, ABN AMRO, Real Madrid C.F.
Entrepreneurship: Crisalia
Consulting requests (Social Media & Internet):
francisco_hernandez@11goals.com
Full profile:
linkedin.com/in/franciscohm

3. Agenda
 Introduction
 Market analysis
 E-Comm website features
 E-Business models
 M-Commerce

4. Definition of E-Commerce
“Electronic commerce, commonly known as e-commerce,
ecommerce or e-comm, refers to the buying and selling of
products or services over electronic systems such as the
Internet and other computer networks. However, the
term may refer to more than just buying and selling
products online. It also includes the entire online process
of developing, marketing, selling, delivering, servicing
and paying for products and services.”
We will focus on
the Internet
Source: Wikipedia

5. E-Commerce timeline
Netscape browser & 1st Internet
purchase (netmarket.com)
“Dot Com” Amazon buys
Online shopping burst Zappos.com
concept
1st Browser Amazon ->Diapers.com
Alibaba.com eBay -> GSI Commerce
CERN
1984 1995 2010
1979 1990 1994 1998 2000 2009 2011
1st Electronic Mall Amazon.com Groupon rejects
CompuServe eBay.com Google offer
Highly-funded startups Small-funded startups
Tech&Concept development
(KSF: Tech) (KSF: Biz Model)
Jeff Bezos: “I am more worried about 2 guys
in a garage than about Barnes&Noble ”

6. Types of E-Commerce/E-Business
1 of 2  Not easy to classify
 Many real models fall into multiple categories
B2B B2C B2G
Business to Business Business to Consumer Business to Government
•PayPal (and B2C, “B2B2C”) •Amazon “E-Procurement”
•Optize (and B2C) •FreshDirect
•Alibaba Group •Zynga (and C2C)
C2B C2C C2G
Consumer to Business Consumer to Consumer Citizen to Government
•Zonzoo •Prosper (“P2P”) •Agencia Tributaria (Tax agency
•Fotolia •eBay online)
•Google Adsense •Facebook
G2B G2C G2G
Government to Business Government to Citizen Government to Government
“E-Government” “E-Government”
•Government Gateway
•AEPM •eDNI •Schengen Information System
•Certificado Digital •USA.gov (also G2B)

7. Types of E-Commerce
2 of 2
B2E
Non-Internet “Business 2 Employee”
E-Commerce
Social Mobile
Commerce Commerce
Social
Mobile
Commerce

8. Agenda
 Introduction
 Market analysis
 E-Comm website features
 E-Business models
 M-Commerce

9. Global and European online population
About one fourth of World’s population is online
Source: Internet Retailer, Forrester Research , comScore

10. E-Commerce takes off in a country when broadband
becomes widely available.
Total number of broadband subscribers Broadband subscribers added in Q2 2011
Millions Millions
Source: Point Topic Ltd., World Broadband Statistics: Short Report Q2 2011

11. Who buys online?
In the U.S. people of about all ages buy online
Source: Internet Retailer, Forrester Research

12. E-Commerce sales are very large and grow strongly
19%
Source: Internet Retailer, Goldman Sachs

13. Where are the largest E-Commerce markets?
E-Commerce sales by region % of online consumers who
in 2010 made a web purchase in 2009
Source: Internet Retailer, Goldman Sachs, Forrester Research

14. What markets are expected to grow more?
E-retail sales
CAGR
U.S.A. EU 17 Brazil
10% 10% 18%
In 2015 it would account 11% of
retail sales in the USA
Source: Internet Retailer, Forrester Research
GAGR= Compounded Annual Growth Rate

15. Who are the top E-Commerce players?
Source: Internet Retailer , comScore

16. How do E-Comm companies perform?
Source: Internet Retailer

17. Agenda
 Introduction
 Market analysis
 E-Comm website features
 E-Business models
 M-Commerce

18. Frontend E-Commerce features
1. Catalogue navigation (categories, 10.Payment system
tags, etc.) 11.Integrated Shipping & Tracking
2. Search engine (box, advanced) system
3. Ratings & Reviews 12.Customer accounts
4. Recommendations & Referrals 13.SEO friendly
5. Up-selling & Cross-selling 14.Social Media integration
6. Whish list & Purchase-later list 15.Customer service (Live chat,
7. Shopping cart automatic robot, etc.)
8. Gift certificates 16.Forums & Communities
9. Checkout 17.….

19. E-Commerce is more than the act of buying online,
it’s the whole system of information and
reputation, which makes it a highly social activity
Social Shopping
Source: Internet Retailer, Forrester Research

20. Agenda
 Introduction
 Market analysis
 E-Comm website features
 E-Business models
 M-Commerce

21. Two key questions when doing E-Business
How do I make money
from my website?
How can I market
my website?
(Online MKT, day 2;
Social MKT, day 3)

22. Business models on the web (Professor Michael Rappa)
Page 1 of 2
1. Brokerage: 3. Infomediary:
• Marketplace Exchange [Orbitz, ChemConnect] • Advertising Networks [DoubleClick]
• Buy/Sell Fulfillment [CarsDirect, Respond.com] • Audience Measurement Services [Nielsen//Netratings]
• Demand Collection System [Priceline.com] • Incentive Marketing [Coolsavings]
• Auction Broker [eBay] • Metamediary [Edmunds]
• Transaction Broker [PayPal, Escrow.com]
• Distributor 4. Merchant:
• Search Agent • Virtual Merchant [Amazon.com]
• Virtual Marketplace [Amazon.com] • Catalog Merchant [Lands' End]
• Click and Mortar [Barnes & Noble]
2. Advertising: • Bit Vendor [Apple iTunes Music Store]
• Portal [Yahoo!]
• Classifieds [Monster.com, Craigslist] 5. Manufacturer (Direct):
• User Registration [NYTimes] • Purchase [Dell Computer]
• Query-based Paid Placement [Google, Overture] • Lease
• Contextual Advertising / Behavioral Marketing • License
• Content-Targeted Advertising [Google] • Brand Integrated Content
• Intromercials [CBS MarketWatch]
• Ultramercials [Salon]
Source: Michael Rappa, http://digitalenterprise.org/models/models.html

23. Business models on the web (Professor Michael Rappa)
Page 2 of 2
6. Affiliate:
• Banner Exchange
• Pay-per-click Check out detailed
• Revenue Sharing
descriptions here
7. Community:
• Open Source [Red Hat]
• Open Content [Wikipedia] • Classifying is difficult, on Internet is
• Public Broadcasting [The Classical Station (WCPE.org)] even more difficult.
• Social Networking Services [Flickr, Friendster, Orkut]
• Some companies fall into multiple
categories. Real business companies
8. Subscription: can have traits of several models.
• Content Services [Listen.com, Netflix]
• Person-to-Person Networking Services [Classmates]
• Trust Services [Truste]
• Internet Services Providers [America Online]
9. Utility:
• Metered Usage
• Metered Subscriptions [Slashdot]
Source: Michael Rappa, http://digitalenterprise.org/models/models.html

24. Amazon.com
Virtual Merchant / Marketplace / Bit vendor
• Founded: 1994 as a “Long tail
”concept
• Revenue model: margin/fee on
seller
• Sales (2010): ~USD 34 billion (#1
E-retailer)
• Books → CDs → All types of
physical goods → Amazon Web
Services → eBooks (Kindle)
• 8 regional websites
• Heavy investment in CRM (ej.
Recommendation system).
• First profit year in 2003
• Evolved from reseller into E-
Commerce platform (like e-Bay’s)
• Heavy acquirer: CD Now,
Joyo.com, Zappos (USD 1.2 bill.),
Diapers (USD 550 mill.), BuyVIP
(EUR 70 mill), etc.
www.amazon.com

25. Long-Tail business concept ILUSTRATIVE
“Selling many marginal products in small quantities ”
The sum can be much higher than the sum of few top-selling products, and no
brick-and-mortar shop can offer such a broad catalogue on their shelves.
Q Top sellers
HEAD → Brick-and-mortar sellers’ focus
Weird
products
TAIL
Products
A market in itself + a way to attract a customer at some point of time

26. Weirdest items sold on Amazon
Uranium Ore
Wolf Urine
Dagobert Wooden
Toilet Throne
Fat replica demonstration models

27. Amazon’s performance, compared
Source: Internet Retailer

28. eBay.com
Auction Broker / Virtual Marketplace
• Founded: 1995 as “2-sided
auction network” concept
• Revenue model: fee on
seller
• Sales (2010): ~USD 9 billion
• 37 regional websites
(integrated and not
integrated)
• Heavy investment in fraud
detection.
• PR for cheap, smart
marketing
• Evolved from individual’s
auction site into biz E-
Commerce platform (like
Amazon’s)
• Heavy acquirer: PayPal
(USD 1.6 bill.), Skype (USD
2.6 bill.), BillMeLater (USD
1.2 bill.), GSI Commerce
(USD 2.4 bill.) etc.
www.ebay.com

29. iTunes Store & App Store
Bit vendor (Merchant), Virtual Marketplace • Launched in 2003 (iTunes) and 2008
(App) based on a
hardware&software, closed
ecosystem (iPod, iPhone, iPad, iTV?)
• Revenue model: fee on content sales
• Music → Podcasts → TV Shows →
Movies (rent&buy) → Games → Apps
→ Books
• Ping in 2010
• iCloud in 2011
• iTunes:
• ~20 mill. songs (10 bill. songs sold)
• ~3.000 TV shows
• ~2.500 movies
• AppStore:
• >500.000 apps (<140.000 for iPad)
• ~74% paid apps (70% for author)
• >18 bill. downloads

30. Spotify
Subscription → Freemium
• Founded in 2006 in Sweden
as a music streaming
service.
• “Open Music Model”
• Revenue model: Ads +
subscription – fee to
content providers based on
usage
• 15 mill. songs
• Available in 13 countries
(USA in 2011)
• Social playlists
• 2011: Close integration
with new Facebook social
APIs
• Desktop → Mobile
www.spotify.com

31. Spotify
Subscription → Freemium
In the past there was
also a 1-day pass
(unlimited for 24 hours)
Source: http://www.spotify.com/se/get-spotify/overview/

32. Freemium model ILUSTRATIVE
Venture Capital favourite’s model
FREEMIUM = FREE + PREMIUM
“Attract audience with free versions of the product, introduce them to paying with
affordable versions of the product, and monetize them with premium versions of the
product”
Examples:
FREE •Spotify:
•Free: Listen with ads
•Cheap: 1 day pass/Unlimited
•Premium: monthly subscription
•Social games:
•Free: Play
•Cheap/Premium: Virtual goods
CHEAP •Most Open-Source Software
(Affordable) •Free: base software
•Cheap: modules, extensions
PREMIUM •Premium: professional services
•Adult content

33. Is this Freemium?
• Free: 2 Paragraphs
• Premium: rest of the article
• “Coitus-interruptus user
experience” is not good for
the user nor for the brand.
• Smartest Freemium models
do not compromise
between user experience
and monetizing. Otherwise
you may stop attracting
users, and therefore
monetizing them.
• Every time you think there
is such a tradeoff, test,
retest, and retest again the
model with a sample of
users before implementing
it.
www.wsj.com

34. Expedia
Travel agent
• Founded in 1996 as a
Microsoft division.
• Expedia Inc. operates
Expedia.com, Hotels.com
& Hotwire.com
• More than 60 countries,
1000s affiliates
• Revenue model: margin on
sales
• Revenue: ~ USD 3.3 bill./yr
• Largest online travel agent
www.expedia.com

35. Plenty Of Fish
Infomediary / Advertising
• Founded in Canada by
Markus Frind and girlfriend
in 2003 as a free online
dating website
• “free version” of
Match.com, Meetic
• Revenue model: advertising
• >38 mill. registered users
• ~3,000 mill.
pageviews/month
• Estimated revenue: > USD
10 mill /yr
www.pof.com

36. easyJet, "The Web's Favourite Airline"
Manufacturer (Direct)
• Founded in 1995 after European skies
became partially liberalized.
• 1998: First to implement online real time
booking in Europe
• ~99% of booking is online
• ~55 mill. Passenger/year
• It took only 6 months in Europe for Low-
Cost carriers to penetrate in the market
because of Internet, while in the USA it
took 10 years in the 70s because they
had to convince brick-and-mortar travel
agents.
www.easyjet.com

37. Vente Privee
Group buying – Private shopping club
• Founded in France in 2001,
invented the model which was
later going to be followed by
copycat websites.
• Brands at discount prices (up to
70%), for a limited period of time.
• First it served to sell season
leftovers. Later it is used as a low
cost marketing model for branded
goods.
• Revenue model: margin on sales.
• Negative financial working capital.
• ~13 mill. members in Europe
• Revenues: ~ EUR 970 mill. (2010)
www.vente-privee.com

38. Groupon www.groupon.com
Group buying – Deal coupons
• Founded in 2008 in Chicago
• City-based deals-of-the-day, by
daily email to members.
• Revenue model: margin on
coupon’s value
• 500 markets in 44 countries
• 85 mill. subscribers
• Rejected USD 6 bill. offer from
Google
• >500 copycats, including Google
offers. Groupon sort of well
protected itself.
• Revenues: USD 760 mill.
• IPO in Nov 2011 (5% float on
NASDAQ)
• Value: ~ USD 12 bill.
• Value proposition to providers:
client acquisition through
aggressive discount.
• Retailers: Use with caution!

39. Farmville | Zynga www.zynga.com
Community
• Zynga was founded in San
Francisco in 2007 by serial
entrepreneur Mark Pincus
• 232 mill. monthly active users
• Revenue model: virtual goods
• Revenue: USD 600 mill. (2010)
• Main games: Farmville,
Frontierville, Zynga Poker,
Castleville, Mafia Wars, etc.
• IPO: Dec 2011 (14% float on
NASDAQ)
• Value: ~ USD 6 bill.

40. Virtual goods Virtual Goods Market 2011:
USA: USD 2.2 bill. (+38%)
China: USD 6.8 bill. (+32%)
Virtual gifts Game decoration Avatars
0,00 – 3,99 $ 2.500 pts. 100,00 $
(5,00 $)
• Identification
• Identification
• Socialise • Self-Expression
• Self-Expression
• Interact
• Thank
Virtual collections Game functionality Game energy
5-20 coins 5000 coins 175 cafe cash
(0,50-2,00 $) (? $) (0,03 $)
• Self-Expression • Time-Saving • Time-Saving
• Improved game
Each virtual good has an specific utility for the users

41. Monetizing a social game [on Facebook] ILUSTRATIVE
No Ads
Revenues
Advertising (10%)
Few Ads
Many Ads
Virtual goods (90%)
Virtual goods buyers
100%
Users try the Sporadic Frequent players 1-3 %
game players
Key success factors
• Ads. • Critical player • Improved game • Usefulness of Freemium again!
base based on virtual goods.
• Virality analytics and
(harder on • Game user tests.
FB). concept.
• Cross • Growth
promotion. speed.
Source: “Inside Virtual Goods. The future of social gaming 2010”; Facebook Inc; insidefacebook.com;

42. Skype
Utility – Metered usage and subscription + Freemium
• Founded in 2003 by Swedish and
Danish partners, as a P2P VoIP
service provider.
• Headquartered in Luxembourg,
developed in Estonia.
• Freemium (Free service is mainly
computer-to-computer calls and
videoconferencing).
• Revenue model: pay for premium
service (e.g. call to telephone);
subscription for extra features (e.g.
multi-person videoconference,
telephone number, business console,
etc.).
• >650 mill. registered users.
• 13% of international calls
• Revenues: ~USD 800 mill./yr.
• TelCOs accuse Skype of piggybacking.
• 2005: eBay buys for USD 2.6-3.1 bill.
Piggybacking? • 2011: Microsoft buys for USD 8.5 bill.
www.skype.com

43. The 6 dimensions to social commerce success according
to Syzygy
Social Commerce : Sharing your purchase experience before, during, and after buying.
•Twitter.com/Dell
•Groupon
•My Starbucks Idea SCARCITY
•Blendetc Less is more
(perceived value) •Vente-privee.com
•Twitter.com/Dell
AFFINITY
CONSISTENCY Shop with like-
One step at a time
minded people
•Adidas Social Coupons
AUTHORITY •Starbucks @ 4S
Follow the leader
RECIPROCITY
Payback favours
(experts)
POPULARITY
Follow the crowd
•Vente-privee.com
•Apple Expert Forums
•Facebook.com/1800flowers
Source: The 6 Dimensions of Social Commerce - Mark Ellis, Syzygy

44. Agenda
 Introduction
 Market analysis
 E-Comm website features
 E-Business models
 M-Commerce

45. Some interesting data about mobile and e-commerce
% of mobile phone users who regularly use Main mobile shopping activities (U.S.A.)
the mobile web
Type of products purchased over mobile Reasons why consumers buy on Mobile (U.S.A.)
Internet (U.S.A.)
Source: Internet Retailer, Pew Research Center, comScore

46. Smartphones taking over 700.000 Android activations/day
~ 200.000 iPhones/day
> 40 mill. iPads
Source: Internet Retailer, Pew Research Center, comScore, The Nielsen Co., Yankee Group Research

47. M-Commerce taking-off right now in the USA
In 2015 it would
account more than
10% of E-Comm
Source: Internet Retailer, eMarketer, Forrester Research

48. Key questions about M-Commerce
• Will it really take off as projected? Faster? Slower?
• Mobile payments development: revenue models, M-wallet,
etc.
• Programming & browsing standards: HTML5…
• Adaptation of website business models? (App versions of a
website)
• New business models? Based on GPS, accelerometer, touch screen,
etc.
• Social M-Commerce? Will Foursquare monetize?
• Any examples? Information services, Tickets, Banking, Media,
Physical goods (Amazon)

49. Agenda
 Introduction
 Market analysis
 E-Comm website features
 E-Business models
 M-Commerce

50. Today’s main takeaways
¶ E-Commerce, E-Business… difficult to define and classify. Do not waste much time in
figure-out where your model fits.
¶ 17-year history but still growing strong, now specially on emerging markets
(broadband penetration, purchasing power), but maybe on mobile channels soon.
¶ E-Commerce is an intrinsically social activity. It evolved to the social space even before
the social media phenomenon started.
¶ Generic types of business models on the web.
¶ Technology not a problem anymore; success is many times driven by innovative
business models, sometimes easily copycatted if one does not protect oneself.
¶ 6 dimensions to social E-Commerce success.
¶ Takes time to refine an innovative business model. Test and error based on analytics is
the best way to refine a model. Be patient, imaginative, and analytical.
¶ Long tail concept
¶ Freemium concept
¶ “Piggyback” concept

51. Thanks!
Francisco Hernández Marcos
fran.me
@franciscohm