Chapter 11 - Social Networks, Auctions, and Portals

Chapter 11
Learning Objectives
• 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
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
Online Auctions
• Online auction sites are among the most popular consumer-to-
consumer (C2C) e-commerce sites on the Internet, although the
popularity of auctions and their growth rates have slowed in recent
years due to customers’ preferences for a “buy-now” fixed-price
• The market leader in C2C auctions is eBay, which has 130 million
active users in the US and over 350 million items listed on any given
day within 18,000 categories
• In the US alone, there are several hundred auction sites, some
specializing in unique collectible products, and others have adopting
a more generalist approach
• Increasingly, established portals and online retail stores – from Yahoo
and MSN to JCPenney and Sam’s Club – are adding auctions to their
• Auctions are markets in which prices are variable and
based on the competition among participants who are
buying and selling products (dynamic pricing)
• Auctions are useful in situations where the price of an
item is not known because it is rare, unique, or subject to
wide fluctuations in demand or supply
• The purpose of an auction is to identify reservation prices
– the lowest price a seller is willing to accept, or the
highest price a buying is willing to pay
• There are several auction types that each attempt to
efficiently identify the participant’s reservation prices
Auction Types
• Price taking (fixed pricing)
• English auction
• Dutch auction
• Name your own price
• Sealed bid
• First price
• Second price
• Double auction
Newer Forms of Dynamic Pricing
• Trigger pricing
• Used in m-commerce, adjusts prices based on the location of the
• Utilization pricing
• Adjusts prices based on utilization of the product
• Personalization pricing
• Adjusts prices based on the merchant’s estimate of how much the
customer truly values the product
Benefits of Auctions
• Liquidity
• Convert unique items to cash
• Price discovery and market efficiency
• Efficiently match supply and demand to find market value for an
• Price transparency
• Participants can monitor auctions as they occur
• Lower transaction costs
• Consumer aggregation and network effects
• Large auction markets are more valuable to participants
Risks and Costs of Auctions for
Consumers and Businesses
• Delayed consumption costs
• Monitoring costs
• Can be reduced by watch lists, proxy bidding, etc.
• Equipment costs
• Trust risks
• Fulfillment costs
Fraud and Abuse in Online Auctions
• Online and offline auction markets are particularly prone
to fraud
• According to the Internet Crime Complaint Center (IC3),
Internet auction fraud was one of the top 10 types of
fraud, but in 2012 it represented only 10% of total Internet
fraud because other Internet crimes had grown so rapidly
E-Commerce Portals
• Portals are the most frequently visited sites on the Web if
only because they typically are the first page to which
many users point their browser on startup
The top portals such as Yahoo, MSN, and AOL have
hundreds of millions of unique visitors worldwide each
Web portals are gateways to the more than 100 billion
Web pages available on the Internet
Millions of users have set Facebook a their home page,
choosing to start their sessions with news from friends
Perhaps the most important service provided by portals is
that of helping people find the information they are looking
for on the Web
E-Commerce Portals (cont.)
• Early portals were primarily search engines, but portals
have evolved into much more complex websites that
provide news, entertainment, maps, images, social
networks, in-depth information, and education
Portals today seek to be a sticky destination site, not
merely a gateway through which visitors pass
Portals also serve important functions within a business or
Enterprise portals help employees or members navigate
to important content, such as HR information, corporate
news, or organizational announcements
blueView is an enterprise portal
Portal Value
• Because the value of portals to advertisers and content
owners is largely a function of the size of the audience
each portal reaches, and the length of time visitors stay
on the site, portals compete with one another on reach
and unique visitors
Reach is defined as the percentage of the Web audience
that visits the site in a month
Unique visitors is defined as the number of uniquely
identified individuals who visit in a month
Portals are inevitably subject to the network effect
How does this affect their business strategy?
Social Networks and Online Communities
• From the beginning, the Internet was intended to be a
community-building technology that would allow scientists
to share data, knowledge, and opinions in a real-time
online environment
• The early online communities involved a relatively small
number of Internet aficionados, and users with intense
interests in technology, politics, literature, and ideas
• The technology was largely limited to posting text
messages on bulletin boards sponsored by the
community, and one-to-one or sending one-to-many emails
Social Networks and Online Communities
• By 2002, the nature of online communities had begun to
User-created blogs became inexpensive and easy to set
up without any technical expertise
Photo sites enabled convenient sharing of photos
Beginning in 2007, the growth of mobile devices enabled
sharing of riche media such as photos, music, and videos
Suddenly there was a much wider audience for sharing
interests and activities, and much more to share
Social Networks and Online Communities
• A new culture emerged as well
• Online communities broadened to include a much wider set of
people and tastes, especially pre-teen, teens, and college
students who were the fastest to adopt many of these new
• The new social network culture is very personal and “me”
centered, displaying photos and broadcasting personal
activities, interests, hobbies, and relationships on social
network profiles
• Today’s social networks are as much a sociological
phenomenon as they are a technology phenomenon
• Currently, social network participation is one of the most
common usages of the Internet (about two-thirds of all Internet
users in the US, 163 million people)
What is an online social network?
• Social networks involve:
• A group of people
• Shared social interaction
• Common ties among members
• People who share an area for some period of time
• Online social networks are a variation of traditional social
networks facilitated by the Internet with some differing
characteristics including the removal of geographic and
time limitations
The Future of Social Networks
• Social networking in 2013 is one of the most popular online
Will it stay that way or grow even more popular?
Will the industry become more concentrated (Facebook
increasing their market share), or become less concentrated?
Many young users report “network fatigue”
The financial future of social networks is to become advertising
and sales platforms, but they are not yet proven advertising
platforms that drive sales
The relationship between “like” and sales is not clear yet
As social networks attempt to monetize their huge audiences,
user resentment grows
Use of users private information also creates feelings of
betrayal and fear

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