Business Models Web (2.0)
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Department of Computer Science Institute for System Architecture, Chair for Computer Networks
Web (2.0)
Business Models
Introduction
• The Web (2.0) leads to
1. Complementing traditional business models
2. A whole new line of business models
• This lecture presents
– Selected examples for Web-based business models
• Amazon (virtual merchants + virtual marketplace)
• Google AdWords + Google AdSense
(paid advertisement placement + content targeted advertising)
• App Stores (mobile application marketplaces)
• DoubleClick (advertisement network)
• Facebook (community for building of social networks)
• Communote – Enterprise Microblogging
• RapidShare (share of web space hoster)
• Semfox (product search engine)
– Web 2.0 business principles
• “Mashup”
• “The Long Tail”
• “Open Innovation” 2
Business model
What is a business model?
• A concept that defines policies for development, creation,
marketing and distribution of services and products
• Consists of three main components:
1. Value proposition
• Describes benefits a customer or a business partner can
obtain from the association with this company
2. Architecture of the added value
• Describes various steps of the added value and of the
value chain
• It answers the question: Which configuration or sequence
of steps is necessary to create a service or product?
3. Revenue model
• Describes which revenue is generated by which part of the
value chain
• It answers the question: How is profit made?
3
Examples of business models
Amazon
• A retail merchant that operates over the web only and offers
either traditional or web-specific goods or services
• Sales may be made based on list prices or through auctions
• One successful web-specific service is the virtual marketplace
– Listing fee and commission depend on the price of
the sold product
– Provides automated transaction and relationship marketing
service 4
Examples of business models
Success factors of Amazon:
• Offers wide range of products
(not only bestseller but also niche products)
• More favourable offers in contrast to a local mall
• Partnerships via affiliate programs (e.g. banner exchange,
revenue sharing)
• Customer interest oriented offers / product suggestions
– User interest identification via last selected products
– Every action a user makes is tracked (e.g. which products
he/she has viewed)
Based on this information amazon makes suggestions
which further products / product categories may be
interesting for the user
– For identifying the user a cookie is stored (UserID/sessionID)
• Fast transaction (credit card + using debit entries) and delivery
5
Examples of business models
Google AdWords
• Google sells favourable link positioning (i.e. Sponsored Links)
• Advertising adapted to particular search terms of a user query
• How often and on which rank an advertisement is displayed
depends on the price paid to Google and the contextual
compatibility to searched phrases
6
Examples of business models
Google AdSense
• Google automatically delivers relevant ads when the user visits one of
these pages
• The advertiser pays a fee per click to Google
• The owner of the website gets a fee from Google for every click on an ad
Google
Google keywords AdSense ads Google
AdSense 2 AdWords
Index
Keywords 3
+ pageURL Website
MediaBot Java Google AdSense
activate
1 Script banner ads
0. Add the JavaScript code provided for Google AdSense to a page
1. Google analyses the content of the web pages via a so called MediaBot,
which checks the content of the pages for keywords and adds a page
to the Google AdSense index (page URL + keywords of this page)
2. Google AdSense selects AdWords ads which match to the keywords of
the website
3. With the help of the JavaScript code the AdWords ad can be displayed
7
and customised to the design of the AdSense enabled website
Examples of business models
Relevant text-
and image-based ads
that are precisely
targeted to the site
content are displayed
to the user
8
Examples of business models
App stores
• For purchasing and installing software on a mobile device every
smartphone platform nowadays offers a specific App(lication) Store
• Important App stores:
• Apple App Store
• Google Play
• Windows Phone Marketplace
• App stores enable publishing, distribution and updating of Apps
• Usually 30 percent cut of each purchase is taken by App stores
• Overview of typical App lifecycle
Is App already in App store? no Upload App to
Signing App with App store Publish App
developer key within App store
App Update available
development yes App in App store
triggered in the case of devices
having the App installed
Steps triggered via/by mobile device
Remove Register App Purchase
Download App
App locally App 9
Examples of business models
In-App Purchase / Billing
• Besides purchasing regular Apps from App Stores, additional App
features or extensions can be bought from within an App
• App stores offer dedicated services for realizing overall billing
process
• Services handle all of the
checkout details for the
transaction, including
requesting and validating the
form of payment and
processing the financial
transaction
• App stores do not handle
data provisioning – App
developers have to offer
dedicated solutions for this
purpose (e.g. own server
infrastructure)
10Examples of business models
In-App Purchase / Billing – e.g. Google Play approach
3
Device 1 Forwarding Handling
Request Purchase purchase purchase
(unique item id) request 2 App Store
Application (e.g. Google
Local App 4
with Forward positive Play)
Store
In-App- reply (signed 5 Application Forward positive Validate
Billing purchase data)
reply (signed purchase
purchase data) based on
signature
9 8
10 Deliver In-App
item
Purchase validated
6
Download server 7
of distributing
Forward positive reply Forward signed purchase data
company
(signed purchase data) for validation purposes
11Examples of business models
DoubleClick – Information intermediary
• Data about consumers and their consumption habits are
valuable, especially when this information is carefully analysed
and used to target marketing campaigns
• On the other hand independently collected data about producers
and their products are useful for customers when considering a
purchase
• DoubleClick
– Collects data about web user behaviour via cookies that can
be used to analyse marketing effectiveness
– Transmits behaviour adapted banner ads to a network of
member sites, thereby it enables advertisers to deploy large
marketing campaigns
Advertising network
12Examples of business models
DoubleClick – Advertising network 2. Send GET request to display
the banner ad
The website contains the banner ad (HTTP header element „Referer“
(image) that has to be requested from points to the visited website)
Ad network of the DoubleClick server
DoubleClick
Websites Client (browser) DoubleClick server
1. Request
A new ID for
Send content standard Request without this user is Data base
GameStar.de data
….
included DC cookie created and (ID + visited
is sent by a websites)
Send standard
cookie
banner ads
…… Set DC cookie DC … DoubleClick
……
GAMES.de
DC selects
…
further banner
ads by
specific Request includes
pctip.ch analysing the
DC cookie
….
visited websites
Send banner ads
of the user
e.g. about
newest pc games
13Examples of business models
• Facebook = social networking
service with approximately 1
billion users worldwide
• Core value of Facebook is the data of registered users,
Figure by
their relations and various text and media information such Rishabh
as fotos Tatiraju
• Huge amount of offered features and tools such as
friending, groups, synchronous chat, asynchronous
messaging, photos, timeline, “like” button and mobile
device support
• Facebook has been under heavy criticism due to privacy
concerns connected to approaches such as publication of
private data and applying algorithms for automatic face
detection
14Facebook – Graph API
• Graph API enables developers to read from and write data into
Facebook
• Simple REST-based API offering various URIs to access data of
users, such as:
• Basic user information: https://graph.facebook.com/USERNAME
• Accessing friends: https://graph.facebook.com/USERNAME/friends
• Favorit movies: https://graph.facebook.com/USERNAME/movies
• Associated groups: https://graph.facebook.com/USERNAME/groups
• API returns data represented in JSON
E.g. accessing https://graph.facebook.com/TUDnews returns (excerpt):
"id": "123787251028240",
"name": "TU Dresden",
"picture": "http://profile.ak.fbcdn.net/h...67789_s.jpg",
"link": "http://www.facebook.com/TUDnews",
"likes": 6172,
"category": "University",
"founded": "1828"
…
}
• For accessing user profile details, an access token is necessary
delivered by OAuth 2.0 Authorization Protocol 15Facebook – software development and distribution approach
• Facebook has enormous scalability requirements
• Facebook platform is run on more then 60.000 servers worldwide
• Platform binary is very huge file that has to be distributed efficiently to
this huge amount of servers
• Overview of Facebook development and distribution approach:
Code
Development Source Code transformation
PHP code transformator C++ code reduces runtime
HipHop CPU load by 50%
Compilation
Platform binary
(size: 1.5GB)
Distribution via BitTorrent
Tracker
Chunks Chunks Chunks Chunks
16Examples of business models - Communote
– Enterprise Microblogging
• Share status messages and
communicate
• Follow information
• Connect to collegues
• Secure communication
Connect.
Communicate.
Collaborate.
17Examples of business models - Communote
Selected product features:
• Easy to use and
customizable frontend
• Tagging functionality
• Search functionalities
(e.g. via filtering
mechanisms)
• Uploading and sharing
of files
• Fine-grained definition
of access rights (e.g. on
file level)
• Possibility to follow
topics, users and news
threads
• Can be integrated into
various portals such as
Microsoft Sharepoint
• Deployable behind
firewalls
18Communote architecture and platform
Mailrelay LDAP
Simple Mail
Transfer Protocol
(SMTP) / Internet
Message Access Lightweight Directory
Protocol (IMAP) Access Protocol (LDAP)
HTTP/HTTPS
(Port 80, 443)
Web
Data
Communote
base
Postgres
XMPP Ports 5222/5223 Oracle
HTTP Port 9090 for MySQL
Administrator access Openfire MSSQL
(XMPP)
19Communote architecture and platform
• 100% Java backend
Loadbalancer Cluster (Apache, Hardware)
• Spring, Hibernate
Hardware Loadbalancer Hardware Loadbalancer • HTML, CSS, JavaScript
(Ajax)
• Apache Tomcat and
Apache Webserver
Application Server Cluster (Tomcat)
• Data base: Postgres,
Communote Communote Communote Communote MySQL, MSSQL and Oracle
Database Server
Distributed Cache
• Supports clustering
• Supports virtualization
• Interfaces:
• Simple Mail Transfer
Database Cluster (Postgres, Oracle, MySQL, MSSQL)
Protocol (SMTP)
Data- Data- Data- Data- • Extensible Message
base base base base and Presence Protocol
(XMPP)
• Really Simple
Communote node Syndication (RSS)
Communication Channel • REpresentational
State Transfer (REST)
API 20Examples of business models
RapidShare – A sharehoster
• Provides online web spaces via “one click” upload or download
• Free or “premium” membership (for a periodic fee –
no download limit within this period)
• Partly financed by advertising
• Total hard disc capacity approx. 1,7 Petabyte
• Total bandwidth: 90 Gbit/s The link references to
all locations of the file
Weblog / Discussion board
(6) Post the link (7) Get the link
Link
(2) Select a server (9) Select a server
(4) Generate the link (10)
(5) Get the link (8) Open the link
(1) Upload (1) (3) Replicate (10) Download
Uploader Downloader
Server Cluster RapidShare website
RapidShare website 21Examples of business models
Semfox – A product search engine
• Some key technologies are important to every business
• For web shops this key technology is product search
• Problem: no “virtual salesman”, users have to find products by themselves
• Solution: search engine can be queried using naturally formulated
sentences
• Business-to-Business (B2B) approach by offering Software as a Service
(SaaS)
• Payment per resolved search query
Cheap TV with a high resolution and DivX playback
22Examples of business models
“Energy saving
washing machine
with timer”
• Ontologies expressed in OWL are used to model domain specific
knowledge
• Consumer products plus their characteristics are described using
these ontologies
• Possible synonyms are stored together with every node of the
resulting knowledge base
• Queries are evaluated against the knowledge base by matching
query terms against product names and their characteristics
23Business principles - Mashups
Mashups
• Web 2.0 applications that combine content generated by and
that make use of further Web 2.0 applications
• Therefore Mashups use the available APIs provided by other web
applications
• Simple example: BBC
news map
– Uses the API of
Google Maps
– Displays geographic
locations of current
RSS news items
published by the BBC
24Business principles – The Long Tail
The Long Tail
• “The Long Tail is the realization that the sum of many small
markets is worth as much, if not more, than a few large
markets.” (Jason Foster)
25Business principles – The Long Tail
• This trend to make money is made possible and profitable due
to the development of the Web and its corresponding
technologies
– Because of limited sales areas the traditional trade has to be
designed strictly local-demand-oriented
– Web stores do not depend on local demands but aggregate
demands from all over the world
– Many less profitable products can be sold during a greater
period of time this forms the “Long Tail”
• By using the WWW
– Millions of people all over the world can be reached
– Significant cost advantages can be achieved
• The digital mall consists of hard discs which can be
upgraded without any problems
• Adding a new product leads to a new entry in the
database and if necessary to a low cost stock of
merchandise 26Business principles – The Long Tail
Examples
• eBay
– In addition to “Powerseller” there are many private sellers
who offer e.g. their miss purchase, cellar rubbish, goods
from breaking up of a household in an auction
– eBay is a mix store containing about 50.000 categories
• amazon: Online book shop vs. local book shop
– A big local book shop permanently stocks about
100.000 titles and is normally able to order articles from one
(or a few) vendor(s) bound by contract
– In contrast amazon stocks about 3 million titles and is able
to order articles from a very great range of vendors /
producers
– From a research: amazon got up to 40 percent of their
transaction volume from books not offered by regular local
book shops 27Open innovation
“Open innovation is a paradigm that assumes that firms can and should use
external ideas as well as internal ideas, and internal and external paths to
market, as the firms look to advance their technology”
(Chesbrough, Open Innovation, 2003)
• Central idea: Various stakeholders should be involved in the innovation
process to increase probability of success and ensure benefits for all
participants
• Open innovation is divided into three core processes:
Realized e.g. by:
Integrating ideas provided by
Outside-in process Place of innovation is subcontractors or customers;
External knowledge within the company innovation competitions; example:
http://www.googlelunarxprize.org/
Inside-out process Internal knowledge Licensing of intellectual property
Commercialization spin-offs; example: audio format MP3
outside the company
Joint Ventures, strategical networks;
Coupled process example: Open Handset Alliance
Company developing Android
Company border
28Business principles
Summary of principles for business models
• Members data is valuable
– E.g. for analysing of consumption habits
– Especially social networks offer detailed information about
members
• High volume of user traffic makes advertising profitable
– Consumption habit advertising
– Interest (hobbies) advertising
– Content targeted advertising
• “Mashup”
– Combines content from many sources
• “The Long Tail”
– Many niche markets are profitable
• “Open innovation”
– Innovation is realized together within further stakeholders
29References
• Michael Rappa, Business models on the web,
http://digitalenterprise.org/models/models.html
• Chris Anderson, The Long Tail,
http://www.wired.com/wired/archive/12.10/tail.html
• Website which lists usable APIs and its Mashups,
http://www.programmableweb.com
• Article about technological side of Facebook,
http://arstechnica.com/business/2012/04/exclusive-a-behind-
the-scenes-look-at-facebook-release-engineering/1/
• Gassmann, O.; Enkel, E.: Open Innovation, in: Zeitschrift
Führung + Organisation, No. 3, 2006
• HipHop source code transformator:
http://github.com/facebook/hiphop-php/wiki/
• Facebook developer information:
http://developers.facebook.com/
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