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10 Social Networks and Communities
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Copyright © 2012 Pearson Education Slide 10-4
Social Network Fever Spreads to the Professions
Class Discussion
How has the growth of social networking enabled the
creation of more specific niche sites?
What are some examples of social network sites with a
financial or business focus?
Describe some common features and activities on these
social networking sites.
What feature of social networks best explains their
popularity?
SocialPicks for stock investors, DailyStrength.org for health care professionals, LawLink for
lawyers, Sermo for physicians, Inmobile.org for wireless industry executives, AdGabber for
advertising professionals, LinkedFA for financial advisors
Encourage members to intensely discuss realities of their professions and practices,
sharing successes and failures, and developing network for career advancement
Ability to reveal group attitudes and opinions, values, and practices
Class Discussion
Copyright © 2012 Pearson Education Slide 10-5
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Copyright © 2012 Pearson Education Slide 10-6
Learning Objectives
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
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
Copyright © 2012 Pearson Education Slide 10-7
Social Networks and Online Communities
Internet began as community building
technology for scientists, researchers to share
data, knowledge, and opinions in a real-time
online environment
Early communities limited to bulletin boards,
newsgroups; e.g., the Well (first online
community formed in 1985 in San Francisco by a
small group of people)
Today: Mobile devices; sharing of photos, video;
blogs have created new era of social networks
Social networks now one of most common
Internet activities
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Copyright © 2012 Pearson Education Slide 10-8
What Is an Online Social Network?
Online area where people who share common ties can interact
Social networks involve:
1. A group of people
2. Shared social interaction
3. Common ties among members
4. People who share an area for some period of time
Participants do not necessarily share goals, purposes, or
intentions
Portals and social networks:
Moving closer together
Portalsadding social network features, e.g., chat groups, bulletinboards,free Web
site design and hosting
Community sites, e.g.,iVillage (site devotedto women’s issues), adding portal-like
services
Searching
News
E-commerceservices
Copyright © 2012 Pearson Education Slide 10-9
The Growth of Social Networks and
Online Communities
Top 10 social networks account for over 90% social networking
activity (see next Fig.)
Facebook users: Over 50% are 35+
Unique audience size:
Top four U.S. social networks(FB, LinkedIn,Twitter, MySpace): 264
million/month
Top four portal/searchengines (Google, Yahoo,MSN, AOL): 650 million/month
Annual advertising revenue
U.S. social network sites: $3.08 billion
Top four portal/searchengines (Google, Yahoo,Microsoft, AOL): $19 billion
Social networking sites fastest growing form of Internet usage,
but still not as powerful as search engines/portals in terms of
unique visitors, overall reach, and ad dollars generated
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Copyright © 2012 Pearson Education Slide 10-10
Top 10 Social Network Sites, 2011
Figure 10.1, Page 678 SOURCES: Based on data from eMarketer, 2010; Hitwise, 2010.
Copyright © 2012 Pearson Education Slide 10-11
Turning Social Networks into Businesses
Early networking sites relied on subscriptions
Today primarily advertising (see next Fig.)
Profound impact of social networks on
businesses
Marketing and branding tool
Facebook pages, “fans”
Twitter feeds
Listening tool
Monitoringonline reputation
Extension of CRMS
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Copyright © 2012 Pearson Education Slide 10-12
Copyright © 2012 Pearson Education Slide 10-13
Types of Social Networks
and Their Business Models
General communities:
Offer opportunities to interact with general audience
organized into general topics, e.g., MySpace, Facebook
Advertising supported by selling ad space on pages and
videos
Practice networks:
Offer focused discussion groups, help, and knowledge
related to area of shared practice, e.g., Linux.org and
LinkedIn (business)
May be profit or nonprofit; rely on advertising or user
donations
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Copyright © 2012 Pearson Education Slide 10-14
Types of Social Networks
and Their Business Models (cont.)
Interest-based social networks:
Offer focused discussiongroups based on shared interest in some
specific subject, e.g., E-democracy.org and SocialPicks (stock market
site)
Usuallyadvertising supported
Affinity communities:
Offer focused discussionand interaction with other people who share
same affinity (self or group identification), e.g., iVillage and Oxygen
(focusing on women), BlackPlanet (African American community)
Advertising and revenues from sales of products
Sponsored communities:
Created by government, nonprofit, or for-profit organizations for
purposeof various purposes,e.g., increasing information available to
citizens (Westchestergov.com), online auction site (eBay), product site
(Tide.com), sharing knowledge within corporate (IBM, Cisco, HP)
Copyright © 2012 Pearson Education Slide 10-15
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Copyright © 2012 Pearson Education Slide 10-18
Online Auctions
Online auction sites are among the most
popular consumer-to-consumer sites on the
Internet
eBay: Market leader with 97 million active users
in the US, 200 million items listed each day, $4.8
billion net revenues from its Marketplaces
segment in 2010
Several hundred different auction sites in
United States alone
Established portals and online retail sites (from
Yahoo, MSN to JCPenny and Sam’s Club)
increasingly are adding auctions to their sites
Copyright © 2012 Pearson Education Slide 10-19
Defining and Measuring the Growth of
Auctions and Dynamic Pricing
Dynamic pricing
Airline tickets, coupons, college scholarships
Prices based on demand characteristics of customer and
supply situation of seller
Many types of dynamic pricing
Bundling of digital goods – including low-demand products
in a bundle “for free” to increase total revenues
Trigger pricing – adjust prices based on location of
consumer; used in m-commerce applications
Utilization pricing– adjust prices based on utilization of
product, e.g., auto and health insurances
Personalization pricing – adjust prices based on merchant’s
estimate of how much customer values the product, e.g.,
higher prices paid for hard-covered books by fans of writers
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Copyright © 2012 Pearson Education Slide 10-20
Defining and Measuring the Growth of
Auctions and Dynamic Pricing (cont.)
Auctions: One form of dynamic pricing
C2C auctions (most widely known)
Auction house an intermediary market maker,
providing forum where consumers – buyers and
sellers – can discover prices and trade
B2C auctions
Business owns assets; often used for excess goods
Auctions can be used to
Sell goods and services
Allocate resources among independent agents
(bidders), e.g., workers bidding for task assignments
Copyright © 2012 Pearson Education Slide 10-21
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Copyright © 2012 Pearson Education Slide 10-23
Benefits of Auctions
Liquidity– sellers can find willing buyers, and buyers can find
sellers
Price discovery – buyers and sellers can quickly and efficiently
develop prices for items difficult to assess, where product is rare
Price transparency – public Internet auctions allow everyone to
see asking and bidding prices for items
Market efficiency – auctions can lead to reduced prices
reduced profits for merchants increasing consumer welfare
(one measure of market efficiency)
Lower transaction costs – lower cost of selling and buying
products
Consumer aggregation – sellers benefit from large auction sites’
ability to aggregate large number of consumers
Network effects – large auction sites with large number of visitors
and products make it likely to find what you want at a good price,
and highly probable to find a buyer for just about anything
Copyright © 2012 Pearson Education Slide 10-24
Risks and Costs of Auctions for
Consumers and Businesses
Delayed consumption costs – buyers must wait until
auctions are over, and shipping takes time
Monitoring costs – requires time to monitor bidding
Possible solutions include:
Fixed pricing – clicking on the “Buy It Now” buttonand paying premium
price comparedto regular auctionprice
Watchlists – permit consumer to monitorcertain auctions of interest
Proxy bidding– allows consumerto enter maximumprice, and auction
softwareautomaticallybids for goods up to that price in small increments
Equipment costs – costs of computer system, Internet
access, and learning complex operating system cost
Trust risks
Possible solution—rating systems
Fulfillment costs – buyers pay costs of packing,
shipping, and insurance
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Copyright © 2012 Pearson Education Slide 10-25
Market-Maker Benefits
No inventory
No fulfillment activities
No warehouses, shipping, or logistical facilities
eBay makes money from every stage in
auction cycle
Transaction fees based on amount of sale
Listing fees for display of goods
Financial services fees from payment system, e.g.,
PayPal
Advertising or placement fees where sellers pay extra
for particular display or listing services
Copyright © 2012 Pearson Education Slide 10-26
Internet Auction Basics
Different from traditional auctions
Last much longer (usually a week)
Variable number of bidders who come and go from
auction arena
Market power and bias in dynamically priced
markets
Neutral: Number of buyers and sellers is few or equal
Seller bias: Few sellers and many buyers
Buyer bias: Many sellers and few buyers
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Copyright © 2012 Pearson Education Slide 10-27
Bias in Dynamically Priced Markets
Figure 10.3, Page 694
Copyright © 2012 Pearson Education Slide 10-28
Internet Auction Basics (cont.)
Price Allocation Rules – Rules for establishing
winning bids and prices in auctions where there
are multiple units for sale
Uniform pricing rule: Multiple winners who all pay the same
price
Discriminatory pricing rule: Winners pay different amount
depending on what they bid, as in uBid.com
From buyer’s point of view, uniform pricing is better, but
from seller’s point of view, discriminatory pricing is better
Public vs. private information
Prices bid may be kept secret
Bid rigging – bidders communicate prior to submitting their bids,
and rig their bids to ensure lowest price is higher than it might
otherwise be
Open markets
Price matching – sellers agree to set floor prices on auctionitems below
which they will not sell
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Copyright © 2012 Pearson Education Slide 10-29
Types of Auctions
English auctions (eBay):
Single item up for sale to single seller
Highest bidder wins
Seller bias: single seller and multiple buyers competing against one
another
Traditional Dutch auction (Dutch flower market):
Public descending price auction
Uses a clock that displays starting price
Clock ticks down price until buyer stops it
Sellerbias
Dutch Internet auction (eBay Dutch auction):
Public ascending price, multiple units
Final price is lowest successful bid, which sets price for all higher
bidders (uniform price rule)
Copyright © 2012 Pearson Education Slide 10-30
winners
3
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Copyright © 2012 Pearson Education Slide 10-31
Types of Auctions (cont.)
Name Your Own Price Auctions
Pioneered by Priceline
Users specify what they are willing to pay for
goods or services and multiple providers bid for
their business
Prices do not descend and are fixed
Consumer offer is commitment to buy at that price
e.g., Priceline
Enables sellers to unload unsold excess capacity
Buyer bias: Multiple sellers compete against one
another
Copyright © 2012 Pearson Education Slide 10-32
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Copyright © 2012 Pearson Education Slide 10-33
Types of Auctions (cont.)
Group buying auctions (demand aggregators)
Group buying of products at dynamically adjusted discount prices
based on high volume purchases
Based on two principles
Sellersmore likelyto offer discounts to buyers purchasing in volume
Buyers increase their purchases as prices fall
Buyer bias
Professional service auctions
Sealed-bid, dynamic-priced market for freelance professional
services from legal and marketing services to graphics design and
programming
Sealed bids are submitted and the winner is the low-cost provider
of services
Buyer bias
Example: Elance.com, SoloGig
Copyright © 2012 Pearson Education Slide 10-34
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Copyright © 2012 Pearson Education Slide 10-35
Copyright © 2012 Pearson Education Slide 10-36
Table 10.7, p 701
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Copyright © 2012 Pearson Education Slide 10-37
Seller and Consumer Behavior
at Auctions
Seller profit: A function of arrival rate, auction length,
and number of units at auction (see next Fig.)
Auction prices not necessarily the lowest
Reasons include herd behavior (tendency to gravitate toward, and bid
for, auction listing with one or more existing bids)
Herd behavior results in consumers paying higher prices than necessary
Unintended results of participating in auctions:
Winner’s regret – winner’s feeling after auction that he/she paid too
much for an item
Seller’s lament – concern that one will never know how much ultimate
winner might have paid, or true value to final winner
Loser’s lament – feeling of having been too cheap in bidding and failing
to win
Consumer trust an important motivating factor in
auctions
Copyright © 2012 Pearson Education Slide 10-38
Auction Profits
Figure 10.4, Page 703 SOURCE: Based on data from Vakrat and Seidmann, 1998.
N = arrival rate at the auction
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Copyright © 2012 Pearson Education Slide 10-39
When Auction Markets Fail:
Fraud and Abuse in Auctions
Markets fail to produce socially
desirable outcomes in four situations:
Information asymmetry, monopoly power,
public goods, externalities
Auction markets prone to fraud
Most common: Failure to deliver, failure to pay
In 2010, 6% Internet fraud complaints
concern online auctions
Copyright © 2012 Pearson Education Slide 10-40
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Copyright © 2012 Pearson Education Slide 10-41
Copyright © 2012 Pearson Education Slide 10-42
E-commerce Portals
Most frequently visited sites on Web
Original portals were search engines
As search sites, attracted huge audiences
Today provide:
Navigation of the Web
Commerce
Content (owned and others’), e.g., news, entertainment,
maps, images, social networks, in-depth info
Compete on reach and unique visitors
Enterprise portals
Help employees find important organizational content
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Copyright © 2012 Pearson Education Slide 10-43
Top Five Portal/Search Engines in United States
SOURCE: Based on data from comScore, 2011.Figure 10.5, Page 708
Copyright © 2012 Pearson Education Slide 10-45
Types of Portals
General purpose portals:
Attempt to attract very large general audience
Retain audience by providing in-depth vertical
content channels
e.g., Yahoo, MSN
Vertical market portals:
Attempt to attract highly-focused, loyal
audiences with specific interest in:
Community (affinity group); e.g., iVillage
Focused content; e.g., ESPN.com
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Copyright © 2012 Pearson Education Slide 10-46
Two General Types of Portals:
General Purpose and Vertical Market Portals
Figure 10.6, Page 712
Copyright © 2012 Pearson Education Slide 10-48
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Copyright © 2012 Pearson Education Slide 10-49
Revenue per Customer and Market Focus
Figure 10.7, Page 714
Copyright © 2012 Pearson Education Slide 10-50