Information Markets: A Strategic Guideline for the I-Commerce

Index of Names A Arrow, K.J. xvi, xxi, 41, 69, 483, Abu Rajab, M. 101, 111 509 Achterbosch, L. 300, 308 Arthur, B.W. 406, 420, 501, 502- Adam, T. 120, 153 503, 509 Adamic, L.A. 343 Arthur, W.B. 53, 69, 436, 448 Adams, W.J. 395, 398, 402-403, 420 Asvanund, A. 56, 69 Adeney, D. 162-166, 173, 180 Adler, J. 44, 53, 74, 482, 485, 488- B 489, 492-493, 497, 509 Backhaus, K. 347, 359, 362, 375, Agatston, P.W. 97, 114 486, 488, 509 Agre, P.E. 106, 111 Backstrom, L. 282 Ahn, Y.Y. 282 Bacon, F. 3 Ainsworth, M. 183, 203, 205 Baddeley, M. 13, 19 Akerlof, G.A. 38-39, 41, 69, 479, Baeuerle, T. 300, 308 509 Baird, S.A. 311, 324 Albers, S. 356, 359, 420 Bakkalbasi, N. 237, 247 Al-Fedaghi, S. 168, 177 Bakos, Y. 395, 397, 399, 403-406, Al-Laham, A. 348, 355, 360 420 Alm, J. 495, 512 Balasubramanian, S. 17, 19 Alpert, F.H. 368, 375 Balkin, D. 476, 546 Altermann, K. 147, 153 Balkin, J.M. 165-166, 177 Altinkemer, K. 404, 420 Ball, R. 244, 247 Altschuller, S. 566, 574 Bandyopadhyay, S. 404, 420 Anand, S. 84, 111 Bangemann, M. 12, 19 Anania, L. 92, 115 Bar-Ilan, J. 274, 281 Andersen, B. 557-558, 560 Barnes, S.B. 328, 333, 342 Anderson, C. 243, 247, 412, 414, Barocci, R. 343 420, 469, 475, 540, 542, 545 Barria, J.A. 542, 547, 572, 576 Anger, E. 272, 281 Barwise, P. 492, 509 Ansari, A. 335, 342 Battelle, J. 259, 284 Antin, J. 279, 281 Bauer, K. 237, 247 Arewa, O.B. 207, 209, 211, 214, 216 Baur, T. 309 Ariely, D. 540, 546 Bayón, T. 44, 48, 69 Arlitt, M. 282 Bayus, B. L. 500, 509 Armstrong, M. 60, 69 Bearden, W.O. 488, 513 592 Index of Names Beck, H. 36, 62, 69, 518, 532 Bonitz, M. 81, 111 Becker, E. 476 Bonus, S. 283 Becker, P. xxi Booch, G. 318, 324 Bedord, J. 232, 247 Boon, C.Y. 243, 249 Beebe, H.J. 423 Boon, T.C. 243, 247 Beit-Arie, O. 239, 250 Booth, A. 223, 247 Bell, D. 6, 19-20 Bornkamm, J. 147, 155 Bellotti, F. 300, 308 Bornmann, L. 225-226, 247 Benbasat, I. 270, 282 Borowicz, F. 428-429, 431, 433, Benbunan-Fich, R. 566, 574 439-441, 443-446, 448 Bendel, O. 105, 114 Boulding, W. 489, 509 Benington, H.D. 314, 324 Bourlakis, M. 310 Bergman, M.K. 251, 257 Bowen, T. 290, 292 Berlit, W. 131, 153 Boyd, D. 276-277, 282 Bernhard, W. 120, 155 Brandenburger, A. M. xvii, xxi, 347, Bernhardt, M. 380, 420 349-352, 360, 456, 458, 482, Berta, R. 308 512 Besanko, D. 367, 375 Brandtweiner, R. 407, 420 Besen, S. M. 499, 509 Braun, T. 226, 247 Beutelspacher, L. xxi Bredemeier, W. 14, 20, 86, 111 Bhargava, H.K. 392, 420 Brenner, N. 90-91, 111 Bhattacharjee, S. 539, 545, 560, 567, Brereton, P. 319, 324 570, 572, 574 Breslin, J.G. 283 Biddle, P. 567, 574 Brice, A. 247 Bieletzki, C. 255, 257 Britz, J.J. 93, 111 Bienia, C. 309 Brodersen, J. 567, 574 Bimber, B. 203, 206 Brody, T. 244, 248 Birks, J. 94, 113 Brooks, C.H. 407, 420 Birrell, N.D. 315-316, 324 Brown, H. 232, 247 Bizer, J. 465, 476 Brown, J.S. 78, 111 Blackburn, D. 468-469, 472, 476, Bruce D. 422 555, 560 Bruder, G. 310 Blankart, C.B. 53, 69 Brynjolfsson, E. 57, 74, 372, 375, Bliemel, F. 375, 377 395, 397, 399, 403-406, 420- Blind, K. 128, 153, 428, 432, 448 421, 493, 510 Blind, S. 55, 69 Buch, C.M. 38, 72 Blinka, L. 310 Budgen, D. 319, 324 Bock, A. 256, 257, 492, 495-496, Buhse, W. 476 509 Bulling, A. 130, 154 Bode, J. 24-25, 31 Burgelman, R.A. 428, 448, 458 Boehm, B. 317, 319, 324 Burghardt, M. 476 Boehm, B.W. 324 Burstein, D. 275, 283 Böhme, G. 82, 111 Busche, J. 120, 154 Bonfadelli, H. 95, 111 Buxmann, P. 35, 38, 51-52, 61, 69- Bonillas, A.A. 112 70, 287, 292, 311-313, 320-323, Index of Names 593 324, 366, 375, 403, 415-416, Chung, Q. 495, 512 421, 428, 431, 448, 477, 545, Chung, W. 112 576 Church, J. 59, 70, 431, 448 Byungjoon, Y. 422 Clay, K. 69 Clement, M. 60, 70, 486, 510 C Clements, M.T. 434, 448 Calore, M. 500, 510 Clifton, P. 309 Cameron, R. 268, 282 Cockburn, A. 318-319, 324-325 Campos Nave, J. 131, 154 Cody, S. 98, 112 Capurro, R. 160-161, 164, 177 Cohen, A. 362, 375 Carbo, T. 162, 178 Cohen, E.B. 224, 247 Casey, M. 14, 20 Conner, K. R. 468, 476 Castells, M. xiii, xxi, 16, 20, 87-89, Connolly, M. 558, 560 105, 111, 112 Cook, D.A. 567, 575 Castronova, E. 297, 302, 308 Cooper, R. 488, 510 Cauberghe, V. 334, 342 Corsten, R. 185, 188, 205 Ceyhan, A.A. 96, 112 Cowan, R. 55, 70 Ceyhan, E. 96, 112 Cox, A.M. 264, 282 Ceyp, M. 252, 258, 328, 330, 344 Craig, D. 20 Cha, M. 263, 282 Crandall, D. 265, 282 Chan, E. 300, 308 Crow, R. 244, 248 Chandrasekharan, S. 309 Cukier, W.L. 98, 112 Chang, E.A. 280, 282 Curien, N. 573, 575 Chang, W.L. 417-418, 421 Cusumano, M.A. 320, 324 Chaparro, B.S. 342 Czink, M. 145, 154 Chappell, A. 269, 285 Chatterjee, R. 502, 510 D Chellapandi, S. 243, 247 Dabbish, L. 306-307, 310 Chen, H. 102, 112, 115, 285 Dadashzadeh, M. 242, 249 Chen, I. 93, 112 Daniel, H.D. 226, 247 Chen, P.Y 391, 403, 425, 472, 478 Darby, M.R. 42, 70, 482, 510 Cheung, C.M.K. 285 Das, R. 420 Chhugani, J. 309 Dato-on, C.M. 546 Chiou, J.-S. 571, 574 David, P.A. 81, 112, 448 Choi, D. 297, 308 Davis, F.D. 297, 308 Choi, J.P. 365, 375, 500-501, 510 Davis, H. 335, 342 Choi, S.-Y. 410, 421, 427, 448, 484, Davis, P.M. 229, 248 488, 493, 510 De Castro, J.O. 471, 476, 546, 557, Chou, C.F. 434-435, 448 560 Choudhary, V. 392, 420 De Gloria, A. 308 Chowdury, A. 343 De Moor, A. 285 Christensen, C.M. 370, 375 De Pelsmacker, P. 334, 342 Christiansen, C. 208, 216 Dean, J. 408, 421 Chrzastowski, T.E. 242, 247 Debons, A. 20, 443 Chuang, C.-I. J. 403, 421 Decker, S. 283 594 Index of Names Degeratu, A.M. 493, 510 Dybvig, P.H. 498, 510 Deiss, B. 541, 544, 546, 569, 575 Dejean, S. 539, 546 E DeLong, J.B. 13, 20 Earp, M. 279, 281 Delors, J. 12 Ebber, N. 155 Deneckere, R. 421 Economides, N. 51, 57, 70, 434, Denning, P. 273, 282 446, 449, 506, 510 Derclaye, E. 136, 154 Edler, J. 153 Derevensky, J. 298, 309 Edwards, W.K. 293 Deysson, C. 486, 510 Ehrhardt, M. 54,70, 429, 432, 441, Dhar, V. 280, 282 449, 455- 457, 505, 510 Diefenbach, H. 321, 324, 421 Einav, G. 290, 292 Dietl, H. 51, 70, 366, 375, 453, 457, Elberse, A. 403, 421, 509 506, 510 Eliashberg, J. 499, 502, 510 Diller, H. 36, 70, 379-380, 382-384, Ellisman, M.H. 240, 249 390, 395, 408, 410, 421, 490, Ellison, N.B. 277, 282 510 Emamy, K. 268, 282 Dióspatonyi, I. 226, 247 Endres, A. 23,31 Dix, A. 282 England, P. 574 Dolnicar, V. 116 Erber, G. 518-520, 532 Domingos, P. 341, 344 Ernkvist, M. 304, 310 Dominowska, E. 344 Ernst, M. 17, 31, 44-46, 70 Donnelly, J.H. 70 Evans, D.E. 327, 342 Donohue, G.A. 94, 116 Evans, D.S. 60-61, 70 Donthu, N. 343 Everard, A. 343 Dördrechter, N. 543-544, 546, 565- 567, 569-570, 575 F Dornstädter, R. 285 Faber, R.J. 327-328, 342 Downes, L. 35, 70, 359 Faecks, W.I. 477 Drahos, P. 119, 154 Falagas, M.E. 237, 248 Dranove, D. 375, 434, 449, 501, Farrell, J. 53, 55-57, 70, 376, 427- 503, 510 428, 449, 498, 499, 503, 505, Dresel, R. 243, 248 509-511 Drèze, X. 335, 342 Faßler, M. 25, 31, 451, 457 Drucker, P.F. xiv, xxi, 3-4, 18, 20, Fassnacht, M. 399, 407-410, 423 583 Fassott, G. 375, 377 Dubé, J.P. 343 Festa, P.

Contents Preface xiii Part A Propedeutics of Dealing with the Information Market 1 1 History of Exploring the Information Market 3 1.1 Knowledge Workers in the Knowledge Economy 3 1.2 Information Economy as Fourth Sector 7 1.3 “Information Superhighways” 10 1.4 “New Economy” 13 1.5 Digital Information Services 14 1.6 M-Commerce 17 1.7 Information Market–Today: Digital Online Information and Network Economy 17 1.8 Conclusion 18 1.9 Bibliography 19 2 Information as Economic Good 23 2.1 Economic Goods 23 2.2 Information Goods 24 2.3 Digital Information on the Information Market 28 2.4 The Economic Significance of the Information Market 30 2.5 Conclusion 31 2.6 Bibliography 31 3 Economic Particularities of Information Goods 33 3.1 Market Failure for Information Goods 33 3.2 First-Copy-Cost Effect 35 3.3 Information Asymmetries 38 3.4 Network Effects for Information Goods 51 3.5 Information as Public Good 61 3.6 Interdependence of Economic Particularities 66 3.7 Conclusion 67 3.8 Bibliography 69 vi Contents Part B Information Society 75 4 Information Sociology 77 4.1 “Information Society” and “Knowledge Society” 77 4.2 Information and Knowledge Infrastructure 83 4.3 The Informational City and “Glocality” 87 4.4 The Digital Divide 93 4.5 Deviant Information Behavior 96 4.6 Information Subcultures: Hackers, Crackers, Crashers 102 4.7 Dark Web: Information Behavior of Terrorist Groups 103 4.8 Political Science 105 4.9 Conclusion 109 4.10 Bibliography 111 5 Information Law 119 5.1 Legal Protection of Information 119 5.2 Technical Information: Patents and Utility Models 120 5.3 Aesthetic-Commercial Information: Registered Design 130 5.4 Advertising Information: Trademark Law 131 5.5 Works: Copyright Law 135 5.6 Creative Commons and Copyleft 140 5.7 Legal Protection of Software 141 5.8 Person-Related Information: Data Protection Law 143 5.9 Content on the Internet: Telemedia Law 145 5.10 Adjacent Fields of Law 147 5.11 Information Criminal Law 149 5.12 International Information Law? 151 5.13 Conclusion 151 5.14 Bibliography 153 6 Information Ethics 159 6.1 Ethics of a New Culture 159 6.2 Professional Behavior 163 6.3 Free Access to Knowledge 163 6.4 Privacy 166 6.5 Intellectual Property 170 6.6 Conclusion 176 6.7 Bibliography 177 Contents vii Part C Digital Information Goods 181 7 Business, Market and Press Information 183 7.1 Digital Information Products for and about Business and the Press 184 7.2 Clients on the Market for Business, Market and Press Information 185 7.3 Business Information 185 7.4 Company Dossiers 185 7.5 Credit Information 188 7.6 Product Information 189 7.7 Addresses 191 7.8 Market Data 192 7.9 Structural, Market and Industry Data 192 7.10 Stock Market Information 196 7.11 Time Series 196 7.12 News 201 7.13 Media Observation: Press Reviews and Media Resonance Analyses 203 7.14 Providers’ Pricing Strategies 203 7.15 Conclusion 204 7.16 Bibliography 205 8 Legal Information 207 8.1 Legal Documents and Their Demanders 207 8.2 Primary Legal Information I: Legal Norms 208 8.3 Primary Legal Information II: Cases / Decisions 210 8.4 Secondary Legal Information: Expert Annotations and Specialist Literature 211 8.5 Tertiary Legal Information: Citations and Other References 212 8.6 Providers’ Pricing Models 214 8.7 Conclusion 215 8.8 Bibliography 216 9 STM Information 219 9.1 Information in Science, Technology and Medicine 219 9.2 The Production Process of STM Information 224 9.3 Digital and Print Products 226 9.4 Journal Impact Factor 230 9.5 STM eBooks 232 9.6 Patents and Utility Models 234 9.7 Digital Object Identifiers (DOI) 235 viii Contents 9.8 Information Services with Bibliographic References to STM Publications 236 9.9 STM Facts 240 9.10 The STM Market: Publishers, Libraries and Scientists 242 9.11 Conclusion 246 9.12 Bibliography 247 10 Search Tools and Content Aggregators 251 10.1 Typology of Search Tools and Content Aggregators 251 10.2 Online Search Engines 252 10.3 Content Aggregators (Hosts) 254 10.4 Conclusion 257 10.5 Bibliography 257 11 Web 2.0 Services 259 11.1 Social Software 259 11.2 File-Sharing Services 262 11.3 Social Bookmarking 267 11.4 Collaborative Construction of a Knowledge Base 270 11.5 Social Networks 277 11.6 Conclusion 280 11.7 Bibliography 281 12 Online Music and Internet TV 287 12.1 Commercial Music Distribution on the World Wide Web 287 12.2 Internet Television 289 12.3 Conclusion 291 12.4 Bibliography 292 13 Digital Games 295 13.1 Console and PC Games 295 13.2 Digital Versions of “Traditional” Games 297 13.3 Gambling 298 13.4 Video Games 299 13.5 Massively Multiplayer Online Role Playing Games (MMORPGs) 300 13.6 Social Games 305 13.7 Games with a Purpose 306 13.8 Conclusion 307 13.

Preface The markets for digital information–this means both software applications and all sorts of content (from blogs via images, films and games up to scientific articles and patents)–are different than markets for non-digital goods. When a non-digital good is purchased, it physically changes hands from the seller to the buyer. On the other hand, goods on information markets stay with the seller, buyers merely re- ceiving a copy. Trade with digital information, which we call “I-Commerce” (in the sense of E-Commerce with information), mainly occurs with the aid of net- works, particularly the internet. The products are thus characterizable as network goods. Here, too, there are particularities: network goods may have their basic value (for an operating system, this value might be, for instance, that it allows ap- plications to run on a computer), but they receive an additional value via the num- ber of their users (the more the better for the network) and via the number of com- plementary products (in our example: application programs that run on the operat- ing system). A further particularity of these markets is the technically illegal “swapping” of digital information. To put it provocatively: there is theft on a scale that puts most other markets to shame. In light of the network effects (the more users the better), though, this does not have to be detrimental to the market in question–to the contrary, sometimes it can be useful. Markets for digital information are the prototypical markets of the information and the knowledge societies or–following Manuel Castells (1996)–the network society. Many an author thinks we are on the threshold of an entirely new culture, the “multimedia culture” (Rauch, 1998). Such a transition to a new form of society or even culture goes hand in hand with a change in social values, a new sense of legal boundaries and a modified code of ethics. It is in front of this background that information markets develop the economic goods proper to them. This book mainly deals with five research questions: A. What particularities are displayed by pieces of digital information as eco- nomic goods? B. In what environment (society, law, ethics) are information markets lo- cated? C. What digital goods are traded on information markets? D. What competitive strategies are pursued by providers on information markets? E. Which role is played by piracy and the illegal information market? xiv Preface The Spectrum of Digital Information Goods In the early days of scientific endeavors toward the information market (from the nineteen-sixties onward), led by Peter F. Drucker (1959), Fritz Machlup (1962) and Marc Uri Porat (1977), among others, this concept is defined very broadly, encompassing all non-manual work. The delineation of the “knowledge worker” from all others was a rather arbitrary one (Webster, 1995). We consider to be more realistic. The approach of demarcating information markets works with two salient characteristics: on information markets, digital (or at the very least: generally digi- tizable) information is traded via the usage of networks (such as the internet). Information markets are embedded in societal structures. This is why it is ne- cessary to consider the conceptions and manifestations of the information, knowl- edge or network society. We will also lead an intensive expedition through the ter- ritories of information law. Considering the importance to information markets of free access to knowledge, of privacy and of dealing with intellectual property, it is unavoidable to take a look at information ethics. Our book extensively analyzes the products and submarkets of I-Commerce. We look at products, the steps taken toward their production, their buyers as well as their providers’ business strategies. An initial overview exemplifies the multitude of digital products: • Business, market and press information, • Legal information: norms, cases, annotations, citation services, • STM information (scientific, technical and medical information): STM literature, bibliographical information services, facts, • Search engines and content aggregators, • Web 2.0 Services: sharing services, social bookmarking, knowledge bases, social networks, • Commercial online music services, • Internet TV, • Digital games: “classical games”, gambling, videos games, Massively Multiplayer Online Role Playing Games (MMORPGs), social games, games with a purpose, • Software: products: system software, middleware, application software (each either as individual or as standard software), services: consulting and implementation services, software as a service. Many goods–such as search engines and Web 2.0 services–are offered for free. The providers generate revenue by selling their customers’ attention to advertisers. This is why internet advertising is an important subject to us. We are dealing with banner advertising, target-group-specific and personalized advertising, in-game advertising, permission-based marketing, context-specific advertising (such as “sponsored links” in search engines) and viral marketing. Preface xv I-Commerce: Mechanisms, Value Net, Strategic Variables Competitive advantages are of great importance for information providers who want to be successful on information markets, in “I-Commerce”, just as they are important to all providers on all markets. It is, however, necessary to account for the special characteristics of information goods in order to represent information providers’ strategic positioning and courses of action. Three aspects are of central importance: • the economic particularities (mechanisms) that occur in relation to infor- mation goods, • the value net (stakeholder configuration), as well as • the specific strategic variables that information providers can apply to gain competitive advantages. From an economic perspective, is there anything special to be detected in informa- tion goods? Four mechanisms play a central role: • dominant fixed costs, • distinct information asymmetries, • pronounced network effects and • the tendency toward mutating into a public good. In information goods, the production of the first copy is extremely expensive, compared to the cost of its reproduction. If we consider the sums expended upon a music title or movie, we will soon arrive at sums of several tens of thousands, or even millions, of Dollars. Once the software, the album or the film are finished, however, they can be reproduced nigh-on perfectly for a few Cents only. Further- more, the transmission costs are very low for digital information goods. If a fast internet connection on a flat-rate basis is a given, data can be sent and received with no additional cost. This relation between very high fixed costs to very low variable costs leads to a pronounced unit cost reduction. This means that average costs per unit decrease very quickly when production numbers rise–boosted by the rapidly decreasing average fixed costs. It can often be observed in information goods that one side of the market is bet- ter informed about the quality of its products than the other. A software provider knows his product, whereas the layman cannot assess its quality prior to a pur- chase and only partially afterward. Even an information professional should run into problems rating the quality of a search engine’s sorting algorithms to any de- gree of exactitude, since providers of such search tools (let’s say: Google and Ya- hoo!) may disclose a lot about patent writs, while keeping the details of their prac- tical application tightly wrapped. Such unbalanced distributions of quality infor- mation is what we call information asymmetries. The value of an information good, e.g. the blueprint of a new production method or a chemical formula, can only be judged for good once the information has been received and processed (experienced). Once the information is in one’s possession, however, the question becomes how high one’s willingness to pay still is. In contrast to a new pair of shoes, information cannot be fully inspected prior to a purchase. Every kind of closer inspection leads to a disclosure of (parts of) the information, which runs xvi Preface counter to the provider’s interests. Kenneth J. Arrow (1962, 615) has described this problem as an information paradox: “[…] there is a fundamental paradox in the determination of demand for information; its value for the purchaser is not known until he has the information, but then he has in effect acquired it without cost.” When buying an information good, it is often of great importance how many other users this good already has. If you want to buy a word processing or spread- sheet application, you will think long and hard about whether to buy the product of a small provider, which is not very widely used, or to whether to turn to the market standard. Before buying an operating system, it is important to know what application software it supports. Buying the program that is most prevalent offers distinct advantages, e.g. in the possibilities for swapping files or helping one another solve any problems that might arise. The case is similar for films, books or music. A provider like Amazon is successful because a lot of customers cooperate (partly without being aware of it), generating basic information for recommenda- tions via their clicking and buying behavior or consciously submitting ratings and comments. Facebook is mainly used because many others also use it, and because the individual can maintain many friendships or other contacts in this way, even internationally.

Chapter 18 Pricing 18.1 Product and Pricing Policy As is the case for traditional goods, information providers must consider which product they want to offer to their customers at what price. Product policy, i.e. the presentation of the service offer (Meffert, 2005, 327), and pricing policy (Diller, 2008, 21 et seq.) are two of the central setscrews in a company’s marketing mix. The close connection of these two entrepreneurial action parameters becomes clear in the economical price definition (Diller, 2008, 31), in which the price is represented as a quotient of remuneration and scope of services. This exemplifies on the one hand that the customer always considers the relation between the re- muneration for and service of an offer. In this sense, prices can only be too high when the corresponding service is inadequate. On the other hand, the quotient makes the diametrically opposed interests of suppliers and customer very clear. Suppliers are interested in a particularly high price quotient, customers in a par- ticularly low one. Here, too, the context of our considerations will allow us only the mention of product and pricing policy’s particularities as relevant for information providers. Comprehensive analyses of marketing in general can be found in Meffert (2005) or, for pricing policy specifically, Diller (2008), among others. We on the other hand wish to exemplify how information providers can design their products and prices with regard to high fixed and low variable costs, information asymmetries, uncontrollable propagation tendencies and network effects. These economical cha- racteristics pose particular challenges to product design and pricing, but at the same time, digital goods lead to much more variable forms of product and price differentiation than traditional goods. The focus of this section is the pricing of information offers. Information pro- viders generally have different income streams available to them (Wirtz, 2006, 70 et seq.). Next to the recipient or user markets, they often service advertising and licensing markets as well. Thus search engines or online portals integrate ads into their online presence, for example. Book publishers in possession of the exploita- tion rights to a bestseller give out licenses for softcover editions. Film or music producers sell regional or outlet-specific exploitation rights. Here, too, prices must 380 Pricing be set. The mere sale of rights does not represent an information good and thus will not play a role in the following. Advertisements, on the other hand, are gener- ally not requested for their own sake but are offered to the user as a forced bundle, i.e. as a comination of desired and more or less undesired information goods. Ad- vertisements are thus regarded as a particular form of complement. If we orient ourselves on the definition of information goods anything that is or can be digi- tized and for which there is willingness to pay, we will be able to clearly mark when advertisements are an information good and not an unsolicited nuisance (in- formation bad), which is when it has value for the user and he or she would prin- cipally be ready to pay. For example, there are entry charges for the cinematic presentation of advertising films that have received critical recognition or awards. Product policy is only considered when it is in close relation to pricing policy, i.e. in price differentiation. For further aspects of product design, read the sections on Complement Management, Compatibility, Copyright Management and Signal- ing. Pricing policy is one of the most potent (kind of) marketing weapons in the marketing mix. This potency comes as a result from the strong ef- fects (“Price Response”) it can be used to achieve on the market. Cus- tomers as well as competitors often react drastically to changes in price. Market share shifts in the double digits are not uncommon, particularly as prices are easily communicable and arouse the interest of many cus- tomers who view budget buys as the central purpose of their economic behavior (Diller, 2008, 21). Prices for information goods can be formed in several ways. For digital offers, there are new pricing vistas vis-à-vis traditional goods. Here Figure 18.1 provides an overview. Fixed-price offers are generally accepted. In this static procedure, the price is dictated by one side of the market, usually the provider. An innovation in static procedures is Reverse Pricing, where the customer dictates the price. Here it must be distinguished between such procedures where the provider sets a mini- mum price that must not be lowered (Name your own price–NYOP) and proce- dures that bank on completely unregulated pricing by the customer (Pay what you want–PWYW). Such a demand-oriented pricing with a (covert) set minimum price (NYOP) is practiced by priceline.com, for example. The demander tells Priceline the maxi- mum price he is willing to pay for a particular service (plane ticket, hotel, rental car etc.), whereupon Priceline searches for the corresponding offer (Kwasniewski, 2003; Bernhardt et al., 2005). An analogous offer can lately be found on eBay, with its “Best Offer” function. Here the buyer may make up to three price offers below the publicly set minimum price. If one of his offers is above the minimum determined by the seller, which is invisible to buyers, he will win the item. A totally new variant of determining prices from the demanders’ side is the (open) Pay What You Want. Here the provider foregoes a minimum price and ac- Pricing 381 cepts the customer’s price offer without reservation (Kim et al., 2009). Such offers are more and more frequent as of late, e.g. from music groups such as Radiohead and Nine Inch Nails, who make their music available for download for a certain period of time, merely providing the option of a voluntary payment. Pricing Procedures on the Internet Static Dynamic (fixed price) (variable price) Price fixed by supplier Price fixed by demander Individual Collective (e.g. Amazon) (reverse pricing) (informal bilateral (formalized price negotiation) interactive pricing) With set fixed price, Without set fixed price, Cooperative Competitive NYOP PWYW (e.g. Powershopping) (e.g. online auctions) (e.g. Priceline) (e.g. Radiohead) Figure 18.1: Alternative Pricing Procedures. Source: Following Fritz, 2004, 203 with reference to Möllenberg, 2003, 36. Then there are the dynamic procedures of pricing (Fritz, 2004, 202 et seq.). Here the price is only determined over the course of the transaction between supplier and demander. Individual price negotiations have been in use for a long time as so-called invitations to tender, particularly in public administration (Wirtz, 2001, 459). With the advent of the internet and electronic payment services, e-market- places have established themselves for business-to-business transactions over the past few years. However, the hopes that had originally been nurtured concerning the great economic importance of these trade platforms were disappointed. Covi- sint, for instance, an electronic marketplace of the automotive industry launched at great expense, was sold by its founding company a few years after its inception due to a lack of success (Zillich, 2004). Individual business-to-consumer price ne- gotiations are only gradually coming up. Collective procedures, and specifically competitive ones, such as online auc- tions, are used far more often. We will address this issue below, under Price Diffe- 382 Pricing rentiation. Cooperative pricing by buying communities bundles the demanders’ buying power in order to create bulk discounts. A product becomes cheaper as more interested parties make an offer online. This pricing variant has not estab- lished itself, though, as a lack of customer acceptance and legal problems (Zeix, 2006) have led to even the leading representatives of power shopping, such as po- wershopping.de or letsbuyit.com, leaving the market. Due to their fixed-cost-intensive cost structure, it makes sense for information providers to aim for prices that create large quantities of sales and thus the desired unit cost reduction. If the provider then wants to let the network effects related to information goods come into play, it is recommended to concentrate, in pricing, on a quick distribution. Both these aspects point in the same direction: prices must not be set in a cost-oriented, but in a market-oriented way (Fritz, 2004, 204). This can be achieved with a view to competition, which is heavily favored by the inter- net’s price transparency, or with a view to the customer. Here either the custom- er’s willingness to pay must be determined via (online) market research or the cus- tomers must be given the option–at least in part–to reveal what their ideal price would be. Here the instrument of price differentiation offers an entire arsenal of possibilities. 18.2 Forms of Price Differentiation From a current perspective, we can already say that it will be an entirely new and central challenge, even for information providers, to not so much set one’s pre- ferred price than ideally determine the pricing mechanisms to be used (Skiera et al., 2005, 292). Here we are on the topic of price differentiation.

Chapter 15 Online Advertising 15.1 Forms of Advertising on the Internet Online advertising means advertisements scattered throughout the internet. Many website operators, among them all large search engine providers, offer their ser- vices for free, which allows them to generate large numbers of visits and visitors to their sites. Their customers’ attention is sold (or auctioned) to advertising cus- tomers. This principle is known from commercial television, having merely been transferred to the World Wide Web, as Evans (2008, 359) describes: Many web sites settled on the traditional „free-tv“ modell: generate traf- fic by giving away the content and sell traffic to advertisers. Internet advertisement has two goals (Hollis, 2005): • building up and maintaining a brand, • selling products via the internet (e-commerce). The basic forms of online advertisements (Faber et al., 2004) are banners (and other graphically oriented elements), which are displayed on websites indepen- dently of the person of the user and of any search arguments, e-mails (generally in the form of newsletters), which are sent to limited target groups with the explicit consent of the recipients, and context-specific ads, which appear on the basis of subscribed search arguments, when users enter appropriate queries. Context- specific advertising is called “search advertising”, banner advertising is called “display advertising” (Evans, 2008, 363). Special forms of advertising are viral marketing (“contagious advertising”) as well as advertising in digital games. Fig- ure 15.1 summarizes this rough classification of online advertising in an overview. From a technical point of view, advertising resources on the Web (thus exclud- ing newsletters, which are sent out in the form of e-mails) are • graphics (typically banners), • websites in themselves (typically pop-up windows or interstitials), • text displays (typically Sponsored Links in search engines). 328 Online Advertising According to Faber, Lee and Nan (2004, 456), some forms of Web advertising re- produce known patterns from non-digital media. Banners resemble posters, pop- ups and particularly ads that interrupt processes (interstitials) are reminiscent of advertising breaks in commercial television (Barnes & Hair, 2009). Depending on how strongly the forms of advertising impede the user’s intended activities on the Web, they are rejected as more or less of an “intrusion”. This negative attitude is directed toward the ads themselves, but also to the website that displays them (McCoy et al., 2007). Online Advertising Banner Permission-Based Context-Specific Advertising Advertising Advertising Banners, E - Mail Search Engine narrowly defined Advertising Advertising Pop-Ups Partner-Site Special Forms Advertising Streaming Video Ads Viral Marketing Personalized In-Game Advertising Advertising Figure 15.1: Classification of Online Advertising. It is important for the advertiser to create an ideal target site, to which the ad di- rects the user (von Bischopinck & Ceyp, 2007, 145 et seq.). This site serves, de- pending on the goal that is being pursued, either brand management or ventures or Online Advertising 329 a first step toward a transaction in e-commerce and, eventually, the creation of a longer-term customer relationship. The business models for online advertising provide for three different settle- ment bases (Mangàni, 2004): • Cost per View (CPV) or Cost per Impression (CPI), generally billed per thousand ads as “thousand-contact price” (TCP), • Cost per Click (CPC), billed per number of clicks on the ad, • Cost per Action (CPA), billed as a sort of realtor fee for sales in e- commerce (Hu et al., 2010), but with the downside that the strategy of brand building, which does not lead to direct profits, is not taken into consideration. Ad is perceived Image Cultivation Ad is displayed Target Site is remembered Ad is clicked on Target Site is Action is viewed performed # Clicks # Actions Metric : Click rate: ---------------- Conversion rate: ------------ # Ads # Clicks Figure 15.2: Stages of an Online Ad and its Metrics. Note: # : Number. How does the customer dialog for an online ad work (Figure 15.2)? The ad, i.e. the banner or context-specific text, is displayed to the user. If the ad is not clicked on, but still perceived, this serves the advertised product’s, or the advertising company’s, image cultivation. In the ideal case, though, the ad is clicked on and the target site accessed. Here, we must distinguish between two subsequent paths: 330 Online Advertising in the first case, an action is directly performed, something is bought or the cus- tomer signs up for a newsletter (which, in turn, mutates into permission-based e- mail advertising), whereas in the second case, not direct action takes place, but the customer remembers the website (or product or company), which both image cul- tivation and can also lead–at a later date–to actions (Manchanda et al., 2006). We take into account three metrics, which serve as the success factors of an online campaign (von Bischopinck & Ceyp, 2007, 237 et seq.): • Click Rate, as the relative frequency of clicks on an ad with regard to all of its displays: #Clicks / #Ads, • Conversion Rate, as the relative frequency of user actions (online sales, qualified customer contacts via subscription to a newsletter and similar “leads”) with regard to all visits to the website initiated via the ad: #Ac- tions / #Clicks, • ROI (Return on Investment) as the quotient of the profit (generated via the actions) and the total cost of the marketing campaign: Profit / Costs of Online Advertising. The crucial value, from an economic perspective, is the last one. Here, we need to be in the black, as the advertising campaign would create a loss otherwise. Let us suppose that a click on “our” ad costs €1, and that 1,000 clicks would generate €1,200 in e-commerce revenue. Not taking into account the costs in our own com- pany, we would then have spendings of €1,000 and a profit of €1,200 - €1,000 = €200. The ROI of this campaign is at €200 / €1,000 = 0.2. Companies occasionally choose the path of outsourcing their online advertis- ing. Especially for the area of context-specific advertising, search engine adver- tising agencies (which offer both search engine advertising and search engine op- timization among their services) have established themselves as their own small industry (von Bischopinck & Ceyp, 2007, 150 et seq.) (see Chapter 10 above). 15.2 Banner Advertising Every medium has its own advertising standards, e.g. the 30-second commercial on TV or the quarter-page ad in the newspaper. In the early days of online adver- tising, banners were such a standard (and still are, partly). Depending on size and placement, we can distinguish between four basic forms (Plummer et al., 2007, 83): • Full Banner (normally 468 * 60 pixels; Half Banner: 234 * 60 pixels), • Leaderboard (728 * 90 pixels), • Rectangle (normally 180 * 150 pixels; Large Rectangle: 336 * 280 pix- els; Medium Rectangle: 300 * 250 pixels; Square: 125 * 125 pixels; Mi- cro Bar: 88 * 31 pixels), • Skyscraper (normally 120 * 600 pixels; Wide Skyscraper: 160 * 600 pix- els). Online Advertising 331 In Figure 15.3, we indicate the size and typical placement of the basic banner forms. Instead of graphically oriented banners, there can also be video playbacks– in the Rectangle form. Standard Leaderboard Linde & Stock: Information Markets Sky- scraper Linde & Medium Rectangle Stock Informa- Linde & Stock: tion Information Markets Markets Full Banner. Linde & Stock: Information Markets Figure 15.3: Typical Sizes and Placements of Banners. For banners, we distinguish between content and design (Lohtia et al., 2003), which both have cognitive and affective dimensions.