Exam 11: Social Networks, Auctions, and Portals

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Portals receive income from several different sources. The revenue base of portals is changing and dynamic, with some of the largest sources of revenue declining. Typical revenue sources include general advertising, tenancy deals, commissions on sales, subscription fees, and fees from applications and games. The business strategies of both general and vertical portals have changed greatly because of the rapid growth in search engine advertising and intelligent ad placement networks such as Google's AdSense. General portal sites such as AOL and Yahoo did not have well-developed search engines, and hence have not grown as fast as Google, which has a powerful search engine. Portal sites have invested billions of dollars to catch up with Google. On the other hand, general portals have content, which Google did not originally have, although it has since added content by purchasing YouTube and adding Google sites devoted to news, financial information, images, and maps. General portals are attempting to provide more premium content focused on subcommunities of their portal audience.
Advertisers on portals are especially interested in focused, revenue-producing premium content available on portals because it attracts a more committed audience. For instance, financial service firms pay premium advertising rates to advertise on portal finance service areas such as Yahoo's Finance pages. There is a direct relationship between the revenue derived from a customer and the focus of the customer segment. The survival strategy for general purpose portals in the future is therefore to develop deep, rich, vertical content to reach customers at the site. The strategy for much smaller vertical market portals is to put together a collection of vertical portals to form a vertical portal network, a collection of deep, rich content sites. The strategy for search engine sites like Google is to obtain more content to attract users for a long time and expose them to more ad pages (or screens).

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The general benefits of auctions to sellers and buyers are liquidity, price discovery, price transparency, market efficiency, lowered transaction costs, consumer aggregation, and network effects.
Sellers and buyers are connected in a global marketplace where even difficult to price items can be competitively priced based on supply and demand. Everyone in the world can see the asking and bidding prices for items, although prices can vary from auction site to auction site. Buyers are offered access to a selection of goods that would be impossible to access physically. Buyers and sellers benefit by the reduced costs of selling and purchasing goods compared to the physical marketplace. A large number of consumers who are motivated to buy are amassed in one marketplace, which is a great convenience to the seller. Network effects are achieved because the larger an auction site becomes in both the numbers of users and products, and ultimately increasing the value of the marketplace.