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Describes the business model for online market makers, firms that use the Internet to organize a marketplace, providing participants with a virtual "place" to trade, rules to govern their exchanges, and infrastructure to support trading. First it proposes a definition of market making and presents different ways to categorize online market makers. Next it describes how online market makers create value for market participants. Then it examines the economics of market making, focusing on revenue and cost drivers, using both online and offline examples. Building on that analysis, the final section examines the risks and potential payoffs to online market makers from pursuing aggressive growth strategies. Explores the value proposition offered by these companies and the economic imperatives they face. Finally, seeks to provide a framework for evaluating whether the adoption of aggressive growth strategies is prudent for online market makers.

Describes the online portal business model. Analyzes the model, focusing on the tactics used to acquire new users, turn new users into repeat visitors, and monetize user traffic. Explains portals' revenue and cost drivers and their implications for pursuing aggressive growth strategies. Finally, explores the challenges facing companies that aspire to develop portals for new online access technologies, such as wireless data and interactive television. To accompany teaching cases on online portals in courses on Internet strategies and e-commerce. Provides background on the online portal business model, and explains how it differs from other Internet business models. Examines the strategic choices that portals typically face. Also describes how portals can add value as consumers adopt emerging technologies, such as wireless data and interactive television.

Describes online retailers, companies that use the Internet to sell physical goods. Defines online retailers and describes different ways to categorize them. Explores their economic model and value proposition for consumers in comparison with offline retailers. Next, explores the payoff to online retailers from pursuing a "Get Big Fast" strategy--i.e., investing aggressively in customer acquisition and brand building--and identifies best practices that online retailers might employ to maximize their chances of success. Lastly, discusses implications of shopping "bots," and the prospects for disintermediation by retailers by manufacturers.

Tellme, an early-stage, venture-backed company based in Silicon Valley, leverages speech-recognition technologies to provide: 1) a "voice portal" with news and other information accessible through any telephone, and 2) turnkey application development and hosting services for other companies that wish to voice-enable customer service and marketing applications. These two businesses are interdependent: partners' applications receive greater usage when they are hosted within Tellme's portal, and Tellme's portal receives greater usage by virtue of hosting a richer array of applications. In the fall of 2000, Tellme managers are debating a number of strategic issues, most importantly: 1) should they agree to voice-enable services for mass-market Internet portals like Yahoo!, which would provide significant application development/hosting revenue but accelerate competition to Tellme's own voice portal?; and 2) should they pursue a "Get Big Fast" strategy, investing aggressively in customer acquisition and brand building?

Petstore.com is one of four contenders for leadership in the highly competitive online pet supply business. Petstore.com faces decisions regarding potential merger partners and how to brand its service within the website managed by its ultimate merger partner, Discovery Communications.

eBricks.com is developing an online marketplace for construction materials. The start-up company faces two decisions: 1) whether to merge with BluelineOnline.com, a firm providing project management solutions for the construction industry; and 2) whether to develop an online marketplace between contractors and distributors or, alternatively, a marketplace between distributors and manufacturers.

Updates events in Microsoft CarPoint through the end of 1999, focusing on CarPoint's strategic alliance with Ford and on competitive developments.

How aggressively should an incumbent move when developing an online business that threatens its core product? With Internet competitors taking direct aim at the traditional print newspaper business model, the Boston Globe fought back with its own web initiative, Boston.com. Globe and Boston.com managers face decisions regarding whether and how to cross-sell print and online classified advertising; how to roll out online auctions; whether to integrate print and online editorial staff; and the pros and cons of issuing a tracking stock for the Internet businesses of the New York Time Company (the Globe's parent company). At a broader level, the case raises the question: Are old media companies doomed as the new economy dawns? It introduces the terms "hawk" vs. "dove" to describe businesses that enter the online arena by establishing wholly separate online divisions versus closely coordinating their online and "offline" activities. The case asks: Can employees trained in the traditional business shift to new, digital ways of thinking? Are legacy systems advantages or disadvantages given the need for Internet speed? Finally, what is the value of prior relationships with customers in an environment of disruptive technologies?

Priceline empowered consumers to "name their own price" for airline tickets and hotel rooms; then it shopped these offers to marketers. Priceline's founder Jay Walker described the resulting transactions as a new ecosystem, that helped consumers realize lower prices while allowing marketers to turn excess inventory into profit and, in so doing, price discriminate without damaging their brands or their published prices. Airline tickets and hotel reservations were only the starting point for Priceline, however. By the end of 1999, Priceline had made inroads into the mortgage, new car sales, and car rental businesses. In November, Walker launched Priceline WebHouse Club to bring the "name-your-price" concept to groceries, with plans to eventually scale WebHouse to include almost every type of retailing. Several pressing issues confront the Priceline WebHouse management team in this case. First, the company had yet to close a deal with any major brand manufacturer. Thus, to satisfy customers, WebHouse subsidized member savings out of its own coffers, which, combined with early consumer success, led to significant losses and cash burn. To continue its customer acquisition, Walker projected that $200 million to $500 million in additional capital would be necessary. Meanwhile, the company confronted questions about where and how quickly it should expand.

Staples.com, the online unit of the U.S. office supplies retailing chain Staples, faces a range of strategic and organizational issues as it accelerates its growth. Should it pursue only existing Staples customers or consumers who do not shop in Staples stores? How quickly should it add services (e.g. legal, payroll, accounting) to its product offering? Which operating functions should be shared between the online units and the core business? Should Staples.com be spun off as a tracking stock?

Black Entertainment Television, a leading cable programmer, is launching BET.com, an Internet portal targeted toward African-Americans. This case examines the challenges facing BET management as it defines its service offerings and target customer segments in a fast-moving, highly competitive environment. BET.com faces two decisions: 1) whether to bundle Internet access service with its ethnic portal; and 2) whether to strictly target African-Americans or also pursue the "urban market," a young (aged 15-24), cross-racial segment with distinctive tastes in music and fashion and part of the core audience for BET's cable programming.

By the fall of 1999, StarMedia had sprinted to a sizable lead in the race to acquire Latin American Internet users. Its pan-regional, horizontal portal was the first to target Spanish- and Portuguese-language speakers on the Internet, registering 1.2 billion page views in the third quarter of 1999. Thirty-three-year-old StarMedia co-founder Fernando Espuelas was the toast of "Silicon Alley" and a recognized hero throughout Latin America. A picture of him on the cover of Internet World magazine--ripping his shirt open to show the StarMedia logo, like Superman, summed up the spirit of the company. But each day brought an announcement of a new initiative by a heavyweight nemesis. To maintain its lead, StarMedia raised and spent money at a frenetic pace, promoting its brand, acquiring companies, and launching new Web initiatives. Losses for 1999 were projected to be $90 million on revenues of $19 million, a burn rate made sustainable by private and public financing rounds that had netted the company half a billion dollars since its 1996 inception. By December 1999, StarMedia had evolved from a pure Web company to an integrated media company that stretched into the ISP, mobile phone, and broadband production businesses with more than 700 employees in 12 countries. As the new millennium dawned, the major question facing StarMedia's executive team was how to best leverage the company's infrastructure to maintain and extend its traffic leadership--and to monetize its audience--in an environment that was becoming both more competitive and more sophisticated. Includes color exhibits.

Sendwine.com, an online retailer of premium gifts of wine by the bottle, faced decisions about its growth strategy in mid-1999. Mike Lannon, president and founder, had established his company as a prominent player in an increasingly crowded field. But with success came a difficult choice: How should Sendwine.com spend the venture capital money it subsequently had attracted? Should the company consolidate its niche position in wine gift giving? Or should it aggressively expand into new gift-giving categories under the "Send.com" name?

Online broker DLJdirect faced two decisions during the fall of 1999: what customer segments should it target and how much should it spend on marketing? Unlike its competitors, who focused either on day traders or more mainstream investors, DLJdirect differentiated its service to meet the needs of self-directed, sophisticated, high net worth investors. But was DLJdirect forfeiting profits by not pursuing day traders? In the coming year, the ten largest online brokers were projected to spend $1.5 billion on marketing; E*Trade would lead the pack with a $300 million budget. DLJdirect was planning to spend $65 million on marketing in 1999, a 250% increase over the prior year. But would increased ad spending yield a positive long-term return as the marketing costs per new account doubled? And as advertising battles intensified, was a $65 million marketing budget big enough to allow DLJdirect to sustain its competitive position?

Teaching Note for (9-201-061).

Viacom has built a powerful position in the global entertainment industry through skillful and bold acquisitions. Now its expansion is challenged by the moves of Rupert Murdoch's News Corp. Different businesses within Viacom have contradictory positions on how to deal with major opportunities and how Viacom top management should manage the decision-making process.

Viacom reached a powerful position in the global entertainment industry through skillful and very bold acquisitions. Now its further expansion is challenged by the moves of Rupert Murdoch's News Corp. Different businesses within Viacom have contradictory positions on how to deal with major opportunities and how Viacom top management should manage the decision-making process.