Online businesses enjoy lots of advantages for those looking to conduct business without a brick and mortar location. You can effectively run your company from anywhere you can find an internet connection. Identifying & adopting the right business model is one of the first steps in founding a successful online business. Prospective online business owners usually don’t know how online businesses are set up and the business and product model options that are available to them.
Picking the right business model will ensure the online business yields profits, which, after all, is the main thrust of establishing a business. By the way, a business model is a conceptual structure that supports the viability of a product or company explaining how the company operates, makes money & how it intends to achieve its goals.
This article will take you through some of the online business models that one can adopt for their online businesses.
Companies like Amazon boost their sales with the help of affiliates. Mostly through blogs, but sometimes through dedicated online stores, affiliate sales benefit the original seller by providing additional visibility. The affiliate benefits by providing an opportunity to monetize product reviews, a personal blog, or any other site. Most affiliate sites provide an additional income stream for sites that predominantly rely on other income streams. An affiliate site must be a content driven website. WordPress is the most suited for that. X-Cart works well with WordPress in terms of SEO (search engine optimization) and information architecture, thus, it helps you to then give your site an e-commerce look & functionality. Amazon enables individual websites to link to specific products Amazon offers. An affiliate often recommends or reviews products and posts that information on the Amazon site. The affiliate makes money by promoting quality products and getting a small commission off each referred sale.
For a merchant model (also known as the e-commerce model), one operates an online store that provides a catalogue shopping experience. So here the users can order products online but the order gets picked up at a local outlet or is dispatched from a local outlet and delivered to the customer. The merit of this approach is that a wider pool of customers can actually be reached at very limited costs. Examples are 10ngah, Amazon & Alibaba.
This is for when business-to-consumer and business-to-business approaches are used to sell products and services via websites. Bringing buyers and sellers together on a platform where bidding & asking for products or services is done, is the working principle of a brokerage model (also known as the auction model). Ebay is a perfect example of a business operating using the brokerage model.
The term “freemium” comes from the combination of words “free” and “premium”. What happens here is that the basic service is offered free. Then when a user wants to use premium services, they are charged. So basically the premium services are only accessible at an additional fee; premium services denote full or expanded access. Most online services & applications use this business model. Typically 8% or more of users ultimately pay up to upgrade & become premium users. Examples are cloud storage platforms such as Dropbox or web development platforms such as Wix.
The concept of this model is to create an online platform for individuals to talk and share information and experiences. Discussion lists or reader-participation blogs are examples of this concept. Consumers can review products and services on online platforms such as Angie’s List. User-created content sites like Wikipedia & social networking sites like Facebook or Twitter are examples of platforms using the community model. So there are an infinite number of business concepts that can be premised on this business model.
Aggregator Model (also known as the Marketplace Model)
This is recently developed business model. This model relies on bringing the supply and demand of a product or service together. Your business won’t hold any inventory but your suppliers will. For this model, a company collects information about particular goods or service providers and then makes them partners. Then those providers sell their services under the brand of the company whilst earning money by virtue of commissions. To note here is that the providers don’t actually become employees & they continue to be owners of the goods or service provided. The aggregator is a brand and thus must provide services with uniform quality & price. The aggregator also plays a huge role in marketing the goods or service. Examples here are is Vaya Lift, Uber & Airbnb. Websites & online apps are usually used, either separately or in unison under this model.
Manufacturer’s Direct Model
This entails a manufacturer having an online product catalogue. This means individuals or businesses can go directly to that website to purchase products. This reduces the manufacturer’s operational costs by ensuring there is lesser number of field sales representatives needed. Cisco which is a digital electronic parts manufacturer has an online product catalogue. That is an example of the manufacturer’s direct model.
Mostly used when customer acquisition costs are quite high. It entails keeping customers over a long-term contract and getting recurring revenues from them through repeat purchases. Basically, the customer pays a recurring price at regular intervals to get access to a product or service. Essentially, when you adopt this model you will be creating a significant asset & renting a piece of it. Examples here would be Kwese Iflix or Netflix, which are content providers that streams shows & movies. If the service provides a lot of value for the customer, they are sure to stay on the subscription for years and years.