Both products and services,
tangibles and intangibles are sold, traded and auctioned every
minute of the day, 24/7. Popular sites include such diverse
items as real estate, electronics, books, music, instructional
videos, computer hardware, computer software, household items,
clothing, jewelry - to name a few.
Most successful businesses have borrowed an existing idea and
improved it or re-applied it in a new way Don't re-invent the
wheel. Most businesses making money on the net today fall
under one of seven categories.
Products
Services
Information industries
Internet
Careers
Electronic publishing
Electronic advertising
To understand the various ways you can make money on the net,
let's explore some of the Internet Business Models in
existence today.
Products - This includes such diverse items
as real estate, electronics, books, music, instructional
videos, computer hardware, computer software, household items,
clothing, jewelry - to name a few. Portable media such as
books, tapes, CD's, and videos are a natural.
Specialized Services - Any service that can
be advertised can be advertised electronically. This includes
Professional services such as those offered by accountants,
attorneys, consultants, architects and trainers, but today
also includes evolving service sectors catering to busy
people. Entrepreneurs who identify and exploit a new service
industry are enjoying growth and profits.
Information Industries - In a sense, these
are people who gather, synthesize, package and re-sell
knowledge. This includes Information Brokers, Professional
Researchers, Communication Professionals, Consultants, and
Authors, to name a few. True success stories spring from those
who successfully filter the flood of information and
synthesize it into something new and useful.
Internet Careers - Today, this ranges from
avant garde to engineering, including graphic artists, web
designers, programmers, technical-types, web development
companies, computer and software trainers, and Internet
consultants. In terms of new jobs, this is one of the fastest
growing segments of our economy.
Electronic Publishing - This includes
magazines, newspapers, newsletters, coupon books - literally
any written material that is published can be converted into
digital format and uploaded onto the web. The business world
is seeing an explosion in Online-only publications, which cost
a fraction of what it would cost to publish a printed version.
Subscription Model - Often used for
electronic publishing of newspapers,, but may be applied to
other content. Users pay for access to the site. Some
businesses have combined free content (to drive volume and ad
revenue) with premium content or services for subscribers
only.
Advertising - Online advertising is simply
selling advertising on the web. There are new media
advertising agencies that specialize in creating and selling
advertising space on the web. Technically, anyone who has a
web site that generates enough traffic can get sponsors or
sell advertising on their site to companies wishing to reach
that target market or demographic.
Brokerage Model - Brokers are market-makers:
they bring buyers and sellers together and facilitate
transactions. They can be business-to-business (B2B),
business-to-consumer (B2C), or consumer-to-consumer (C2C)
markets. A broker makes its money by charging a fee for each
transaction it enables. Brokerage models can take a number of
forms, such as:Buy/Sell Fulfillment -- This can be an online
financial brokerage, like eTrade, where customers place buy
and sell orders for transacting financial instruments. Also,
travel agents fit into this category. In this the broker
charges the buyer and/or seller a transaction fee. Some models
work on volume and low overhead to deliver the best negotiated
prices, for example, CarsDirect.
Market Exchange - increasingly common model
in B2B markets. Good examples are MetalSite or ChemConnect's
World Chemical Exchange. In the exchange model, the broker
typically charges the seller a transaction fee based on the
value of the sale. The pricing mechanism can be a simple
offer/buy, offer/negotiated buy, or an auction offer/bid
approach. Buyer Aggregator -- Model pioneered by Mobshop,
which describes buyer aggregation as the process of bringing
together individual purchasers from across the Internet to
transact as a group so they can receive the same values
traditionally afforded to organizations who purchase in
volume. Sellers pay a small percentage of each sale on a
per-transaction basis.
Business Trading Community - or "vertical web
community," a concept pioneered by VerticalNet. It is as a
site that acts as an "essential, comprehensive source of
information and dialogue for a particular vertical market."
VerticalNet's communities contain product information in
buyers' guides, supplier and product directories, daily
industry news and articles, job listings and classifieds. In
addition, VerticalNet's sites enable B2B exchanges of
information, supplementing existing trade shows and trade
association activities. An example is Guru.
Distributor - A catalog-type operation that
connects a large number of product manufacturers with volume
and retail buyers. B2B models are increasingly common. Broker
facilitates business transactions between franchised
distributors and their trading partners. For buyers, it
enables faster time to market and time to volume as well as
reducing the cost of procurement. By providing the buyer with
a means of retrieving quotes from preferred distributors --
showing buyer-specific prices, lead-time, and recommended
substitutions -- transaction are more efficient. For
distributors, it decreases the cost of sales by performing
quoting, order processing, tracking order status, and changes
more quickly and with less labor.
Virtual Mall - A site that hosts many online
merchants. The Mall typically charges set-up, monthly listing,
and/or per transaction fees; see, for example Yahoo! Store's
terms. The virtual mall model may be most effectively realized
when combined with a generalized portal. Also, more
sophisticated malls will provide automated transaction
services and relationship marketing opportunities.
Metamediary - is a business that brings
buyers and online merchants together and provides transaction
services such as financial settlement and quality assurance.
It is a virtual mall, but one that will process the
transaction, track orders, and provide billing and collection
services. The metamediary protects consumers by assuring
satisfaction with merchants. The metamediary charges a set-up
fee and a fee per transaction.
Auction Broker - A site that conducts
auctions for sellers (individuals or merchants). Broker
charges the seller a fee, which is typically scaled with the
value of the transaction. Seller takes highest bid(s) from
buyers above a minimum. Auctions can vary in terms of the
offering and bidding rules. The biggest of these is eBay.
Reverse Auction - The "name-your-price"
business model, also called "demand collection," pioneered and
patented by Priceline. Prospective buyer makes a final
(usually binding) bid for a specified good or service, and the
broker seeks fulfillment. The broker's fee is the spread
between the bid and fulfillment price and perhaps a processing
charge.
|
|
Classifieds -
A listing of items for sale or wanted for purchase, typically
run by local news content providers. Price may or may not be
specified. Listing charges are incurred regardless of whether
a transaction occurs, or may be free, as with Craig's List.
Advertising Model -The web advertising model
is an extension of the traditional media broadcasting model.
The broadcaster, in this case, a Web site, provides content
(usually, but not necessarily, for free) and services (like
email, chat, forums) mixed with advertising messages in the
form of banner ads. The banner ads may be the major or sole
source of revenue for the broadcaster. The broadcaster may be
a content creator or a distributor of content created
elsewhere. The advertising model only works when the volume of
viewer traffic is large or highly specialized.
Generalized Portal - high-volume traffic --
typically tens of millions of visits per month (see chart at
right) -- driven by generic or diversified content or services
(ex: search engines and directories like Excite, AltaVista and
Yahoo! or content driven sites like AOL). The high volume
makes advertising profitable and permits further
diversification of site services. Competition for volume has
led to the packaging of free content and services, such as
e-mail, stock portfolio, message boards, chat, news, and local
information.
Personalized Portal - The generic nature of a
generalized portal undermines user loyalty. This has led to
the creation of portals (ex: My.Yahoo!, My.Netscape) that
allow customization of the interface and content. This
increases loyalty through the user's own time investment in
personalizing the site. The profitability of this portal in
based on volume and possibly the value of information derived
from user choices. Personalization can support a "specialized
portal" model.
Specialized Portal - Here volume is less
important than a well-defined user base (perhaps 0.5-5 million
visits per month). For example, a site that attracts only
golfers, or home buyers, or new parents, can be highly sought
after as a venue for certain advertisers who are willing to
pay a premium to reach that particular audience. Prediction:
expect to see a proliferation of specialized portals in the
near future.
Attention/Incentive Marketing - the "pay for
attention" model -- pays visitors for viewing content and
completing forms, or sweepstakes, or frequent flyer-type point
schemes. The attention marketing approach has the most appeal
to companies with very complex product messages, which might
otherwise find it hard to sustain customer interest. The
concept was pioneered by CyberGold, with its "earn and spend
community" that brings together advertisers interested in
incentives-based marketing with consumers looking to save. To
facilitate transactions, the company developed and patented a
micropayment system. Other loyalty-based relationship
marketing approaches areNetcentives, or MyPoints.
Free Model - Give users something for free:
site hosting [ex: FreeMerchant], web services, Internet
access, free hardware, electronic greeting cards [BlueMountain].
Freebies create a high volume site for advertising
opportunities. Viability is hardest when based purely on
advertising revenue. Opportunity to blend with infomediary
model. Bargain Discounter -- the most notable example is
Buy.com, which sells its goods typically at or below cost, and
seeks to make a profit largely through advertising.
Infomediary Model - Data about consumers and
their buying habits are extremely valuable. Especially when
that information is carefully analyzed and used to target
marketing campaigns. Some firms are able to function as
infomediaries by collecting and selling information to other
businesses. An infomediary may offer users free Internet
access [NetZero] or discounted PC hardware [eMachine] in
exchange for detailed information about their surfing and
purchasing habits. This is more likely to succeed than the
pure advertising model.The infomediary model can also work in
the other direction: providing consumers with useful
information about the web sites in a market segment that
compete for their dollar. One such example is
Gomez.Recommender System -- is a site that allows users to
exchange information with each other about the quality of
products and services -- or the sellers with whom they have
had a purchase experience (good or bad) [See: ePinions].
ClickTheButton take the concept a step further by integrating
the recommender system into the web browser. Such agents
monitor a user's habits, thereby increasing the relevance of
its recommendations to the users needs -- and the value of the
data to the collector. Recommender systems can take advantage
of the affiliate model offered by merchants to augment revenue
from the sale of consumer information.
Registration Model - Content-based sites that
are free to view but require users simply to register (other
information may or may not be collected). Registration allows
inter-session tracking of users' site usage patterns and
thereby generates data of greater potential value in targeted
advertising campaigns. This is the most basic form of
infomediary model. [ex: NYTimes.com]
Merchant Model - Classic wholesalers and
retailers of goods and services (increasingly referred to as
"e-tailers"). Sales may be made based on list prices or
through auction. In some cases, the goods and services may be
unique to the web and not have a traditional
"brick-and-mortar" storefront.
Virtual Merchant - a business that operates
only over the web and offers either traditional or
web-specific goods or services (a.k.a., pure-play e-tailers).
The method of selling may be list price or auction. An example
of a service merchant is Facetime, which calls itself an
"application service provider". It offers live customer
support for e-commerce web sites. [ex: Amazon, eToys, Eyewire]
Catalog Merchant - the migration of
mail-order to a web-based order business. [ex: jcrew
]Surf-and-Turf -- traditional brick-and-mortar establishment
with web storefront. The model has the potential for channel
conflict. [ex: Gap, Lands End, B&N]
Bit Vendor - a merchant that deals strictly
in digital products and services and, in its purest form,
conducts both sales and distribution over the web.
Manufacturer Model - This model is predicated
on the power of the web to allow manufacturers to reach buyers
directly and thereby compress the distribution channel (i.e.,
eliminate wholesalers and retailers). The manufacturer model
can be based on efficiency (cost-savings that may or may not
be passed on to consumers), improved customer service, and a
better understanding of customer preferences. Perishable
products that benefit from fast distribution, like fresh
flowers [ex: Flowerbud], may prove advantageous by eliminating
middlemen. The model has the potential for channel conflict
with a manufacturer's established supply chain. [ex: Intel,
Apple]
Affiliate Model - In contrast to the
generalized portal, which seeks to drive a high volume of
traffic to one site, the affiliate model, provides purchase
opportunities wherever people may be surfing. It does this by
offering financial incentives (in the form of a percentage of
revenue) to affiliated partner sites. The affiliates provide
purchase-point click-through to the merchant. It is a
pay-for-performance model -- if an affiliate does not generate
sales, it represents no cost to the merchant. The affiliate
model is inherently well-suited to the web, which explains its
popularity. Variations include, banner exchange,
pay-per-click, and revenue sharing programs. [ex: see
loadedafflicates a guide to affiliate programs on the web, or
AffiliateWorld.]
Community Model - The viability of the
community model is based on user loyalty (as opposed to high
traffic volume). Users have a high investment in both time and
emotion in the site. Having users who visit continually offers
advertising, infomediary or specialized portal opportunities.
The community model may also run on a subscription fee for
premium services. |