Internet based Business Models
In the most basic sense, a business model is the method of doing business by which a company can sustain itself — that is, generate revenue. The business model spells-out how a company makes money by specifying where it is positioned in the value chain.
Business models have been defined and categorized in many different ways. This is one attempt to present a comprehensive and cogent taxonomy of business models observable on the web. The proposed taxonomy is not meant to be exhaustive or definitive. Internet business models continue to evolve. New and interesting variations can be expected in the future.
An Internet based business models has several dimensions:
1. The technology aspect primarily comprising of telecommunication, networking and other infrastructure issues.
2. The software domain that includes programming languages, web page design, customer interface and transactions management, security and privacy management, and large scale data mining.
3. The management aspect that deals with the business strategies for value creation, growth and customer development and retention.
4. The statutory and legal dimension that addresses various cyber laws dealing with security, crimes etc. and government policies for nurturing the Internet based E-commerce.
The basic categories of business models are discussed below:
1. Brokerage
Brokers are market-makers.They bring buyers and sellers together and facilitate transactions. Brokers play a frequent role in business-to-business (B2B), business-to-consumer (B2C), or consumer-to-consumer (C2C) markets. Usually a broker charges a fee or commission for each transaction it enables. The formula for fees can vary. Established businesses that utilize the brokerage model include EBay,Paypal and Amazon etc.. To operate a successful brokerage, you need to be adept at uniting consumers to a product or services that they would not otherwise be able to easily find. EBay brought the garage sale to the Internet, and Amazon pioneered online one-stop shopping, making it possible to search multiple merchants and view results side-by-side. In exchange for this ease of access, the brokerage model business will generally charge a small commission fee on each sale to either the seller, buyer, or both.
2. Advertising
In this model, the website offers content, generally free of charge, to the consumer. This can be in the form of news articles, blogs, or even services such as instant messaging or a search engine. The website features banner ads to pay for the service that is provided. The more hits a website receives throughout a given period, the more the business can charge advertisers for ad placements. Successful advertising-based Internet businesses include Monster.com, Yahoo!.
3. Infomediary
Independently collected data about producers and their products are useful to consumers when considering a purchase. Some firms function as infomediaries (information intermediaries) assisting buyers and/or sellers understand a given market.
4. Merchant
The merchant model encompasses both retailers delivering goods and services from a variety of manufacturers and manufactures who sell directly to the consumer. In this category, business styles can include bit vendors selling strictly digital products (such as iTunes), traditional retailers with an online presence in addition to physical storefronts (“click and mortars”), and manufacturing license sellers (such as software manufactures who license their physical product but retain ownership rights). Internet businesses structured according to the merchant model earn revenue in much the same way as a traditional business with a storefront. Additionally, many businesses operating according to the merchant model will also sell advertising space to generate additional revenue.
5. Manufacturer (Direct)
The manufacturer or “direct model”, it is predicated on the power of the web to allow a manufacturer (i.e., a company that creates a product or service) to reach buyers directly and thereby compress the distribution channel. The manufacturer model can be based on efficiency, improved customer service, and a better understanding of customer preferences. Cisco, the digital electronic parts manufacturer, has an online product catalog that is an example of the manufacturer’s direct model. An individual or business can go directly to Cisco’s website to purchase systems and parts, which allows Cisco to operate with fewer field sales representatives. Dell Computer also uses this business model, giving the consumer the ability to customize his computer according to his needs.
6. Affiliate
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.
7. Community
The viability of the community model is based on user loyalty. Users have a high investment in both time and emotion. Revenue can be based on the sale of ancillary products and services or voluntary contributions; or revenue may be tied to contextual advertising and subscriptions for premium services.
8. Subscription
Users are charged a periodic — daily, monthly or annual — fee to subscribe to a service. It is not uncommon for sites to combine free content with “premium” (i.e., subscriber- or member-only) content. Subscription fees are incurred irrespective of actual usage rates. Subscription and advertising models are frequently combined.For example: Content Services — provide text, audio, or video content to users who subscribe for a fee to gain access to the service.
9. Utility
The utility model is, at its heart, a “pay-as-you-go” service provider that charges based upon metered usage. It takes its name from the utility services, such as water and electricity, which have traditionally used this metered charge style. In some countries, ISPs are still billed as a metered service, with rates varying as usage increases or decreases. In a slight variation, some Internet businesses, among them Slashdot, operate as subscription utilities. In this utility variation, subscribers are charged a fee based upon number of website content pages viewed.
