Internet is said to have given birth to innovative ways of making money. On the one hand, you can copy some of the traditional bricks-and-mortar businesses and paste them into the Internet environment (online travel agency, online supermarket, etc). But on the other hand, there are endless possibilities for purely virtual business models. Here I would like to share some thoughts on online business models and develop a kind of typology for most common models.
Business model definition
A business model has the following facets:
- The product. What is the core product and the product extensions/ complimentary products? What is your value proposition?
- The customer. Who is your target customer? What kind of relationship do you aim to build with your customer (marketing and communication)? How do you deliver your product to the end customer (sales channel)?
- The company. What core competencies are required? What is your overall market strategy? How can you use partnerships and networking with other businesses?
- The money. What is your cost structure and financing model? How do you derive your revenue and what profit margins do you expect?
Typology of internet businesses
According to the revenue source and financing, Internet businesses can be subdivided into the following groups (software and online platforms as examples):
- Open source and financing through donations/grants (iversity, Wikipedia, flattr.com)
- Open source and financing through client data collected (patientslikeme.com)
- Open source and financing through advertising (Facebook, Spotify)
- Open source and commercial licenses or payment only from B2B clients (Groupon)
- Open source and commission on transactions (Amazon.com, Kickstarter.com)
- Open source and paid extra features for premium accounts, or freemium models ( LinkedIn, some antivirus software)
- Strictly commercial software or technology, possibly with a trial period (Microsoft Office, Adobe Photoshop).
What is more, businesses combine several types of revenue collection (paid games on Facebook in addition to advertising).
It is hard to say which of the listed above model types are likely to be more successful than the others, as there are winner companies in each category. Rather, it comes down to other factors, such as the product, the marketing strategy, the target market, the networking possibilities, as well as the flexibility of the business model as such.
Not only the flexibility to change in time, or innovation, is the key to success in the rapidly changing online environment, but also the scalability and extendability of the business model. In other words, is the model transferable to a variety of markets without significant losses in profitability?
For new market entrance, the language together with the culture and the local conditions play a significant role. Even successful businesses are not 100% scalable, this probably being the reason why Google and Facebook have not yet managed to capture the lion’s share of the Russian or Asian market, despite of doing pretty well in European countries. Amazon.com still has not dared to venture into the Russian market, due to perceived logistical and security problems, its place now taken by its Russian clone, ozon.ru.