Business Models on the Internet

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,
  • Open source and financing through client data collected (
  • 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 (,
  • 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).

Success factors

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. 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,

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Has the World Turned into Google?

The importance of Google AdWords and other Google-related marketing tools in the marketing mix is sometimes overestimated.

Have you ever asked yourself what percentage of your customers really come from Google AdWords? I am sure the answer will be different in every given case. However, is there anything besides (and above) Google?

First of all, let us look at Google AdWords in relation to organic search results. According to the Search Engine Journal, 80% of web users seldom or never click on Google AdWords, focusing on organic search. Clearly, as their online experience grows, most web users are becoming more and more immune towards web advertising and even develop negative feelings towards personal targeting.

Secondly, though the share of Google and Google-powered search engines in countries like Germany may reach 90%, in other countries it may not be the case. For example, the Russian search engine market is still dominated by the Yandex company (60% market share), the same is true for most Asian countries, where search traffic is driven by local search engines. Thus, the share of Google worldwide is well below 90% and, as I think, would be realistically estimated at around 50%-60%. Another point to consider is the aggressive competition by other search engines even in Google-dominated countries and the danger of the Icarus Syndrome for the market leader.

Thirdly, the share of web content indexed by search engines is very small (some estimates point at the share as low as 0,2%). The so-called Invisible Web or Dark Web includes specialized or password-protected databases and catalogs, data shared and posted on social networks, and non-indexed data formats, such as pictures or video content.

One more barrier to consider is what percentage of time your target users spend online, how often they use search engines, and if they use search engines with a clear intention to purchase something at all. The reason is that Internet is mostly perceived as a means of entertainment or as a free information source, which significantly decreases the ROI of SEM advertising.

And last but not least: how digitalized has the world become in reality? Has everyone in this world acquired an unlimited access to the Internet 24/7? Has the share of life we live off-line become so insignificant that it does not need to be considered any more? Have we stopped talking to each other face -to-face, reading books and magazines, watching TV and listening to the radio or just shopping at local shops? Naturally, no.

In conclusion, by writing all above, I am not going to undermine the importance of online marketing in the marketing mix or deny the growing size of the potential market on the Internet. However, in my opinion, the reliance on Google-related marketing tools has become a self-fulfilling prophecy for online marketers, the marketers themselves representing a (thin?) slice of population who actually actively use the Internet and can handle the Internet technology. A lot of things in online marketing are assumed without profound data on the on-line and off-line behavior of the target users or on the relative importance of the advertising instruments used.

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Will Market Research Survive?

No, I do not want to make a prediction about the death of market research as such, but rather some of its forms that have traditionally been the “cash cows” of large market research companies.

Take, for example, panel research. The very essence of retail panel research is being ruined by the growth of e-commerce. Measuring at the point of sales is becoming more complicated now.  Who can possibly register the flow of goods from numerous on-line shops, especially those outside the country? There is a missing link there, and the gap is growing.

Another area which is unlikely to survive very long is test market with measuring advertising response.  As online marketing budgets are growing and the advertising shifts from TV and radio to the Internet, the companies feel more empowered to track their own advertising campaigns and optimize them as they please.

Even in qualitative research, traditional focus groups may, to a large extent, be replaced by scanning online forums and social media for new ideas or suggestions for improvement. Moreover, the data are available globally and in real time at no extra cost!

And last but not least, desk research has become increasingly simplified through the  use online search engines and other digital data mining tools. Possibly,  in some years, complete market research reports which normally took months to create and used to cost thousands of dollars will be created in a few mouse-clicks using special software.

Think of the new World 2.0 as an interlaced, data-overflown place, where the consumers and whole markets are getting more and more transparent, with or without professional market research as we know it.  Shifting strategic weights and entering new fields of play will probably be the biggest challenge for market research companies in the years to come.

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Generating Leads in Direct Marketing

In order to exchange quantity for quality in direct marketing, it is important to base your first contact with the customer on the following principles.

In order to stay customer-focused and exchange quantity for quality in direct marketing, it is important to base your first contact with the customer on the following principles:

1. Study the business environment of the customer. What industry are they in, what are the trends and challenges in the industry?

2. Study the working environment of the customer. What department are they in, what is their function in the company?

3. On the basis of data derived in this way, generate a hypothesis on what challenges this particular customer group might face. If you are selling online marketing services to local restaurants’ directors think in terms of difficulty in attracting new customers, local nature of the business and growing competition.

4. Generate a solution for this problem based on YOUR product. For example, a good website and professional social media activity help to be closer to the customers and build a relationship with them. They also help to optimize the offered services through soliciting customers’ feedback on their needs and desires. What is more, they create a certain level of managed publicity in order to attract new customers.

5. Describe  how YOUR product/service has helped customers with similar needs or problems in the past. E.g. restaurant XYZ has increased its customer base by… percent and overrode competition by offering better services with an interactive and appealing website.

6. Now you probably  have established common grounds with your customer and your first contact in direct marketing will be more successful.

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