Five Business Models of eCommerce

Five different ways websites can generate revenue.

by Robert Samuelsen
"There's no such thing as a free lunch!" While this simple economic
aphorism seems to have been forgotten in the world of cyberspace, it
holds true as much today as it ever has. First lets establish the fact Top of Form
that no site is free - every web site costs money. The web site is
stored on a computer, uses web server software, accesses Search
telecommunication resources, and must be maintained. Someone
must pay for the computers, software, telecommunication charges,
and time. The omnipresent cost either comes from your pocket or Bottom of Form
some benevolent benefactor. These online transactions are made
possible with the ecommerce solution the business is using.
Bookmark Us
The cost and potential revenue constitutes a business model.
Therefore, even the "free" sites have a business model. A public site Have Shel Speak
offered by a library, school, or university has a business model. Free to Your Group
email service has a business model. Free home pages fit into a Media Training
business model. Every site in the entire world wide web has a
business model. There are different business models underlying each Marketing &
website. Copywriting
Services
In actuality, five distinct eCommerce business models form the basic
structure for the wide variety of websites today. The five categories Information for
are called vanity, billboard, advertising, subscriptions, and storefront Marketers
sites. [Editor's Note: Mr. Samuelsen considers affiliate programs to be Grassroots
a variant on the storefront model.] While not all drive revenue directly, Marketing
they all incur costs. In addition, many sites combine several of the five
Order Our
identified business models. Each of the five models have unique
Books: Low-
characteristics which make it different from the other types. Therefore,
Cost/Ethical
it is important to understand their differences.
Marketing
Vanity: Many web sites are started as vanity sites. These sites are
Down to
often created by individuals as an outlet of self expression, to share a
Business
hobby, promote a cause, or find others with similar interests. These
sites are created with no intentions of deriving revenue and no Frugal Marketing
illusions of grandeur. It could be as simple as a one page family site Tipsheets
or a complex forum on a specific topic. The costs are borne either by Testimonials
the individual or by some altruistic enterprise such as universities,
libraries, communities, associations, and even businesses. Press Room
Nevertheless, the costs are real of these "free" sites. Frequently Asked
Billboard: Billboard sites (also called brochure or information sites) Questions
are designed to derive economic benefit through indirect means from Contact Us
either referred sales, reduced cost, or both. Revenue comes from
creating awareness of its products or services via the web, with the We Also
actual purchase transaction occurring off-line. Just like a billboard on Recommend
a highway, success is measured on viewership as net citizens "surf" Site Map
by and are influenced to purchase product. Most corporate sites today
put up these electronic brochures to provide information about their
products, employment information, or public information. Economic
benefit is created through the indirect purchase of goods or services
from existing physical outlets and cost savings through the elimination
of infrastructure or inefficiency. Finally, some businesses feel this is Site Search
the best way to avoid channel conflict'a potential pricing disparity Main Page
between different supply chains.
Advertising: Network television, radio, and many periodicals follow
the advertising model. All programming and content is funded by
advertising dollars, with consumer viewership measuring value.
Agencies conduct sophisticated surveys to measure the value and
establish the pricing. For eCommerce, advertising can be in the form
of banners, sponsorships, ezine ads, and other promotion methods.
This is a much-ballyhooed but still largely unproven model on the
web. While there are a few sites that are entirely supported by
advertising dollars, the lack of web-savvy viewership statistics hinder
the mass adoption by advertisers. As the knowledge of consumer
behavior is further understood, experts will prepare purchase pattern
analyses providing advertisers with empirical data to support their
promotion campaigns.
Books by Shel Horowitz
Subscriptions: In other media, the subscription models are well
established'accepted by subscribers and nurtured by publishers. On
the web, subscriptions are not yet widely accepted by consumers. Of
those that are accepted, the subscription model caters to sites
targeted to particular niches of individuals who have specific needs.
These sites are often specialized with expert content and timely
information. The subscriptions fund the development and
maintenance of the site.
Subscriptions can be paid on a weekly, monthly, or annual basis.
Payment through a credit card account is a common payment scheme
for subscription sites because of the ability to periodically process the
purchase transaction electronically.
Storefront: To some people, a products-offered site is narrowly
defined as a "true" eCommerce site. A website that offers products for
sale is the electronic version of a catalog. These virtual storefronts are
built to describe the offering with pictures and words, offer
promotions, provide a "shopping cart," and complete the purchase
transaction. Once the product is purchased, the cyber enterprise
arranges for product fulfillment including shipping and handling. The
fulfillment is sometimes completed by the website enterprise or
directly from the manufacturer in a drop shipping arrangement. Some
manufacturers are now passing up the intermediary wholesalers and
retailers by offering their products directly to consumers. This
collapsing of the supply chain is called disintermediation.
Although the vast majority of these sites offer tangible products, they
can work for service products too. The primary characteristic of these
types of sites is the ability to make a one time purchase with no future
obligations.
While it is impossible to predict the future in this fast moving media, it
is obvious that all five business models will remain viable for the near
term. Each model will continue to mature both in its acceptance and
sophistication. Consumers will increasingly look to the web for
physical commerce alternatives because of the limitlessness of the
media both in terms of geography and shopping hours. For net
entrepreneurs, each model should be examined carefully to
understand which model provides the maximum benefit. With the
understanding of the business models, financial projections can be
easily created and business plans finalized. With the business plan in
hand, you will realize even in cyberspace, there is no such thing as a
free lunch.
Robert Samuelsen operates eVine Online, which he describes as
"The web's first family communication center featuring calendars,
photo albums, discussion groups, address books, and more--all in a
password protected family environment."

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E-commerce And Its Business Model
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Kiran Rathodleft a comment

is reading E-commerce And Its Business Model.

03 / 01 / 2011

aleya_genius8812left a comment

tq for the info..

02 / 22 / 2010

deviless87left a comment

thanx alot.. :)

02 / 04 / 2010

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its good

11 / 28 / 2009
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Good and very informative.

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