What is an Internet Business?
So you want to know what is an Internet business ? I guess the simple answer is that it’s any sort of business activity that is carried out on-line.
A Tangled Web
It turns out that there are a myriad of different models, it really is a tangled web.
Internet business not only describes the classic website that sells a tangible product, but at last count there were upwards of 8 different models of internet businesses.
They are primarily defined by the way in which they generate revenue, these definitions will most likely change and adapt and they are by no means definitive.
Bill Gates defined the internet as an environment of constant change. What I aim to do in this article is to give a brief overview of the different types of internet models and give you a better understanding as to what an Internet business is.
For a more detailed account of internet business models, I’ll direct you to Michael Rappa and his paper ‘Business Models on the Web’.
Merchant Model
If you’ve ever shopped in an on-line store such at Amazon and Apple iTunes, you’ve used the merchant model. Put simply the merchant models is not unlike a traditional shop where merchants (sellers) buy goods and then sell them on at a profit.
This model is popular with wholesalers and retailers with sales primarily made through list prices or auction.
Brokerage Model
The basic definition of a broker is someone whom arranges or negotiates (an agreement).
There are several different sub-types of brokers but the basic principal is where an intermediary agent (broker) brings together buyers and sellers and facilitates transactions.
Brokers usually make money by charging a fee for successful transactions or commissions. Have you ever used Ebay or PayPal? These are on-line services using the Brokerage Model.
Community Model
The definition of community is ‘the condition of sharing while having certain interests and attitudes in common’. When referring specifically to an on-line community business model, a person or company will focus on a specific community to direct services and products.
Money is made in different ways. Typically through targeted advertising, subscriptions and sale of ancillary products. An example here would be Facebook, and Twitter or communities with a specific demographic.
Infomediary Model
The word Infomediary is a combination of information and intermediary, coined by John Hagel in his 1997 paper ‘The coming Battle for Customer Information’ . Intermediary parties collect, analyse and then sell information about a particular market to both consumers and, direct to businesses.
For consumers, it allows you to make an informed buying decision and for producers of goods and services it allows a more efficient and effective marketing or advertising campaign.
Affiliate Model
The affiliate model simply put, is someone who helps to sell a product or service in return for a commission. There are a variety of different types of affiliate business models.
You can read more about affiliate marketing in our article here, but it can basically there are 3 parts:
Advertising Models
A digitised version of the traditional media broadcast model. The on-line advertising model is where free content and services mix with advertising messages, usually in the form of banner ads on a website.
These banner ads are usually the sole source of revenue for the broadcaster. This model works most effectively with a large audience or highly specialised viewer. If you’ve ever used a search engine such as Google or made use of classifieds such as Craigslist, then you’ve dipped your toes into the world of online advertising model.
Manufacturer’s Direct |Model
This is simply a manufacturer of a product or service being in direct contact with the consumer. This model by-passes retailers and wholesalers. For example Oakley sell sports performance items such sunglasses direct from their website.
Subscription Model
A subscription model is where a consumer pays a regular fee to access a service or product. Companies may combine free content with a premium product.
For example, Dropbox is a personal cloud storage service providing a certain amount of free storage and then charge a monthly subscription fee for access to its premium storage product.
Even the largest companies can benefit from a subscription model, like Apple, a $700 billion business!
Subscription model generates revenue irrespective of actual usage rates unlike the Utility Model. There is an excellent book which covers all aspects of the subscription model called ‘Subscribe Me’ by Ravi Jayagopal, highly recommended if you want further information.
Utility Model
Is a model where you ‘pay-as-you-go’. A traditional example would be metering of services such as water and electricity. When transposed to the internet, consumers are charged for connection time to the internet.
To dig deeper and find out more information about what is an Internet business, you can use the references below
References
http://articles.bplans.co.uk/starting-a-business/examples-of-well-known-business-models/1040
http://digitalenterprise.org/models/models.html#Community
http://yourstory.com/2014/03/ultimate-master-list-revenue-models-web-mobile-companies/
http://www.economist.com/node/215703
Hagel III, John (Jan–Feb 1997). “The Coming Battle for Customer Information”. Harvard Business Review
http://www.extrafancy.net/bethany/chapter5.php
Randall, Craig (2013) The Everything Guide To Starting An Online Business