The Different Types of Online Business Models

The Different Types of Online Business Models

The world wide web is the most powerful instrument available for businesses today. Billion dollar organizations can be built completely online, or existing offline businesses can take their organization to the next level online.

When most people think of online businesses their train of thought goes in a select few directions. They make think you are either the next dot com millionaire or they think of a struggling startup trying just to get by.

Rarely do people realize there are millions or businesses online making varying amounts of income. Yes there are websites out there making millions of dollars a month and websites of the opposite end of the spectrum not making anything. But there are countless sites, most of which you probably have never heard of making $1,000 a month, $10,000 a month, or $100,000 a month.

The key is providing value for your users and then you will be accurate compensated for that value you are providing.

There are a few different business models for online businesses, all with unique benefits and limitations. Many of the sites you frequent you may not even realize their method of monetization.

E-commerce

When you think online business, e-commerce is probably the first thing that comes to mind. E-commerce simply put is selling anything over the web. This may be a physical product that you ship to your customers or a product you deliver digitally.

E-commerce is one of the largest industries in the world and also one of the fastest growing. In 2019 alone, worldwide ecommerce sales reached almost 4 trillion dollars. For reference sake, in 2019 only 3 countries in the world had a larger GDP than the size of the ecommerce industry.

If you have something to sell there is someone online willing to buy it. Heck, you don’t even have to have something to sell, think drop-shipping. With drop-shipping you sell other products that someone else has, and only pay for them once you receive a sale. You then send the shipping information to your supplier and they ship the item to your customer, leaving you with the difference between your sales price and your cost from your supplier.

Other ecommerce business models include selling products you produce yourself or services you provide yourself or selling digital products such as videos or music.

SaaS (Software as a Service)

Software as a Service is just what is sounds like, a software that provides a service to the user. Think Uber, which is a software connecting drivers and passengers and facilitates the payment. In return for this provided service the software keeps a percentage of each transaction is facilitates.

Another example of a SaaS application would be the communication platform Slack. Similarly to the previous example, Slack is a software that provides a service to users, communication services to be exact. Different from the Uber example though, there are not transactions for Slack to take a percentage from, instead, the monetization method is paid subscriptions to use the software.

Software as a Service are one of the most scalable and profitable business models for the simple fact that the software does the work instead of a human and there are no physical products to produce or ship. Remember the golden rule, if your software provides value to users, those users will happily compensate you for that value.

Advertising

Advertising has been around since the beginning of time. For the most part, the only thing that has changed is the way advertisements are put in front of consumers. 20 years ago, it may have made sense to advertise your business in the local newspaper, but today that same newspaper advertisement will likely result in far less revenue for the advertiser themselves.

As long as businesses are trying to sell their products or services, they are going to be willing to pay to get their advertisement in front of their desired customer base. If you have an engaged audience there is likely someone out there that is trying to reach that audience and willing you compensate you for introducing your audience to their business.

The key for this online business model is building an engaged and targeted audience. An audience that is not targeted or engaged is less likely to make purchases based on what you say.

Affiliates

Affiliates are similar to advertisers in that they promote the product or service of another business. Conversely from advertising though, you are not paid to promote the product or service, instead you take a commission from each sale you send to the provider of the product or service.

In advertising you get paid regardless of the success of the company paying for the advertisement. With affiliate programs, if your audience does not convert on purchases, you don’t make any money. This may seem like a drawback to the affiliate business model, unless you can make large amounts of sales.

For example, if you get paid $500 to place an advertisement on your blog and then your audience purchases $100,000 worth of products based on that advertisement, you still only get $500.

But, if you are an affiliate with an agreement to keep 10% of every sale you send to the provider and then send $100,000 worth of business to the provider you make $10,000.

What Business Model Will You Build?

It is probably apparent by now there are countless ways to make money online and all of the above business models are tried and tested. Not one single business model is more successful or profitable than another online business model.

The singular determination of the success and profitability of any given model is the value it provides to users. Value can be perceived in many different ways. A large corporation with employees across the globe may see significant value in a software that lets employees communicate immediately and in an organized manner.

But fans of a professional sport team may see more value in a blog that keeps them updated on scores and news relating to their favorite team.

A local restaurant may find more value in an advertisement and review platform that lets them showcase their business to people looking for places to eat in their specific area.

The key is find a userbase that needs something and then build something that provides value to that targeted audience.

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