Successful business models on the Internet | Week 2 | Ravi_12DM-119_Sec-B

Successful business models on the Internet

Both products and services, tangibles and intangibles are sold, traded and auctioned every minute of the day, 24/7. Popular sites include such diverse items as real estate, electronics, books, music, instructional videos, computer hardware, computer software, household items, clothing, jewellery - to name a few.

Most successful businesses have borrowed an existing idea and improved it or re-applied it in a new way. Most businesses making money on the net today fall under one of these major categories. 

To understand the various ways you can make money on the net, let's explore some of the Internet Business Models in existence today. 

Products - This includes such diverse items as real estate, electronics, books, music, instructional videos, computer hardware, computer software, household items, clothing, jewellery - to name a few. Portable media such as books, tapes, CD's, and videos are a natural.

Specialized Services - Any service that can be advertised can be advertised electronically. This includes Professional services such as those offered by accountants, attorneys, consultants, architects and trainers, but today also includes evolving service sectors catering to busy people. Entrepreneurs who identify and exploit a new service industry are enjoying growth and profits.

Information Industries - In a sense, these are people who gather, synthesize, package and re-sell knowledge. This includes Information Brokers, Professional Researchers, Communication Professionals, Consultants, and Authors, to name a few. True success stories spring from those who successfully filter the flood of information and synthesize it into something new and useful. 

Internet Careers - Today, this ranges from avant garde to engineering, including graphic artists, web designers, programmers, technical-types, web development companies, computer and software trainers, and Internet consultants. In terms of new jobs, this is one of the fastest growing segments of our economy.

Electronic Publishing - This includes magazines, newspapers, newsletters, coupon books - literally any written material that is published can be converted into digital format and uploaded onto the web. The business world is seeing an explosion in Online-only publications, which cost a fraction of what it would cost to publish a printed version. 

Subscription Model - Often used for electronic publishing of newspapers,, but may be applied to other content. Users pay for access to the site. Some businesses have combined free content (to drive volume and ad revenue) with premium content or services for subscribers only.

The others can be classified as follows:

Advertising - Online advertising is simply selling advertising on the web. There are new media advertising agencies that specialize in creating and selling advertising space on the web. Technically, anyone who has a web site that generates enough traffic can get sponsors or sell advertising on their site to companies wishing to reach that target market or demographic. 

Virtual Mall - A site that hosts many online merchants. The Mall typically charges set-up, monthly listing, and/or per transaction fees; see, for example Yahoo! Store's terms. The virtual mall model may be most effectively realized when combined with a generalized portal. Also, more sophisticated malls will provide automated transaction services and relationship marketing opportunities.

Metamediary -  is a business that brings buyers and online merchants together and provides transaction services such as financial settlement and quality assurance. It is a virtual mall, but one that will process the transaction, track orders, and provide billing and collection services. The metamediary protects consumers by assuring satisfaction with merchants. The metamediary charges a set-up fee and a fee per transaction.

Auction Broker - A site that conducts auctions for sellers (individuals or merchants). Broker charges the seller a fee, which is typically scaled with the value of the transaction. Seller takes highest bid(s) from buyers above a minimum. Auctions can vary in terms of the offering and bidding rules. The biggest of these is eBay.

Reverse Auction - The "name-your-price" business model, also called "demand collection," pioneered and patented by Priceline. Prospective buyer makes a final (usually binding) bid for a specified good or service, and the broker seeks fulfillment. The broker's fee is the spread between the bid and fulfillment price and perhaps a processing charge.

Generalized Portal - high-volume traffic -- typically tens of millions of visits per month (see chart at right) -- driven by generic or diversified content or services (ex: search engines and directories like Excite, AltaVista and Yahoo! or content driven sites like AOL). The high volume makes advertising profitable and permits further diversification of site services. Competition for volume has led to the packaging of free content and services, such as e-mail, stock portfolio, message boards, chat, news, and local information.

Personalized Portal - The generic nature of a generalized portal undermines user loyalty. This has led to the creation of portals (ex: My.Yahoo!, My.Netscape) that allow customization of the interface and content. This increases loyalty through the user's own time investment in personalizing the site. The profitability of this portal in based on volume and possibly the value of information derived from user choices. Personalization can support a "specialized portal" model.

Specialized Portal - Here volume is less important than a well-defined user base (perhaps 0.5-5 million visits per month). For example, a site that attracts only golfers, or home buyers, or new parents, can be highly sought after as a venue for certain advertisers who are willing to pay a premium to reach that particular audience. Prediction: expect to see a proliferation of specialized portals in the near future.

Free Model - Give users something for free: site hosting [ex: FreeMerchant], web services, Internet access, free hardware, electronic greeting cards [BlueMountain]. Freebies create a high volume site for advertising opportunities. Viability is hardest when based purely on advertising revenue. Opportunity to blend with infomediary model. Bargain Discounter -- the most notable example is Buy.com, which sells its goods typically at or below cost, and seeks to make a profit largely through advertising.

Infomediary Model - Data about consumers and their buying habits are extremely valuable. Especially when that information is carefully analyzed and used to target marketing campaigns. Some firms are able to function as infomediaries by collecting and selling information to other businesses. An infomediary may offer users free Internet access [NetZero] or discounted PC hardware [eMachine] in exchange for detailed information about their surfing and purchasing habits. This is more likely to succeed than the pure advertising model.

Kind regards,

Ravi Ranjan

12DM-119