Rich and I were just having a typical conversation for us–wondering how certain people seem to make it so easily on the Internet and others (like us, so far) just can’t seem to get off the ground. This particular conversation lead into a discussion about what the various Internet business models are. I thought that a clear breakdown of the main types of business models would make a pretty useful planning resource, for us as well as for you. So here goes:
First, I should qualify this list as being for individuals or small companies that don’t have a lot of resources to develop real proprietary technology. This list should be applicable for anyone of reasonable intelligence with some time and a little money to spend.
Thinking this through, I think there are really two key components of any given business model:
- What are you offering of value to the visitor?
- How are you making money?
As we will see, these are not necessarily the same thing. In fact, it is probably more common that they are not. But obviously both of these components are necessary. You need to provide something that visitors want in order for them to come to your site. And if you don’t have a way to turn those visits into money, well, what’s the point?
Business Models
So let’s start with the first component. As I see it, there are seven main business models in terms of the value provided:
Content
Whether the content is serious, humorous, useful, salacious, intriguing, or whatever, you are providing written or visual material that your visitors will want to view. Typical examples would be news websites or blogs.
Resources
A resource site is basically a guide to other useful information on the web. The value to the visitor is that you’ve organized the Web just a little bit for them, saving them time.
Community
A community site brings together visitors with a common interest and facilitates their communication. Forums and social networking sites would be prime examples.
Free service
Free services involve providing some tools or functionality beyond just content or community–something that helps you get a job done. CoolText, a tool that helps you create buttons, is a good example. (I used it to create the button for the search form on this site.)
Product for sale
Products themselves could be the valuable commodity you provide. This is the most basic of business models. Shoppers want a particular type of product. You offer it at a competitive price. Simple.
Web-based service
By a similar token, you may offer a web-based service that is exactly what visitors need, and it is valuable enough to charge them for it. We’re classifying this differently than the free services mentioned above.
Professional services
Here I’m referring to providing services on an hourly or contract basis using the web as your medium for communicating with your clients. This could be doing web development, training, consulting, or any number of things. The key is you find your customers, communicate with them, bill them, etc. primarily through the web.
Hybrid
Of course, any website could employ any combination of these types of value to attract visitors. In fact, it would probably be unusual to find a business model that is using only one of these. Maybe the key is finding the right mix so that visitors see a lot of value without getting overwhelmed, and you optimize your income-generating potential without getting overextended.
Am I missing anything? Let me know if you think so, and I’ll see about adding it to the list or otherwise fitting it into this model.
Revenue Generation
On to the second factor: converting the visitors into money. I see eight main ways of doing this:
Product Sales
Again, straightforward. The visitor pays you money and you send them the product. This category includes hard merchandise as well as information delivered digitally.
Service or membership subscriptions
In this situation the visitors are paying you and a regular basis (monthly, yearly, etc.) in order to maintain access to the service or membership that you offer. If they stop paying, they quit receiving your service. Dating services like Match.com or DVD rental services like NetFlix would be prime examples.
Affiliate fees
With this method, you don’t actually have a product or service to sell, but rather you get a commission whenever you refer customers to some other company that is selling a product or service. Your job is to focus their attention on a particular subject and then direct them to the place where they can spend the money.
Banner advertising
It may be down, but it’s definitely not out. Banner advertising is another way to generate income indirectly by sending visitors on to another website. The upside is you get paid whether they buy anything there or not. The downside is that you don’t earn nearly as much per visitor action.
Text link advertising
Like banner advertising, you’re just sending your visitors on to someone else and taking a small fee for the service. Google’s AdSense is certainly the most common way that this is accomplished, but text links could be sold directly as well.
Selling mailing lists
If you’ve got members who have registered on your site, you could be sitting on a valuable asset. These could be sold as targeted leads to other companies.
Hourly billing
This revenue method basically goes together with the professional services value listed above. Customers take delivery of your services over the web, you bill them for the hours you spent, and they pay you over the web.
Transaction broker
This model involves finding two individuals or companies that need each other and acting as the coordinator of their transaction. Sites like eLance and oDesk are good examples. They get paid a percentage of the transactions they broker.
Hybrid
As with the services offered, it is likely that a website will generate revenue in more than just one way.
Now that I’ve identified these various business models, let me map these to the Online Business Quest project on which we are currently working.
The value that we are offering is primarily content at the moment. We plan to offer information, stories and analysis that will be useful and entertaining. We’ll also be something of a resource–organizing the most valuable tools and resources available for Internet entrepreneurs. We may end up being able to offer some tools through the site, but we’ll have to see about that.
In terms of generating money, we’re looking to start out with the basic AdSense advertising and affiliate links. As our membership base grows, we will hopefully be able to start selling some premium services. Eventually we’ll plan to pull together some products of our own to sell.
When you consider that you can do any combination of above business models, you can see that there is really limitless possibilities. And that is a potential hazard, as I alluded to earlier. I know that has been a real challenge for Rich and I. With so many options, it is really difficult to just zero in on one, or a small number of projects. If we don’t experience instant success, it’s so easy to conclude that we’re missing out on a better business model. So we have moved from project to project over the years never really gaining any real traction with any one of them.
Can you relate? Do you think there is a business model that stands out above all the others? How do you resist the urge to try something else if you aren’t sure you’re on the right track? We would love to get your input!
Oh, one more thing about this post. You may have noticed that I said these business models could apply to small fries like us, and then I proceeded to use major players as my examples. I would be happy to include smaller companies as examples of these, but I was running a little short of time. Let me know if you can think of a better example and I’ll change them out.
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from around the web and came up with our new design. I’m really please with it. I built a handy-dandy back-end that Rich and I can use to add resources. Rich has been busily populating that. Then I went ahead and installed WordPress for our blog and went to start making the UI match the main website. That’s where I hit a wall.
