Online businesses operate through the internet. Beyond that, however, their business models vary. Just like physical companies, they use different structures and strategies to serve customers.
Some ship products ordered through their website to consumers. Others use apps to connect buyers and sellers. Still others make money on clicks or digital real estate, such as ad space.
According to the small business consultants Melbourne, the right choice depends on what you’re selling and who’s buying. Decide which of these six models is right for your product and audience:
1. On Demand
The on-demand category includes goods and services. Its identifying feature is fulfilling customers’ needs as quickly as possible, wherever they might be.
On demand is effective for several reasons. For one, it’s easy: All consumers have to do is click on what they want, and it shows up at their location. Secondly, it’s an innovation strategy with broad applicability.
Uber and Lyft outpaced taxi companies not because they’re always cheaper — in some cases, they’re actually more expensive — than taxi services, but because they provide rides almost anywhere. Telehealth companies like Nurx prescribe the same birth control traditional pharmacies do, but they connect patients to doctors digitally and deliver medications quickly.
With that said, the on-demand model requires both companies and their customers to keep up with technology. Delivery apps require users to know their way around a smartphone. Ridesharing companies use complex GPS and dynamic pricing software.
This model has proven particularly popular during the pandemic. Many Americans are stuck at home right now, and they can’t wait for access to things like food and medications.
2. Sharing Economy
Some sharing-economy companies also fall into the on-demand category. What makes this model distinct is that users get paid by giving others access to their assets.
Uber is both a sharing-economy and on-demand business. Airbnb, however, only qualifies as a sharing-economy company: Landlords offer their spare rooms and homes as short-term rentals, but it may be weeks or months before a property is available for booking.
Sharing-economy companies typically have low overhead costs. Airbnb doesn’t own a single home, for example, because it merely pairs hosts and renters.
The downside of sharing-economy companies is that they’re highly vulnerable to shifts in supply and demand. With COVID-19 spreading across the country, 47% of Airbnb hosts said they don’t feel safe renting to guests. Even more guests, at 70%, say they’re too fearful to stay at an Airbnb.
3. Content Development
Lots of marketing agencies, freelancers, and creative studios fall into this category. Other common digital content developers include educational institutions, fitness trainers, and consultants.
Digital content development runs the gamut, from e-books to graphics to online courses. Any type of content that can exist online can also be produced using an online model.
Often, these companies use inbound marketing to attract business customers. They then farm out content to freelancers, who develop it remotely. Delivery is as easy as emailing the content product to the client for review.
Another advantage of this model is that digital content is scalable. While it only needs to be created once, it can be sold or shown to a practically unlimited audience online.
4. Affiliate Marketing
Affiliate marketing means you’re selling another brand’s products and earning a commission from each sale. Affiliate marketing models require an established web presence to be profitable.
The best example of this model is the 800-pound gorilla of online businesses: Amazon. Although Amazon has its hands in other buckets, much of its revenue comes from helping third-party sellers move their products.
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Diversification is important for online affiliate marketing firms because they don’t develop products of their own. Imagine specializing in a space like concert tickets at a time like this: Relying solely on demand for other companies’ products and services is a vulnerable position to be in.
Advertising is far older than the internet. But there’s a reason digital advertising now claims a larger share of the overall ad market than traditional media, like newspapers and broadcast television: Digital ads are cheaper to place and, arguably, more effective at converting viewers.
Digital advertising takes many forms: Pay-per-click ads on social media sites like Facebook qualify. SEO services, which companies use to vie for positions in search engine results pages, do as well. Email marketing is a form of digital advertising, as is native ad content.
The digital ad market includes not just many types of ads, but many types of companies. Websites that host ads play in this industry, as do ad brokers, content developers, and analysts.
Like sharing-economy companies, businesses associated with digital ads are susceptible to changes in demand. Ad budgets are among the first to be cut when the economy dips. The difference is that they have a nearly unlimited supply: Websites can always add more ad space.
Another weak spot in this business model is consumers’ distaste for ads. Companies that exist solely to create or place ads are rarely well-liked by consumers.
6. Subscription Services
Broadly speaking, the subscription services model breaks down into two categories: software and “boxes,” or recurring shipments of physical goods.
The cloud software services market is enormous, with sectors like infrastructure-as-a-service growing by nearly a quarter year over year. Salesforce and HubSpot are popular B2B SaaS companies, while Microsoft Azure and Amazon Web Services occupy the IaaS space. Heroku and Apache Stratos sit between the two, as platform-as-a-service companies.
What about the “boxes” side of this model? Birchbox, which specializes in makeup and beauty; Trunk Club, which sends clothes; and Bark Box, which provides dog accessories, all fall into this category. Typically, they run from $5 to $50 per month.
On both the software and physical product sides of the equation, customers pay a subscription fee in exchange for membership. And because memberships continue until they’re cancelled (or until an agreed end date), software service providers enjoy recurring revenue. Recurring revenue helps with everything from investor relations to financial forecasting.
Not every product or service lends itself to a digital model, but most do. Think like an entrepreneur: Find the most cost-effective, user-friendly way to do what you do. Chances are, you’ll find it online.