Different Types of Online Business Models

Almost all startups being funded nowadays have an online business model. This is the reason why they appear to be similar to each other. However, this observation is a flaw in the thinking of the untrained observer. Not all online business models are similar to one another. There are many varied forms of models that are being used by startups nowadays. These different types of business models have been listed in this article.

Manufacturers

In many cases, startups are using the web only as a distribution channel. This means that these companies do not have wholesalers and retailers. Instead, they just manufacture the goods, take orders online and ship them directly to the customer. This helps in compressing the supply chain and making it more line. Since the wholesaler’s and distributor’s margins do not have to be paid, the manufacturer can offer the product for sale at a lower price and still make a bigger profit!

Advertising Model

This is one of the most common business models used by online startups. This model has been made popular by companies like Facebook. This business model consists of giving some free services to the user base. The users then generate content which gives insights into their personal lives and buying behaviors. Startups collect this information and use data analytics to sift through huge volumes of data to create insights. Based on these insights, banner ads are sold to advertisers. Since the banner ads are so targeted, they reach the correct target market and then the click through and closing rates are higher. This is the reason why advertisers are willing to pay a premium to advertise on these websites.

Intermediaries

Many products are difficult to compare and contrast. Take the case of insurance for instance. There are many companies selling insurance policies. Also, the terms and conditions of these policies are varied. The price of these products is also very different. As a result, this overwhelming information gap makes it impossible for the buyer to take the right decision. This is where the intermediary business model comes into place. These websites are basically unbiased intermediaries that provide information about the products. They also have algorithms which sort the data in such a manner that it becomes easy to compare. Since these websites help the consumer in making the right purchase consumers are willing to pay a small fee for the service. Alternatively, these websites could charge money from the sellers as well. However, for this model to be successful, the website needs to provide correct and unbiased information. If the information is biased, the reliability of the website takes a beating and customers stop using it.

Merchants

The next category of startups in the online world is called “the merchant”. The merchant buys goods and services from the manufacturer at low prices and then delivers the goods to the consumer. Many travel websites fall into this category. This is because travel websites tend to buy goods in bulk from the manufacturers. Later, they sell the same goods to the consumers. However, since they purchased in bulk, they can offer lower prices. This model is widely used in travel websites. Companies like Travelocity and Expedia use this model. This model is often called “merchant model hotels.”

Subscription

Many startup companies are trying to emulate Netflix to create a subscription business model for the users. These companies are generally related to education or content. However, even companies selling personal grooming products have started using the subscription model. The benefit of using a subscription model is that the revenues tend to be relatively stable. However, with increasing competition, getting customers to sign on to a subscription has become extremely challenging. Netflix has used backward integration to create its own content. This exclusive content is what has saved it from the onslaught of an international giant like Amazon. Even though Amazon has deeper pockets, Netflix is more entrenched in the everyday lifestyle of its users.

User Group

Some websites create forums where like-minded people can come and share their thoughts. These forums are also businesses. These forums tend to have differing business models. Some make money from the events that they organize using the information of their consumer base. Others make money by selling ancillary goods and services to the customer base. However, the viability of such startups is based on the emotional investment that their target market makes with the content. Even though these websites may not generate enough returns at first, once they become popular, they tend to provide regular, predictable streams of incremental cash flow.

Cloud-Based

A new type of internet-based startup companies offers services on demand. Most of these websites provide applications that customers can use without making heavy investments towards development. These applications are used by small and medium-sized companies to ensure that they too have the same computing capabilities as the big firms. Common examples of such services include delivery management solutions for logistics firms. Hotel management software used by restaurants can also be included in this category.

To sum it up, not all internet based startups are the same. These startups can be very different from each other. The only similarity is that they all use the internet!


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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