Natalya Selina's List: E-Business - Revenue Models

• THE BROKERAGE MODEL

   

  One Internet business model is the brokerage model. At the heart of this  model are third parties known as brokers, who bring sellers and buyers of  products and services together to engage in transactions. Normally, the broker  charges a fee to at least one party involved in a transaction. While many  brokers are involved in connecting consumers with retailers, they also may  connect businesses with other businesses or consumers with other consumers. A  wide variety of different scenarios or business configurations fall under the  banner of a brokerage model. These include everything from Web sites posting  simple online classified ads and Internet shopping malls (Web sites that sell  products from a variety of different companies) to online marketplaces, online  auctions, aggregators, and shopping bots.

• The community model is a method of developing an online presence in which  several individuals or groups are encouraged to join and participate in ongoing  interaction designed around a common purpose. Web communities, or virtual  communities, were not only a way for like-minded people to come together online,  they also were an increasingly important element of business plans. The late  1990s and early 2000s saw the cropping up of countless new Web communities  facilitating one-to-one, one-to-many, many-to-one, and many-to-many lines of  communication and cooperation.

• The affiliate (or click-through) model is a popular e-commerce relationship in  which an online merchant agrees to pay an affiliate in exchange for providing an  advertisement and link to the merchant's site. Each sale generated as a result  of a customer "clicking through" from an affiliate to the merchant results in a  small commission for the affiliate. The deal provides a stream of cash to  affiliates and brings the merchant, which owns the affiliate network, a host of  new traffic, cutting customer-acquisition costs and allowing it to target its  desired audience.

• This model relies on advertising to make money. To attract users to its site,  leading Web portal Yahoo! offers things like free e-mail, extensive content, and  travel services. The firm got its start in early 1995 when founders Jerry Yang  and David Filo put together a simple list of favorite Web sites. The firm's  lucrative initial public offering in April 1996 allowed it to launch an  acquisition spree that eventually would exceed $10 billion. In September of  1997, Yahoo! bought a news delivery service, as well as technology that allowed  it to add people-searching and e-mail to its free online services. Purchases in  the following year allowed Yahoo! users to play games and shop. The firm paid $4  billion for Geocities and $5.7 billion for video services provider Broadcast.com in 1999. This  aggressive growth strategy reflected manage-ment's belief that more features,  services, and content would attract more visitors and advertising dollars.

• the infomediary model is characterized by the capture and/or sharing of  information. The simplest form of an infomediary model is the registration  model. In this scenario, companies require users to register before gaining  access to information on their Web sites, even if the information itself is  provided at no charge. One possible scenario for this example involves companies  that offer white papers, or expert articles containing valuable advice, to Web  site visitors. These white papers usually are written by the company's experts,  who are available as consultants. Registration is a condition for viewing or  downloading the articles so the company can capture contact information and  other data from the interested party and use it to make sales calls and  potentially acquire new clients for its consultants.

   

  Companies using an infomediary model also may be third parties that provide  products like free computers or services like free Internet access to consumers  in exchange for information about themselves. This information is then sold to  other companies who use it to develop more sophisticated, successful marketing  campaigns. The information collected commonly includes things like product and  service preferences; buying habits; and demographic details like age, sex, and  income level.

• One Internet business model is the utility model. It is based on the concept of  metered use, where people pay for services as they are used. Services that are  based on a utility model may involve the use of micro-payments—online  transactions of low value, ranging from several pennies to approximately $10.00.  Micro-payments are commonly used to pay for downloads of newspaper articles,  electronic books, music clips, or software, but could be used for virtually any  low-priced item for sale on the Internet. Because the cost of accepting credit  cards for small purchases is prohibitively expensive, some companies involved in  e-commerce have turned to third-party vendors to manage the billing and  collection of micro-payments. Such vendors normally receive a percentage of each  transaction as compensation.

• Like its counterpart in the offline world, the subscription model applies to  companies that charge subscribers a fee, normally to view text or graphical  information. This model also has made inroads in the area of digital music  sales.
• Of the main challenges companies face when using a subscription-based approach  is marketing to a much smaller niche audience that is willing to pay regular  fees, as opposed to a much larger audience that might use services at no charge.  In the latter scenario, the company would need to evaluate the potentially  significant revenue it could make from online advertising, which also can be  very unpredictable, and compare it to the more stable, steady, predictable  revenue it could glean from a subscription-based approach. Marketing to a mass  audience using a subscription model, while possible, was very difficult for many  companies in the early 2000s.

• By eliminating third party intermediaries like distributors and wholesalers,  consumers are supposed to benefit with lower prices. However, some third-party  groups have made successful attempts to protect their survival.
• Among them are the National Automotive Dealers Association, the Wine Wholesalers  Association, the National Association of Travel Agents, and the National  Association of Realtors.
• The manufacturer model isn't limited to the technology industry. Airborne Direct  manufactured bicycles for consumers based on their custom specifications, much  like Dell did with computers. At its Web site, consumers were able to choose  different types of bicycles and customize the components they wanted.

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• The merchant model of e-commerce involves the establishment of an electronic  storefront on the World Wide Web, an information-technology infrastructure
• capable of receiving and processing orders, appropriate security measures to  assure the safety, secrecy, and authenticity of transaction information, and  means for procuring payments—either online or in the physical world—and  completing orders via shipping and delivery.
• The most important first step in implementing a successful e-commerce merchant  strategy is drawing visitors to the company's Web site, and then turning those  visitors into customers—preferably repeat customers.

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