Internet Business Models

The Internet has led to the appearance of new business models and the transformation of traditional ones in their process of adaptation to the network. In this article, we analyze the most prominent ones, which are those based on services, advertising, commerce, intermediation, content, the community, and integration with other devices such as smartphones or technologies such as blockchain. 

1. Definition and characteristics of success

By business model we understand the way in which a business generates sales and profits through the contribution of value and the satisfaction of the needs of its customers.

2 elements are involved:

• Income generation, an aspect in which the Internet continues to apply traditional models for the most part, although adapted to the online environment (sale of products and services, advertising, commissions)
• The value generated for the user, an aspect in which the Internet has changed and improved the previous experience in many cases, as has happened in the Travel sector, e-commerce, aggregators, classified ads, e-learning or info products. Or offering completely new services such as social networks or marketplaces.

Online business models are constantly evolving, in this article we collect some of the most significant from the point of view of income, taking into account that there are some successful characteristics that are repeated quite frequently:

• Response to real needs: it is essential to solve a problem for your potential customers and also that it is a problem of some importance, which will undoubtedly encourage them to try new solutions that promise better results. If it is a minor problem, they may be indifferent to your proposal.
• Scalable and repeatable models: it is about sales that can grow at a much higher rate than costs once the investment has been made and the structure created. It is undoubtedly one of the basic criteria for private investors and internet business angels.
• Multi-models, which preferably do not depend on advertising: in many cases freelancers and companies resort to combinations of several of the models described in this article, for example advertising and premium services. And be very careful with advertising since it is paid quite poorly and in the vast majority of startups it is not convenient for it to account for more than 30% of the turnover.

In this article we analyze various profitable online business models based on the provision of services, advertising, commerce, intermediation, the community, P2P and integration with other technologies.

2. Business models based on the provision of services

• Online services as an expert: with the generalization of teleworking, the number of professionals from all kinds of services who offer their work virtually has skyrocketed, from consultants to all kinds of marketing and technology profiles and even personal trainers or yoga instructors.
• Payment or subscription services: some websites that provide high-quality or interesting content restrict access to those users who pay a subscription fee. For example, many e-learning and online training platforms. Or the most widely distributed online newspapers, which are increasingly betting on this community, subscription or membership model.
• Knowledge-based business models – Infoproducts: the individual sale of packaged knowledge through online courses, ebooks or guides is allowing numerous entrepreneurs and bloggers to obtain much greater profitability from their services, positioning themselves as experts in their niche. market and improving their quality of life.
• Subscription of Premium and Freemium Services: it is a clear trend to offer a series of free content or services that attract users and other advanced, paid ones that provide additional value to the user, who is willing to pay for them. It is being applied to all kinds of websites, from streaming music services like Spotify to social networks like Linkedin, or numerous online communities and membership businesses, where it is necessary to become a premium user in order to access advanced features or exclusive content for members. payment.
• Software as a Service (Saas): “Software as a Service” includes all management application software located in the “cloud”, not on the company’s computer. It has been radically changing the way the software market works by allowing freelancers and SMEs to access tools at affordable prices that until now could only be used by large companies. With the advantage of allowing access from anywhere and increasing information security. You can find solutions for billing, accounting, business management and CRM, emailing, online marketing, office software, etc. We have been in a true revolution for 5 years and this is only the beginning.
• Solution Provider and Content (Api): Many developers get the necessary sales by placing their tools and applications on a network of websites, with which they share the revenue. In this way, distribution networks are created that allow the volume of sales to be reached so that the company becomes profitable. The website that locates it saves a good part of the investment in development in exchange for sharing the income.

3. Business models based on electronic commerce

• Virtual shops and markets, which operate exclusively on the Internet, such as the great Amazon or iTunes. Or some small and genuinely Spanish ones like Aceros de Hispania, which from a small town in Teruel has managed to export to more than 100 countries, or the numerous websites that sell ham, olive oil or wine.
• Virtual stores of businesses with a physical presence, which complement or enhance their traditional sales with their online store and their profiles on social networks. Some big ones that have been betting heavily on electronic commerce such as Zara or many of the large supermarket chains.
• Direct sales: manufacturers who, thanks to the Internet, manage to eliminate intermediaries from their relationship with the end customer, obtaining a higher profit margin and greater efficiency. It is having a lot of acceptance in the marketing research of some perishable products: seafood, fruit, vegetables. But it is also being applied by the large manufacturers of computer equipment.
• Auctions: the internet has made it possible to reinvent this business model by greatly increasing the number of people willing to bid on a product. Ebay has been the undisputed leader among individuals for a long time, but specialized initiatives have also emerged (vehicles, apartment repossessions, art, etc.) and above all a reference through mobile phones such as Wallapop.
• Dropshipping: these are online stores in which the virtual store does not store stock but directly manages the shipment from the supplier, for example in China, to the customer, for example in France or Spain. Although the margins are usually quite low, it has the advantage that it saves on costs and especially on investment, which makes it easier for many freelancers and SMEs to start businesses of this type. We must highlight the experience of a wholesaler specialized in dropshipping such as BigBuy.
• Outlet stores: based on their attractive prices and their focus on community and exclusivity, the success of Privalia, Buyvip and Vente Privee in the world of fashion has been notorious and has attracted the attention of large companies such as El Corte Inglés or other sectors , such as travel, with initiatives such as Viajalo. Although they started out as private, buyers-only clubs, they are becoming more and more open. And there is a market gap for more sectorized products.
• Discount coupon websites: one of the internet phenomena in the hardest years of the crisis, thanks above all to the success of Groupon, the world leader, which has been accompanied by the appearance of numerous followers such as Groupalia, Letsbonus and many others, some even local.
• Liveshopping: sales-oriented Live broadcasts have gained momentum on Instagram and Facebook, an adaptation of the teleshopping concept to social networks.

4. Business models based on advertising

It is the one applied by many websites that offer content and/or services, including the big search engines. Its success depends on having a very high or very specialized visitor traffic. Advertising published by the website owner can take various forms:

• Banners, like on the front page of any online newspaper. Most small websites will find that they do not have direct access to large advertisers, so they have to contract these services with intermediaries (affiliation platforms or purchasing centers), which significantly reduces profitability.
• Programmatic advertising: as an alternative to hiring banners, specialized agencies have emerged in offering the possibility of impacting specific customer profiles on multiple websites. A medium or publication is not contracted, but a number of impacts to a specific client profile.
• Sponsored content (branded content): they can be posted on a blog or on the wall of an Instagram influencer. Or in a Youtube video. Or mentions within them, for example with the “product placement” format.
• Classified ads, listings of products or services for sale, in which income can be obtained in various ways: charging a fee for the mere publication of an ad (although free basic information is almost always allowed), for prominent positioning of it or by obtaining information from an interested user who fills out a form or lead.
• Classified ad marketplaces: The variety of classifieds websites is enormous and covers sectors such as real estate, the sale of vehicles, especially second-hand, personal contacts to find a partner, the search for training courses, job offers or specialized wedding websites. To a large extent, they represent an evolution of the traditional classified ads in newspapers and telephone directories. As an example, two leaders like Idealista and Milanuncios.
• Ads published by search engines and social networks, contextual advertising adapted to the content of the page, as is the case with Google Adsense or Facebook Ads, which are present in a multitude of websites of all kinds, making up their content network.
• Advertising by email: a good complementary resource for websites that manage to retain their users and visitors is the sending of advertising in emails and bulletins (newsletter).
• Online sponsorships: such as those obtained by certain influencers for their Twitch or YouTube channels, thanks to applications such as Patreon.

Among the websites that usually apply one of these models or a combination of them, the following stand out:

• Online press and media.
• Information portals, content and services, both general and specialized. Online publications and magazines.
• Streamers and free content platforms.
• Social networks and online communities.
• Expert networks / questions and answers.
• blog networks.

5. Business models based on intermediation

Intermediaries create new markets by connecting supply and demand. On the one hand they deal with adding supply and on the other to attract demand.

They usually get a commission per transaction generated or a fixed fee paid by those who want to publish their offer on the website. Sometimes they supplement their income with advertising.

They usually try to offer complementary services that make their service more attractive to applicants, which has given rise to new business models such as comparators.

• Distributors: by aggregating the offer of different producers, they facilitate the search for potential buyers of that product. The most relevant example is the Travel sector (plane tickets, hotels, rural tourism), where the Internet has established itself for many years as one of the main sales channels. It has also spread in the real estate sector and in ticket sales (shows, cinema). Many times it is complemented with collection, logistics, assistance, after-sales services, etc.
• Comparators: it is a variant of the distributor model in which the client is offered the possibility of comparing different products or services, especially with regard to prices. They are having considerable growth in various sectors such as insurance, banking, supermarkets or hosting.
• Aggregators: another variant, caused by the explosion of new websites, which in this case consists of adding content to make it easier for the user to assimilate it. It began having its application in the world of news, both general and specialized, but little by little it has spread to other sectors such as software, classified ads or even daily offers and discount coupons.
• Affiliate platforms: a variant of distributors and traditional media agencies, specialized in creating advertising networks made up of various websites that jointly offer to large advertisers. The income is shared with the peculiarity that if clicks or sales are not generated, income is not generated.

Affiliate networks: they are common in communities of infoproducers and online experts who recommend each other. For this they need a cart system that allows affiliation, that is, assigning each purchase to the affiliate who has referred it. And then work on your digital networking.