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A few days ago I was watching a presentation in which 50 companies were asked about their online business model. They had been given only 5 options to choose from. As you can see in the graph on the right here 11% had a Subscription fee model, 24% got their revenue from Advertising, 22% had Single Copy sales and 3% used Registration fees.
Interestingly enough 39% of those companies picked ‘Different’ as their business model. I joked that maybe “None” would have been nearer to the truth.
That got me thinking though. How many business models are there on the web? Can they be categorized and determined? Are the possibilities endless or limited?
Professor Michael Rappa
Luckily I won’t have to invent anything myself. Professor Michael Rappa, director of the Institute for Advanced Analytics at North Carolina State University, did all the necessary thinking and research and wrote a detailed document titled Business Models on the Web which describes the following models:
Brokers are market-makers: they bring buyers and sellers together and facilitate transactions.
The web advertising model is an extension of the traditional media broadcast model. The broadcaster, in this case, a web site, provides content (usually, but not necessarily, for free) and services (like email, IM, blogs) mixed with advertising messages in the form of banner ads.
Independently collected data about producers and their products are useful to consumers when considering a purchase. Some firms function as infomediaries (information intermediaries) assisting buyers and/or sellers understand a given market.
Wholesalers and retailers of goods and services. Sales may be made based on list prices or through auction.
The manufacturer or “direct model”, it is predicated on the power of the web to allow a manufacturer (i.e., a company that creates a product or service) to reach buyers directly and thereby compress the distribution channel.
In contrast to the generalized portal, which seeks to drive a high volume of traffic to one site, the affiliate model, provides purchase opportunities wherever people may be surfing. It does this by offering financial incentives (in the form of a percentage of revenue) to affiliated partner sites.
The viability of the community model is based on user loyalty. Users have a high investment in both time and emotion. Revenue can be based on the sale of ancillary products and services or voluntary contributions; or revenue may be tied to contextual advertising and subscriptions for premium services.
Users are charged a periodic – daily, monthly or annual – fee to subscribe to a service.
The utility or “on-demand” model is based on metering usage, or a “pay as you go” approach.
The different models are explained in detail on his webpage and should be required reading for any Internet entrepreneur. Professor Rappa argues that these are the basic models but the list is not definitive or exhaustive. He writes “Internet business models continue to evolve. New and interesting variations can be expected in the future.”
If you think you know of another business model not present in this list, or a combination of models, please let us know in the comments.