The 5 main types of online business models

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It was already unrealistic before. Now it’s outright unthinkable not to plan an online presence for your company even prior to launch. The entire world has gone digital and you do not want your company to be an absentee… To help you out, I’ve compiled a list of the main types of online business models currently used. Whether or not digital is part of your business’ DNA, I hope this article will help you see things more clearly! Obviously, my list is non-exhaustive since the only limit is your imagination (the law too 😉)!

1. The merchant

The most conventional and most widespread model. It consists of reproducing the traditional market model online, selling products and/or services at set prices or by auction. A variety of formats can be used, the most common being:

  • A vast catalogue of diverse brands and products (like Amazon),
  • A digital-based e-commerce website,
  • An online version of a physical shop, which can be self-owned (the brand opens its own e-shop) or shared (like Letzshop, for example).

2. The advertiser

The advertising model was inspired by media sites, who have been using this technique for a long time. The product is intangible and free to users, but ads present in different places on the website make it profitable. There are also different types of this model:

  • Portals that count on high traffic to make ad displays profitable (Yahoo, for example),
  • Classified sites that sell space and have subscriptions fees (like Monster),
  • Sites that require users to register in order to access the full content. Data provided by the users is then used usually for targeted mailing campaigns, a technique widely used by online newspapers and magazines (such as Les Echos and the Financial Times, to name two).

It’s “easy” but does take away from the user experience and can be counterproductive for your website’s appeal. Finding a happy medium is essential…

3. The middleman

This model is newer and growing in popularity. It’s based on the “trusted third-party” principle and can apply to B2B, B2C or even C2C. The business itself does not produce anything. It “provides a service” by acting as an intermediary between two users. You can surely think of a few examples, perhaps Paypal, Ulule or Vinted.

4. The community

I can assure you are all familiar with this one! It’s founded on an active community that uses services free of charge. The company earns a return on ancillary sales, ads or premium services. I have identified three main types of the community model:

  • The open source, in which content (often code, but not exclusively) is made available cost-free and the company generates revenue from ancillary sales or services. Mozilla is an example of this.
  • The open content, in which users gratuitously contribute content to the website that itself makes it available at no cost. A highly ethical model, although it struggles in terms of profitability. The best-known example is Wikipedia (which is a foundation) that runs on donations but struggles to gather the necessary funding for its operations each year despite the undeniable value of its service and its massive userbase.
  • Lastly, the best-known model in this category is social networks: Facebook, Twitter, Instagram and basically any other network that generate income from ads displayed on their website while you’re using it and use your data to target those ads, making them more efficient. As they say “when it’s free, you’re the product!”

5. The subscription

This one basically operates on the same principle. As its name suggests, the subscription model offers subscriptions for accessing content or premium content. Rather than a community, it provides a free version to make users want to pay for premium features. Perhaps you have already heard the term “freemium.” Ads are generally used alongside this model to increase profitability, as often seen in “free access” online games that require you to pay to access more gear, levels, time, etc. Dropbox and WeTransfer are other mention-worthy examples: you can use their basic services free of charge and for an unlimited period of time, but have to pay to access the full features they offer.

I could also have mentioned the affiliate model (even if it seems to be on the decline), the shared savings/earnings model (customers only pay if they’ve made savings or earnings) or the open contribution model (a bit of a double-edged sword). These are just a few examples, and of course a great many other alternatives not mentioned in my list exist too, perhaps less widespread, as well as a multitude of variants of each business model. Some can even be combined: take marketplace C2C, that seems to gain in profitability when combined with middleman and advertising models.

 

I hope this run-through will help you look into one or more business models for your business project, or even revamp or adjust the one you have!

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