Online Business Models for StartUps

Online Business foundationsThe internet has provided potential business owners with opportunities to start their own enterprise with minimum set-up fees, the ability to work remotely, and the chance to connect with potential customers around the globe. Below are a selection of business models entrepreneurs and organizations are using to earn money online.

Advertising

The advertising business model is compatible with a range of services, from blogging and email, to apps, software and IM programs. Business models based on advertising can either utilize advertising services, like Google AdWords, or create and distribute the adverts themselves. Organizations earning money by selling advertising space on their website might also earn revenue from other ventures, for example selling products, however, advertising and sponsorship comprise the majority of their income.

Brainient (www.brainient.com) is a start-up that specializes in video advertising. Their software enables their clients to produce interactive videos, and add code to their website which tracks user behavior and provides visitors with targeted video adverts.

Affiliate

Affiliate business models are similar to advertising, except they carry a lower financial risk for the seller. Instead of earning an upfront fee, an affiliate partner’s payment is commission-based: it is usually determined by the number of clicks or sales referrals from the partner to the merchant website. The success of this business model depends on the partner website’s ability to market the businesses or products they are advertising to their visitors.

Woot (www.woot.com) has successfully leveraged the affiliate business model. Each day, the website sells one product at a discounted price, however they only have a limited number to sell, so impress a sense of urgency upon visitors.

Collective

The collective business model is similar to the merchant business model, except the organization create their own products rather than purchasing them from an external manufacturer or selling them through a third-party commerce website. Businesses that run using the collective model also employ people with a variety of skills, who share their knowledge and resources to create the final products.

Quirky (www.quirky.com) runs a manufacturer business model with a twist. Wannabe inventors submit their ideas to the Quirky team, who evaluate the inventions and open up votes to the Quirky community. The most popular products are then made and sold through the Quirky website.

Community

Community business models earn through customer loyalty. Audiences of successful community businesses are invested in the organization or its products. Businesses using the community model earn revenue through selling products, subscriptions or through voluntary donations.

Humblebundle (www.humblebundle.com) offers games packages on a pay-what-you-want basis. Visitors can purchase independent games through the site and submit a donation based what they can afford, or what they think the games are worth.

Freemium

A freemium business model relies on regular payments from patrons in return for a service. Organizations using freemium business models can still offer content and services for free, but users pay for access to exclusive content or features that aren’t available to non-paying members.

Photo-sharing website Flickr (www.flickr.com) uses a freemium business model. Non-paying users have limited access to Flickr’s services, but users who want to upload unlimited photos and access more features pay a monthly fee.

Marketplace

Marketplace businesses bring vendors and buyers together. Earnings for this type of online business model come from listing fees – where the seller is charged to list their goods or services for prospective buyers – or commission based on the final price of the sale. The success of a marketplace business requires the organization to build a community of buyers and sellers, or operate within a specialized niche.

AirBnB (www.airbnb.com) is a marketplace start-up. They match homeowners, with a room or property to rent, and vacationers, who are looking for budget accommodation.

Merchant

Organizations using a merchant business model sell physical or digital products direct to customers online. These products aren’t produced by the merchant, instead the business purchases the products from the manufacturer, adds a mark-up and profits from the difference.

Shopify (www.shopify.com) is an e-commerce merchant that allows online businesses to create their own online stores, through which they can sell software and physical goods.

Utility/Pay-as-you-go

This is an alternative to the subscription model that focuses on frequency rather than duration: businesses using this approach charge consumers based on how much they use a service, instead of charging for a certain time period.

Online music streaming service Spotify (www.spotify.com) allows users to play songs for free a certain number of times, before they can either choose to pay a monthly premium, or download individual tracks to keep.

The business models above aren’t mutually exclusive – often you’ll find online businesses utilizing multiple models at the same time to diversify and increase their revenue. Which model would you use for your online business? Can you think of any we haven’t included? Tell us in the comments below.

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