As soon as you start talking about business models it is very easy to go off on a tangent trying to split very fine hairs over what is a separate model and what is really just a variation of an existing model and what exactly “business model” means anyway and on and on until you forget your point in the first place.
I am going to keep it simple and just break down the online business world into five business models. There is no benefit to getting more complicated and it won’t add anything to the discussion.
You should also realize that a lot of online businesses use a blend of these models to make money and one isn’t exclusive of the others.
The point of understanding the differences is that based on which is going to be your primary business model for the business you are working on will then determine a large part of the rest of your strategy and decisions such as your site design, content volume, marketing plan and so on.
Advertising: The online advertising business model is about producing content people come to see and then alongside that content you show them ads for which you get paid.
* Pros: easiest, cheapest to start
* Cons: requires a lot of traffic to make any decent money
Affiliate Marketing: With affiliate marketing you sell someone else’s product or service in exchange for a cut of the price paid by the buyer. Usually you sell the product via a website you own and often using paid advertising to drive traffic to your website but there are many variations.
* Pros: easy to start, can pay very well
* Cons: need to pick the right niche, learn conversion skills
Product Creation: The online product creation business model is where you sell via digital delivery a product you created yourself. This could be an ebook, podcast, video series, graphics package or something similar.
* Pros: can be very profitable even in small volumes
* Cons: time consuming, more complicated to get going
E-commerce: This is selling physical goods through an online portal. An e-commerce business model doesn’t require that you own or stock the goods (as in dropshipping) but it does require that you present yourself as the merchant (unlike affiliate marketing) and that the goods are tangible.
* Pros: big markets, repeat customers, can be competitive from beginning
* Cons: takes more time, money than any other online business to start
Online Service Business: This is just what it sounds like- a service ordered and delivered digitally either on a one time basis or a recurring basis. This might be a website design service, an article writing service, a website hosting business or an autoresponder service to list a few examples. The main feature of the online service business relative to any other service business is that the entire transaction is completed via the web- ordering and delivery of the work product.
* Pros: very profitable repeat business with low overhead once established
* Cons: takes time to build volume, can be complicated to start depending on service
I realize this doesn’t cover every single possible case and there might be a few times where a business doesn’t really fit but I think it covers 98% or more of all online businesses and it certainly is clear enough to give you an idea ow what type of online business you are going to pursue.