E-Commerce Business Models – The Competitive Edge

Every day more and more companies, both large and small are attempting to capitalize on their existing capabilities through the use of the internet. This process of leveraging strengths and disturbing habits of the tried and true underlies the migration from “market place to market space”. 

There are many who still believe that there is no profitable business on the web.  Value to the customer and company are the only two ways of being successful.  This means a company must understand their customers within the time frame and context to achieve their business objective.  The internet gives companies a change to do what they have always done, but in a much different fashion, further adding value to the business and customer.

There are many business strategies that take advantage of the internet as an interactive medium to reach many and emphasize communication and community.

Three business models that are working quite successfully for some companies are the auction model, portal model and storefront model.

This article will explore the three business models.  After reading this  article, you should then be able to determine which business model is most conducive for operating and growing your business.

The auction model has gained popularity since the inception of e-Bay.

Auction models are those in which the participants bid for products or services over the internet.  The auction sites sometimes do not own the products on its site, but facilitates the process of listing and displaying goods as an affiliate.

Auction models are a marketplace for individuals and businesses to auction off merchandise or service. ”In English auctions, the initial price starts low and is bid up by successive bidders with the highest bidder winning the bid.  In a Dutch auction, multiple, identical items are offered in one auction, with all winning bidders paying the same price, usually the highest price at which all items will be sold.  Most auctions online currently use the English method.”  (Nissanoff, 2006) 

The advantages of the auction business model include:

No time constraints.  Bidding and posting of items can be completed 24/7.
No geographical constraints.  Sellers and bidders can participate from anywhere in the world.
The large number of bidders.  The potential for low prices, numerous items and services available, easy access, and the social benefit draws a large number of bidders.
Large number of sellers.  The number of bidders brings a potential for high price and reduced selling costs making more sellers choose the auction model.
Network economics.  The more sellers, the more bidders and this cycle continue.  The more the spiral operates, the larger the system becomes, making the business model more valuable for all participants.

The main source of revenue for the auction business model is through commissions from items sold on their site, advertising and posting merchandise fees.

Generally speaking, the portal business model is an “infomediary.” A portal brings sellers and buyers together by providing content in the form of advice, services, or some other benefit. 

A portal is the gateway for users when they connect to the internet.  Portal business models provide services such as: latest news, online directories, personalized advertisements, targeted e-mail newsletters of products and services and a facility to create an individual company website within the pain portal making the portal a major commerce facilitator by adding a value to a particular e-business transaction.

The revenues for portal business model is earned by personalized advertising, hosting websites, building, designing websites, sponsoring discussion forums and negotiating a percentage of each transaction that takes place on the marketplace.

The store front business model is a shopping location that customers can browse and shop from the comfort of their homes, and where businesses can advertise their products and services for a fraction of the cost of brick and mortar businesses. 

The store is entered through a portal or the direct website and upon entering the store; the customer is shown graphic displays to give a person the chance to see what the product looks like, just as if he/she were standing in the brick and mortar store.  Once the purchase is made, a form is filled out that will transmit the financial information and issue a receipt to the customer. 

Three types of storefront models are “hard good, soft goods and services.”  Hard goods are similar to operating catalog sales online.  Selling soft goods or information based goods is perfect for the internet because everything can be completed and received on the internet. 

Some companies use the storefront models to sell goods, such as e-Bay, others use it to reduce costs through marketing and customer support, and then others use it to generate new sales. Companies that really benefit from a storefront model are those that sell unique products that are either hard to find or cannot be found in the local area. 

The advantages to a storefront model includes extended sales and marketing, reduced transaction costs, new product introduction and testing and the ability to reach specialized markets.

With more than 90 million users on the web; the internet is a fascinating place to do business.  There are vast variations of companies doing business on the web.  large, small, or in between, it doesn’t matter because it all comes to customer commitment.