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5 Different Online Business Models

5 Different Online Business Models

5 Different Online Business Models

In the age of the internet, it’s easier for everyone to become an entrepreneur. Setting up a business website is a simple process to do and compared to traditional businesses, start-up costs for online enterprises can be much less expensive. Despite this, many people don’t take up the chance simply because they are not sure what types of business they can set up online. In this article, we’ll explain the five main types of online businesses and give you some examples of the specific businesses you could start.

What is an online business?

An online business is a company that conducts all of its sales over the internet. This makes it different to traditional businesses that operate solely from bricks and mortar premises or the many hybrid companies that started out traditionally but have since taken some of their operations online. Amazon, for example, is an online business as it only sells online. Argos, on the other hand, is a hybrid store as it has both physical and online outlets.

In this article, we are only going to concentrate on online busines

Types of online business

1. Online retail model

One of the main types of internet business is an online shop. You can sell almost anything online and it’s easy to set up your own e-commerce website and customise it to create your brand. Online shops are ideal for people wanting to take their first foray into the retail market. If you have a hobby or a craft that you are good at and you would like to sell the things you make, then this may be an ideal solution.

One of the risks of setting up a traditional shop is that, unless you produce the products yourself, you will need to buy stock in bulk. If the stock doesn’t sell, then there is the possibility you may go out of business. With online stores, this risk can sometimes be avoided if your wholesaler provides a drop shipping service. Drop shipping allows you to sell products first, then, once you have been paid, you order them from your supplier who posts them directly to the customer for you. Although the margins are smaller, the risk is much reduced and it can be a good way to begin until you have a better understanding of your market.

The one thing you are not going to be able to do with a start-up, online shop is compete with the retail giants. They can buy more cheaply, sell for less, offer cheaper delivery and give better customer service. Instead, you should focus on selling to a niche market; pick an area where you have expertise and can position yourself as a specialist retailer. This way, you get to build a loyal customer base that values your knowledge and is willing to pay more for the service you offer. For example, instead of having a children’s clothing shop, focus on a specific age and type of product, such as shoes for toddlers.

There are thousands of potentially lucrative niche markets. However, you need to research your market thoroughly to make sure there is a viable business opportunity to be had. Always choose a niche you have a passion for and a good understanding of.

It’s important that you understand the legal requirements of online retail before you start to sell online. Some products cannot be sold, others have age restrictions, there are items which are problematic to transport and then there are products which, whilst legal in the UK, are illegal abroad. At the same time, you will need to know about the Distance Selling Act, consumer rights, privacy laws and other regulations to make sure your business complies.

2. Online services model

Besides selling products online, it is possible to sell services online too. Many people like this business model because it allows them to work from home, giving them the chance to work flexibly and saving them the expense of having to pay for office space.

As this model allows people to work from home, you will also find that the majority of businesses which fall into this category are those which can be done on a computer – web design, copywriting, video editing, computer programming, print design, online personal assistants, etc.

To set up this kind of business, you need, first and foremost, to have the skills to undertake the job. You then need to create a suitable website and, after that, you will need to promote your business to generate clients.

From a start-up point of view, selling an online service can be one of the least expensive ways to launch a business. However, marketing costs could be expensive, especially at the beginning whilst you build up a client base.

3. Online directory model

Traditional business directories are now old hat. Very few people use the paper ones and online versions are pointless because search engines can easily provide contact details and website addresses. These types of directory are not ones which can provide a viable business opportunity. The ones that can are those based on a niche and which provide a wider range of services to businesses.

To have a viable directory, you need to choose a popular niche segment of the market and create a website that lists as many of the businesses in that niche as possible. Examples of niche directories include wedding singers, children’s bouncy castle providers, vets that specialise in reptiles, second-hand clothes wholesalers, etc.

To make companies think your site is worth advertising on, you need to provide them with more than just a traditional listing. This can be achieved with some WordPress directory themes that let advertisers post photo galleries, videos, blog posts and discount vouchers on your site, together with their contact details and other important business information. These themes also let customers post reviews.

Can directories work as business models?  Some very successful models are to be found in the holiday industry, Trip Advisor being the primary example. You can also find local directories work well too; real-ale pubs in Yorkshire, vegetarian restaurants in Birmingham, etc.

To make this kind of business work, you will need to be able to network with business owners and convince them of the viability of your website – this can be hard to do when your site has just launched and has not yet developed a big audience. You may need to offer free advertising first, to generate the audience that will make people want to pay. Social media is likely to play an important role in the development of this business model.

4. Affiliate marketing model

Affiliate marketing is where a website promotes the products and services of another business and provides a link to that business’s website. If someone clicks on that link and then makes a purchase, the owner of the website which provided the link gets paid a commission.

Affiliate marketing is the primary way that blogs and review sites make money. This is either done via advertising or more commonly through the website discussing the product.

Most blogs and review sites tend to be niche based. They pick a small but well-searched-for section of the market and write specialised content about it. By doing this, they generate a loyal group of followers interested in that niche. For example, you may get a review site about WordPress themes in which the writer will discuss the pros and cons of a particular theme or compare a range of themes, e.g. “10 Best Security Plugins for WordPress“  If readers go on to buy those themes, the website owner makes money.

With a blog, the process is exactly the same, however, instead of writing a review of a product, they tend to discuss it in a more conversational way. “My child liked this toy best”, “We’ve just spent a terrific weekend away at this hotel”, “We also found a great WordPress theme over at this website.”

There are thousands of companies with affiliate programs whose products you can promote, including many big brand names. Some companies offer significant commission rates.

There are two important requirements that both review sites and blogs need in order to make money. Firstly they require well written, valuable and knowledgeable content; you have to be a specialist in the niche area you are writing about and you have to be able to write accurately and engagingly. Secondly, you need to build up a sizeable audience. Not everyone is going to click through and buy the products, only a small percentage. To generate a large audience takes time, commitment and a lot of hard work. It can take a couple of years before an affiliate site has enough content and viewers to make a reasonable income for its owners.

5. Membership site model

A membership or subscription site is a website where you have two kinds of content, free and premium. You entice your customers with free content but charge them a monthly or yearly fee for access to the premium content. What that content is, depends on your own expertise and interest.

A typical example of this type of business model is home brewing website. It will have some good but basic information about how to brew beer which is free for everyone to see. However, its best content will need to be paid for: hints and tips from microbrewers who have won awards, much sought after recipes, discount coupons for top quality equipment, free tickets to events, etc. will all be reserved for paying members.

Membership websites need to be updated regularly so that paying members always have something new that makes them think the membership is worth paying for. They also, usually, have different membership levels, bronze, silver and gold for example, with each level providing superior content to the one below.

Content doesn’t just have to be restricted to information on membership sites. It can be any kind of content that a customer may want: music, video, books, gaming, in-gaming purchases, sewing patterns, recipes, online courses, jobs, online gambling, dating – the list is endless.

To set up a subscription site, you need to have both the free and premium content in place and a plan of action of how you are going to update that content to keep your paying members happy. Depending on the type of site you want to set up, there may be expense involved in creating or procuring the content you need. You will also need to thoroughly research your market to make sure that it is not saturated with other providers.

Conclusion

From reading this article, you will now have a better understanding of the five main types of online business: retail, online services, directory sites, affiliate marketing and membership or subscription sites. You should also be aware of some of the pros and cons of setting up these types of business.

Remember that these are business models which are designed to work purely online. It is also possible to create hybrid businesses which have online and offline operations working together.

If you are thinking of setting up an online business and are looking for a web host that provides a range of affordable packages and exceptional customer support, visit our business hosting page.

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