Today I’d like to talk about one of my favorite topics I haven’t covered yet: business models. Specifically online business models that will hopefully spark some new ideas for you.
Why is this important?
I believe that knowledge is power. As we are all building businesses, the more we know, the better decisions we can make – and the better ideas we can create. A lot of the models that now seem like no-brainers, like affiliate marketing as a win-win for everyone involved, were once a novel – maybe even crazy – idea.
The internet changed business models quite a bit starting in the late 1990s, offering more options and variables. Even greater evolution has occurred in the past few years as smartphones have changed the landscape again. Maybe wearable devices like Apple Watch will have the same effect – who knows but it will be fun to witness.
What is a business model?
A business model, basically, is how a business makes money. How is the important part because that separates one model from another. What is the product? How do you get/create the product? Who is the customer? How are you reaching them? These questions and more help define a business model.
While the term business model may be new to you, let’s start off with one that should be familiar to you.
Have you heard of the Bait & Hook business model?
Maybe you have, maybe you haven’t but I bet you’ll recognize it – especially if you shave. Ever notice that razor blades cost WAY more than the razor itself? Or printer ink adds up to be way more than a printer over time? Or how the cost of video games add up to be much more than the game system itself?
That’s the bait & hook model, offering a product at a lower cost and making up the money on refills and other recurring products & services.
The modern variant on the bait & hook is cellular service. You get a shiny new phone at an apparent discount and the cellular companies make a killing on the monthly service charges.
Now let’s go through the most popular online business model examples
The online version of the traditional media broadcast model, providing content or services (usually free) and displaying advertising in exchange.
Examples Many blogs, podcasts, Facebook, Google, Gmail, Huffington Post, Twitter
Advantages With low to no cost, it can be easy to grow your userbase
Disadvantages How much you make is directly related to how big your readership/following/userbase is; real money isn’t possible without a LOT of people involved.
A modern variant on advertising – providing content or services for free while providing opportunities to purchase products that will you a commission.
Examples This website, many blogs, product review sites, podcasts
Advantages Unlike the advertising model, which requires a lot of people to make any money, an affiliate website can be successful by targeting a specific (aka niche) market; a small readership interested in your content is enough to generate income; there’s a good chance you can create a site around a hobby or something you enjoy.
Disadvantages If the affiliate products don’t have any demand, you’re not going to make much money.
Aka membership sites, these sites provide value to members in the form of exclusive content and a place to discuss/communicate/interact. Revenue can be generated by subscription fees or advertising.
Examples Wealthy Affiliate, Copyblogger Authority, Problogger Community
Advantages Like the affiliate model, community sites can be successful by targeting a niche and it’s likely that you can create a site around a topic that you enjoy. The examples listed above also provide free content to develop relationships and trust with potential members (similar to the bait & hook model).
Disadvantages Without demand, you’re not going to make much money.
4. Product Creator
You can create and sell your own products, either digital (ebooks, ecourse or hybrid) or physical.
Examples Wealthy Affiliate, Copyblogger Authority, Problogger Community, homemade craft sellers
Advantages With digital products and books, you can work once and sell in perpetuity – passive income for the win.
Disadvantages You need demand, traffic and authority. For physical products, you can create an online store (like Shopify) or use a marketplace like Amazon, Ebay or Etsy.
You can charge regularly for products or services.
Examples Membership websites, Adobe Creative Cloud, Microsoft Office, Music Teachers Helper, Netflix.
Advantages Passive recurring income – the holy grail of online business income. Can be targeted to a niche market. If you use content dripping to deliver content at specified intervals, you only need to create content right before it’s due.
Disadvantages If it’s a service, it can take a lot of time or money to create. If it’s a product, it can take time to create. Plus you need traffic and demand.
There you go – the 5 online business model examples that are worth considering.
I’m sure you’ve recognized the various models as you have definitely come across them all. These days, there is a big push to switch to a subscription based model for the recurring & consistent revenues. Many traditional business models are being changed or are morphing into a hybrid, thanks to the internet and mobile marketing.