The e-Commerce space has never been so elastic and broader before. Addressing the recent upsurge in global business, technological advancement and the people following online shopping, the digital space has opened flexible ways to put up your e-commerce revenue model in the array and reach out to your audience much more easily.
It has been just 25 years that the internet has brought the entire marketplace to your fingertips. This has forged a branched path for eCommerce allowing people to come up with different business over the internet that is categorized into wider aspects. But before we jump into our classification of eCommerce business models, let’s refurbish our definition of eCommerce business.
What is an eCommerce business?
In simple terms, eCommerce or electronic commerce business refers to selling, buying or making a transaction over the internet in the digital marketplace. The products or services are showcased through a website or mobile application through digital signage systems that are integrated with a secured payment gateway facilitating product purchase and financial transactions.
Now let’s move ahead with segregating the eCommerce business model based on their revenue model.
The e-commerce revenue model is usually considered in classifying an eCommerce business as revenues denote the total amount of money that is being received by the company after trading its products or service with its customers. There is a range of options from which revenues can be generated including advertising, affiliate marketing, subscription and a lot more.
The industry never restricts the upcoming of any new way of generating revenue. Though we will stick to explaining the basic five eCommerce Revenue Models with possible variations to the approach.
Advertising Revenue Model
Generally, there is always a commission charged to advertisers to put up their advertisements in a well known online marketing platform. This is the classic principle that is being followed for the business categorized for the Advertising Revenue model. They take advantage of the huge traffic who regularly visit the chosen platform to shop around, see the ad and get redirected to the actual site.
This can be related to a way of increasing leads to the business. The payments are made to the hosting platform based on a fixed commission or decided upon the traffic density that is driven to the business.
Business following the Advertising Revenue Model presents an indirect way of earning revenue through a digital platform and the conventional ways of putting up ads generally include display marketing that includes a super banner, wallpaper, skyscraper or rectangular ads. These are paid according to the traffic that is driven from the platform through the ads. The general income structure is based on the invoices raised against Cost per Click (CPC) or Cost per Action (CPA). Apart from the regular display marketing strategies that are aimed to redirect the traffic coming onto the eCommerce platform into the address where the ads are linked, affiliate marketing and search engine marketing are other famous ways.
Google Adwords and Adsense are among the most trending and reliable options that allow you to place your ads through the Google Search engine allowing you to bring your business website to the top of the search results when searched with the related keywords. Similar platforms are Facebook and the New York Times that allows you to display ads based on a Cost Per Mile (CPM) basis.
Subscription Revenue Model
You must have heard of Netflix, Amazon Prime, YouTube Premium, etc who will let you enjoy their unlimited services. These eCommerce business models charge their users or rathers subscribers based on a certain interval of time (daily, monthly or annual) to avail their services.
The service offerings of these companies generally include music, videos, TV channels, magazines, special services, etc. which is offered to the subscribers for a price to watch/listen or get the latest edition. Now, let me guide you through some examples of basic subscription business models.
- Premium membership: Many social media and business platforms like Xing, Linkedin, stayfriends, etc. offers subscriptions to avail of additional services that get the subscribers to access to daily updates, newsletters, short notices, etc. These information and quick updates are delivered to them directly to their account.
- Internet service providers: We all are familiar with the monthly and annual subscription of internet service providers or rather a broadband connection enabling the subscribers to enjoy unlimited internet service.
Publishers and content services: You are well acquainted with Netflix, New York Times, Spiegel Online, etc. These eCommerce business models ask for subscription fees based on monthly or annually to get access to their content.
We all know that every eCommerce business has one thing in common and that is their payment gateway. These are companies like Paypal, VeriSign whose subscription fee depends upon the SSL certification and the period of service.
Transaction Fee Revenue Model
Following the transaction fee revenue model, the eCommerce business charges a fee to a seller for every transaction made through them. They are the payment companies that provide the payment gateway service to other eCommerce business platforms. Generally, the profit is derived through enabling or executing transactions.
The operator provides a platform for the eCommerce marketplace through which the transaction can be completed. Now, the necessary steps include registering of the vendor and the operator so that the identities are kept intact that may later be required for a business. The model has proximity to the affiliate market but is somewhat different.
To explain it in a better way, let’s take the example of PayPal. The company charges a transaction fee to the sellers of the product once the transaction is completed. Similarly, eTrade gains a transaction fee whenever a stock transaction is made with a customer. The amount to be paid to the operator is either decided upon based on a percentage or a fixed amount with the vendor. Amazon is another example of a transaction fee revenue business model.
Sales Revenue Model
This is the most commonly followed eCommerce business model where wholesalers and retailers sell their products over the internet intending to reach out to a larger target audience. Also, more importantly, this model brings inconvenience for the customer as well as saves them time. And the hassle to walk up to their physical store. There is an extra cost.
The prices are often competitive in comparison to the actual store price. The business following the online sales model often comes with marketplaces as common entry points that allow them to deal with various product vendors allowing them to grow the marketplace and therefore earn more.
In certain cases, the sales are directly injected into the business where the profit is shared with none. Based on the size of the business and the point of sales traffic, certain functionalities of the business are transferred to third party vendors, generally done for the logistics and supply chain.
Examples can be sited in terms of all the single shop companies selling their brand products over the internet through their online platforms. This forms a dedicated way of doing sales and reaching out to a vast number of customers. Amazon, Otto, etc are examples of businesses following such a model for their web catalogue-based business over the internet. Also. Buy.com and Etsy are examples of such marketplaces while blood, woot! guut.de are examples of live shopping marketplaces.
Affiliate Revenue Model
Next, on the list, we have an affiliate revenue model that deals with a business that follows the principle of commission. Merchants and vendors partner up with well-known eCommerce platforms to advertise and sell their products giving them a percentage of the profit as a commission.
An affiliate marketing is a well-known way of inviting as well as driving quality leads into their business. The process basically works as a link that is hyperlinked to the affiliate and is archived on a host platform that gets regular traffic. Any user who clicks to the affiliate link is redirected to their website where the product or service is catalogued. The affiliate or the merchant thus pays an agreed commission to the host operator who’s carrying the link for every traffic driven.
Amazon and affiliate are well-known examples that let you affiliate your product links and drive traffic. For each lead driven to your website, you need to pay a certain percentage to Amazon or affilinet as their commission. Interestingly, this brings a win-win situation for both the merchant, who sells his product and the affiliate who advertised or marketed their product. Such an eCommerce business model utilizes different variations such as pay-per-click, banner exchange and also, revenue sharing programs that aim at driving the audience from one platform to another.
There are a lot of other business models that are being used today to gain profit from the online marketplace. However, it’s natural that eCommerce business and digital marketing go hand in hand while delivering the business objective. Today there is an estimated rise of 17% in the eCommerce business since last year and has the potential to grow sky high in the coming years.
Though shopping around physically hasn’t yet gone out of trend, most businesses today find a way to rule both the physical and online marketplace. So, there is always a scope for defining a new way of doing business over the internet. This means, more business models are yet to be known for the online eCommerce market.