Types of eCommerce Business and Revenue Models

MARYNA DEMCHENKO

Published: 23 Jun 2020

eCommerce

There's no denying it; we are living in the era of eCommerce. People don't have to travel to a physical store anymore to get what they need. We pay to listen to music and watch videos online. Millions of people fill their carts online as we speak. 

The unprecedented situation has transformed the way we shop today. It seems like the perfect time to think about starting an eCommerce business. 

A thriving eCommerce business is a combination of market understanding, a good business plan, and in-depth research of eCommerce business models. There are lots of opportunities in terms of business models, which all potential eCommerce business owners should know. In this article, we will shed light on these models so you can choose the one that's right for you. But first of all, let's speak terms. 

E-commerce is a business process and the scope of the economy that includes trading or money transactions completed online. 

In the 50s, American Airlines, in partnership with IBM, began developing a unique system that automates seat reservations. The system exists to this day and is used by more than 350,000 travel agencies around the world. 

Over the past two decades, the eCommerce market has been developing especially rapidly, fueled by the advancements in technologies, the widespread availability of the Internet and social networks. Now, let's take a look at the most common eCommerce transactions. 

Business to Business 

The B2B model is defined as selling products to other companies. That definition only scratches the surface, given that B2B customers are a vague group. It may include business owners, project managers, and decision-makers on various levels. Lots of companies in B2B are service providers, including software development companies, cloud hosting, team and project management tools, and much more. The example is right in front of you: NCube provides virtual teams of software developers to businesses that need to build software. 

Business to Consumer 

Anything we buy online falls under a B2C transaction. In this model, a company sells goods (and sometimes services) to an individual in an online store. This includes traditional online stores as well as a relatively new entrant on B2C market – selling goods via social media. B2C differs from B2B in a short cycle of sales where most purchases are made at the spur of a moment. B2C businesses market via mobile and web apps, using techniques like native advertising and remarketing to appeal to the customers' emotions. 

Customer to Business

Hiring a freelancer on one of the freelance platforms is a C2B transaction, in which you can engage an independent specialist like a graphic designer, customer support manager, or a back-office assistant. In this model, people are seeking the attention of companies, so they put in a lot of effort to land a job. That includes gaining a good reputation with platform users, a portfolio, and always collecting feedback. Good examples of С2В are talent repositories like Upwork, Feverr. Also, we should mention advertising platforms that help monetize your website content and social influencers that market products. 

Consumer to Consumer

The model where the customers trade and buy via an eCommerce platform is known as C2C eCommerce. Well-known companies like Amazon and Ebay are making a lot of money, providing a virtual place where one individual sells to another. In traditional C2C, none of the participants call themselves a businessperson. Platforms that provide this type of transaction for a commission resemble traditional Craigslist. 

Government / Administration Ecommerce

We have listed the most common eCommerce models, but this one is less obvious. Think of a time when you paid for college tuition or taxes online. That was also an eCommerce transaction. Government eCommerce deals with organizations (B2G) and individuals (C2G) alike. Generally speaking, any transaction between the government and an individual or a business can be defined as government eCommerce. To make it happen, the government hires specialists to develop a digital platform.

Read also: How to Write a Startup Business Plan That Will Secure Investment

Business models in eCommerce

The most important thing in building an eCommerce business is getting revenue. Let's take a look at the key monetizing ways. 

One of them is an advertising revenue model. Following this model, innovators put up a digital platform where advertisers could post their ads for a commission based on traffic density and other factors. With this model in place, the customers will come to a website to shop, see ads, and access the advertiser's website. Examples of companies using this model are Google Adwords, Adsense, Facebook, New York Times. To attract users, these platforms typically offer internal advertising tools. 

The next is a subscription revenue model. Companies like Netflix and Spotify usually come to mind when we think of a thriving subscription service. In this model, users are charged a recurrent fee (monthly or annual) for using their services. Typically, the services allow access to all kinds of digital content, including music, video, TV, and magazines. 

Now let's take a look at a transaction fee revenue model. This one drives revenue by charging a fee for a transaction made via their payment portal. The operator puts up a platform that enables or executes payment transactions to be completed. A good example here is E-Trade that charges a fee once it executes a stock transaction to a customer. Another example is PayPal that charges a fee to sellers. It can be a fixed amount as well as a percentage from a transaction. 

 There is also a sales revenue model, which is probably the most commonly used model. In this model, the profit comes from selling products or providing services where sellers try to reach a broader audience via the Internet as opposed to offline stores. An example can be any company that sells products online using a single platform like Amazon, Buy.com, Etsy. Such an approach creates a unique way of doing business based on web catalogs. 

 Finally, an affiliate revenue model where users are steered to an affiliated website. Here sellers collaborate with different eCommerce platforms to advertise and sell their products for a referral fee. Amazon is a good example here since it lets you add links to your products and bring traffic to your website. For each potential customer that comes to your website from Amazon, you will need to pay a fee.  

Choose a Model That Fits Your Needs Best

We have looked at different classifications of an eCommerce business, but there's no answer as to which one is the best. Choosing one boils down to what you want to sell, which will determine your business model. If you have a need for an eCommerce solution, our team at NCube can help you get it off the ground. Contact us. 

 

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