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Internet Business Models


This paper consists of an abstract, executive summary, a main paper, and footnotes. A plain text file of the entire document may be downloaded. Comments are requested and should be sent to the author at dyurman@world.std.com.


Executive Summary

This is a brief review of successful and emerging business models for commerce on the Internet.

  • Mass Markets
      Businesses developing a marketing presence on the Internet are still struggling to transform costly start-up efforts into money-making enterprises. A key reason is no one is sure how many people are actually using the Internet. Where user numbers do exist, demographic data, the keys to unlocking success in marketing and advertising, do not. Successful market niches which are profitable are those which appeal to "early adopters" of new technologies who have discretionary resources to spend on lifestyle products and services.

  • Business to Business Markets
      A successful business model involving the use of Internet technologies must meet four requirements.

      1. Clearly identify the customer, the business, the product/service, and financial means of exchange
      2. Provide access to network technologies which will handle all aspects of the sale
      3. Integrate Internet-based information with other information used by the customer and the business
      4. Link delivery of the product/service with requirements 1-3.
      Large multi-national industries, such as chemicals and car/truck manufacturing, are adapting Internet technologies to proprietary data networks. Their goal is to capture the time-based value of information by exchanging data at ten times the speed of the Internet in secure environments.

  • Integrating the Internet in Business
      Large providers of public data networks, such as Sprint, MCI, and AT&T, are following a strategy of selling a "bundle" of services to high-end consumers who spend $3,000 to $3,600 a year on communications services including cellular phone, cable TV, and Internet access. In terms of value the elements of the bundle Internet access, by itself, is last in terms of value of revenues within the "bundle." This will change if consumers can be convinced to buy products and services over the Internet. If that happens, the public data networks will reap a few cents from each transaction. If transactions run in the hundreds of millions or even billions per year, it could turn into big money for the public data networks.

  • Online Banking
      Online banking is still in a start-up phase. Banks have not yet differentiated their online products and services from paper transactions systems in ways which are attractive to consumers. There are several threats to traditional banking including the anonymous nature of digital cash and the dissolution of geographic market areas in a virtual financial system. Banks which are entering the online markets are struggling to define the standards for digital cash transactions as are credit card companies.

  • Advertising
      The lack of demographic data related to Internet users has severely limited the potential for growth in online advertising to mass markets and to business-to-business markets. Still, there are four ways companies appear to be positioning themselves to make money.

      1. Sell subscriptions to online services, but don't include content.
      2. Sell connectivity an content
      3. Give away information, but sell enough ads to cover costs and make a profit
      4. Sell products to targeted niche markets
  • Conclusion
      Successful models for developing businesses on the Internet are still in early stages of development. Companies which want to succeed in the long run will not be swayed by hype or fads. Consumers and companies will do business on the Internet when products and services are available there, with prices and customer service to match, which are not available anywhere else. The key success factor for Internet commerce is that it must be more than just another distribution channel for existing business. To succeed, companies must offer new forms of value which are not available offline.

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    This paper may be copied for non-commercial purposes, classroom use, or reproduced on WEB sites so long as it is 100% intact with author credit, citations, and text. The preferred citation for this paper is:

    "Internet Commerce; Emerging Business Models," Dan Yurman, dyurman@world.std.com, P.O. Box 1569, Idaho Falls, ID 83403, December 11, 1996. Electronically published on the Internet.



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