Internet Business Models
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This is a brief review of successful and emerging business models for commerce on the Internet.
Integrating the Internet in Business
- 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
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.
- Clearly identify the customer, the business, the product/service, and financial means of exchange
- Provide access to network technologies which will handle all aspects of the sale
- Integrate Internet-based information with other information used by the customer and the business
- Link delivery of the product/service with requirements 1-3.
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 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.
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.
- Sell subscriptions to online services, but don't include content.
- Sell connectivity an content
- Give away information, but sell enough ads to cover costs and make a profit
- Sell products to targeted niche markets
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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"Internet Commerce; Emerging Business Models," Dan Yurman,
P.O. Box 1569, Idaho Falls, ID 83403,
December 11, 1996. Electronically published on the Internet.