The Top 3 Most Successful Online Business Models
Most people have this idea (thanks to scammy late-night infomercials and cheesy books) that the internet is the ultimate get-rich-quick scheme. Find a keyword here, write a blog post there, throw in an affiliate link or two and… BAM! You’re a millionaire! If this is what you believe about internet business, you’ll be sorely disappointed. The internet doesn’t make millionaires, it only helps aspiring millionaires make themselves.
It is absolutely true that the internet makes becoming a business owner and a millionaire easier than ever. You don’t have to be rich or go into debt to get started and you have really cheap access to a global audience. In many cases, you don’t even have to worry about keeping inventory or accepting credit card payments. The internet kills middlemen and cuts startup costs drastically so that anyone who knows how to click a mouse can start earning some extra money.
But vast fortunes are made on the internet the same way they are made off of the internet — with good ideas, thorough planning and hard work. All three of these things can be accounted for in a solid business model.
What is a Business Model?
According to Dictionary.com’s 21st Century Lexicon, a business model is a “design of the operations of a business which focuses on how revenue will be generated.” In short, a business model describes the way you plan to make money from start to finish. It can be a very simple statement or fairly complex and can include anything from development to implementation to distribution, marketing and selling.
Real world business models are usually very straightforward. A coffee shop’s business model is to make money by brewing and serving up cups of coffee to caffeine addicts. A bookstore’s business model is to make money selling books and magazines to both casual and voracious readers. While each example can certainly be more elaborate — the coffee shop might also sell muffins, the bookstore might also sell DVDs — it is still fairly simple.
In the online world, business models aren’t necessarily so obvious. There are companies like Facebook which provide a service entirely free and make their money by selling ads and virtual goods. There are companies like Amazon which make their money by selling products much like brick-and-mortar shops. There are companies like 37signals (who created the web app Basecamp) which make money by offering subscriptions to their sites.
And these aren’t the only examples. There are lots of possibilities for successful online business models, some that I’m sure haven’t even been discovered or implemented yet.
But if you are just getting started online, there are three business models that you’ll want to give special consideration to because they are the three models on which most successful online businesses are built: the Efficiency Model, the Product Model and the Niche Model.
The Efficiency Business Model
If you’ve ever had a problem with something and thought, “I wish such-and-such a thing existed so that this would be easier” then you’ve already unwittingly ventured a bit into the Efficiency Model. The Efficiency Model is based entirely on helping people do what they already do, but with more efficiency and ease. This is the model most early internet entrepreneurs built their fortunes on.
In the early to mid-1990s, the internet was a very different place. It was mostly seen as a giant worldwide encyclopedia. There were forums and chat rooms, sure, but in general the social aspect of web browsing that we’ve come to know was just barely in place. There was no Facebook or Twitter or Stumbleupon and instant messaging hadn’t yet reached any significant level of popularity. For the most part, surfing the web was an isolated experience that required a guidebook. No kidding! A literal, printed guidebook that presented a listing of sites divided by category. Check your local library for these ghosts of internet past.
The problem with these books was that their listings were quickly outdated and included lots of dead links while lacking lots of valuable newer sites. Not to mention that these books cost money. Having to update them on a regular basis was an expensive hassle. Surely there must be a better way.
There was! In early 1994, Jerry Yang and David Filo recognized this problem and created a site called “Jerry and David’s Guide to the World Wide Web.” Like the books, this site provided a directory of websites divided by category. Unlike the books, this website was free and had the added benefit of always being up-to-date. It was exactly what the web surfers of 1994 needed.
By the end of the year, the site had received over one million visitors and had been renamed Yahoo!.
The Efficiency Model begins with a problem that you don’t only recognize, but that you likely experience yourself. Think about all the times you get frustrated with a website or with an online experience. Most people have an easy enough time knowing something is wrong and complaining about it, but go a step further. Ask yourself what the ideal experience would be like or what the essential features of a site would be. Your answer could be the beginning of a multimillion dollar venture!
The Product Business Model
Ever sold something on eBay? If you have, you already understand the basic idea of the Product Model. The Product Model is all about selling something. It can be a single product or a collection of products, products you’ve made or products that other people have made.
The most obvious successful site using the Product Model is Amazon.com. Amazon collects products from many different manufacturers, scans them into their system and puts it online for the world to buy. For a monthly fee, they also allow entrepreneurs to list and sell their own inventory through the site.
Of course, if you’re just starting out (unless you have a really brilliant idea) there’s not much of a chance you’ll successfully take on Amazon. Amazon is big and efficient. Ask someone where they shop online and there’s a good chance Amazon is the first site they think of. Not to mention that Amazon is big enough to get great deals on its products, making their pricing some of the lowest around.
So, if Amazon is so established and they sell pretty much anything you could want at cheaper prices than you could afford to sell them, why should you even bother with the Product Model? Well, this question is based on the assumption that every store has to sell the same variety of products at lower prices to compete with other stores. That’s not true.
Let me use Walmart as an example. The Walmart here offers pretty much anything you need at a much lower price than any other store can offer. They have toys, dog food, cameras, dresses, DVDs, groceries and on and on. Whatever most people need, they have.
They also have skateboards.
In my city in recent years a huge group of young skaters started to develop. I see them anytime I’m in town now, all over the place. On any given street you’re likely to see at least one or two rolling along. They even have a designated area complete with ramps and rails and it’s always packed with people. With new kids wanting to take up the sport every week, the $20 skateboards must be flying off the local Walmart’s shelves, right?
Wrong. Most of the young people are carrying around $50 and $60 boards from a specialty skate shop. This skate shop sells boards at much higher prices than Walmart does and, yet, they are outselling Walmart’s boards 3-to-1. How can they do that?
They can do it because the owners of this skate shop aren’t only looking to make a sell. They live, breathe and love skating. They know the culture. They are the culture. They know what’s quality and what isn’t and they are much more credible than their Walmart counterparts. In fact, this shop also invested in the ramps and rails that the kids are using to learn the sport. They have cultivated a community based on a common passion and made their business the hub of that community.
This is how you set yourself apart using the Product Model. You specialize in something you’re passionate about. Your passion will show through and people will take notice. People are willing to pay higher prices for quality, culture and superior atmospheres especially if you come to be regarded as an expert in your field. Sell things that you are actually invested in, that you actually know about. Sell things that excite you and you can’t go wrong.
The Niche Business Model
The Niche Model is a more recent wave in online business. Niche businesses are founded for a very specific group of people, monetized and then, sometimes, expanded. Once a niche business finds its audience, it can sell ads, products, subscriptions or whatever. The Niche Model can overlap with the Efficiency and Product models or any other model you come up with, but what’s important is finding the audience.
Most online niche businesses start with a keyword search. When I recently developed my Simple Weight Loss for Men ebook, I started with the knowledge that about 22,000 people search for “weight loss for men” each month. Twenty-two thousand people is a very significant audience, but also not too crowded with competition (compared to the 16 million for “weight loss” in general).
If instead of an ebook I wanted to create a niche business, I might have bought a domain name (like SimpleWeightLossforMen.com), set up a blog at that domain, posted some valuable weight loss content targeted at men and optimized that content for search engines so that I could try to rank at the top of the results. Over time (especially if I start ranking at the top of Google searches), I’d start getting a good amount of steady traffic each month. I could then use this traffic to sell my ebook or to put up some ads.
For a more interesting example, we can look to Markus Frind. In 1999, Frind graduated from British Columbia Institute of Technology. With his diploma in Computer Systems Technology he jumped from tech job to boring tech job, always unsatisfied with his work. In 2003, wanting something more stable, Frind started developing a dating site in his spare time despite major players like Match.com and Lavalife cornering the market.
By the end of 2003, Frind’s site (which he called Plenty of Fish) grew from 40 members to 10,000. He had found a market that was clearly underserved — broke singles! While other dating sites charged ridiculous sums of money to access their listings, Frind allowed his site to be completely free. As the site grew, so did Frind’s wallet. In the first year his earning climbed to almost $3500 per month from selling ads which was such a significant amount that he quit his job. The site pulled in $10 million in 2008 from ads alone.
All because he was able to tap a niche of broke singles!
Choosing a business model and getting started with online business can be a very complicated process. There’s a lot to learn, but the information is easy to find! If you want an expanded explanation of these business models as well as a detailed guide for getting into online business, I very highly recommend Internet Riches by Scott Fox. The title is kind of gimmicky, but it contains some of the highest quality information you’ll ever find on the subject. It’s definitely the place to start if you’re new to online entrepreneurship.
Photo Credit: myklroventine