E Commerce Business Model Definition – The e-Commerce space has never been this flexible and expansive. Responding to the recent advancement in global business, technological advancements and people following online shopping, the digital space has opened up flexible ways to put your e-commerce revenue model in range and within reach. your audience.
It’s only been 25 years since the internet brought the entire marketplace into your hands. This has created a branched path for eCommerce that allows people to have different businesses on the internet categorized in broader aspects. But before we move on to our classification of eCommerce business models, let’s refurbish our definition of an eCommerce business.
E Commerce Business Model Definition
In simple terms, eCommerce or electronic commerce business refers to selling, buying or making a transaction over the internet in a digital marketplace. Products or services are displayed through a website or mobile application through digital signage systems integrated with a secured payment gateway that facilitates product purchase and financial transactions.
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The e-commerce revenue model is usually considered in the classification of an eCommerce business because revenues refer to the total amount of money that the company receives after trading its products or services to its customers. . There are a range of options where revenues can be generated including advertising, affiliate marketing, subscriptions and more.
The industry never restricts coming up with any new way of generating income. Although we will stick to explaining the main five eCommerce Revenue Models with possible variations in approach.
Generally, there is always a commission charged to advertisers to place their ads on a well-known online marketing platform. This is the classic principle followed for business categorized for Advertising Revenue model. They take advantage of the huge traffic that regularly visits the chosen platform to shop, view the ad and get redirected to the actual site.
This can be related to a method of increasing business leads. Payments are made to the hosting platform based on a fixed commission or decided on the traffic density driven in the business.
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A business that follows the Advertising Revenue Model presents an indirect means of income through a digital platform and the common methods of placing ads usually include display marketing that includes super banners, wallpapers, skyscrapers or rectangular ad. They are paid according to the traffic that is driven from the platform through ads. The general revenue structure is based on invoices raised against Cost per Click (CPC) or Cost per Action (CPA). Apart from regular display marketing strategies that aim to redirect traffic coming to the eCommerce platform to the address where the ads are linked, affiliate marketing and search engine marketing are other popular methods.
Google Adwords and Adsense are among the most trending and reliable options that allow you to place your ads through the Google Search engine that allows you to bring your business website to the top of the results of search when searched using relevant keywords. Similar platforms are Facebook and the New York Times that allow you to display ads on a Cost Per Mile (CPM) basis.
You have probably heard of Netflix, Amazon Prime, YouTube Premium, etc. that let you enjoy their unlimited services. These eCommerce business models charge their users or rather subscribers based on a specific time interval (daily, monthly or yearly) to use their services.
The services offered by these companies generally include music, videos, TV channels, magazines, special services, etc. which is offered to subscribers for a price to watch/listen or get the latest edition. Now, let me walk you through some examples of basic subscription business models.
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Content publishers and services: You know Netflix, the New York Times, Spiegel Online, etc. well. These eCommerce business models demand subscription fees on a monthly or yearly basis to gain 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 on the SSL certification and the service period.
Following the transaction fee revenue model, an eCommerce business charges a seller a fee for each transaction made through them. They are the payment companies that provide payment gateway service to other eCommerce business platforms. Generally, profit is earned by enabling or executing transactions.
The operator provides a platform for the eCommerce marketplace where the transaction can be completed. Now, the necessary steps include registering the vendor and the operator so that identities are kept intact that may be needed later for a business. The model is close to the affiliate market but a little different.
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To explain this in a better way, let’s take the example of PayPal. The company charges a transaction fee to sellers of the product once the transaction is completed. Similarly, eTrade earns a transaction fee every time a stock transaction is made with a customer. The amount to be paid to the operator can be decided based on a percentage or a fixed amount to the vendor. Amazon is another example of a transaction fee revenue business model.
This is the most commonly followed eCommerce business model where wholesalers and retailers sell their products on the internet aiming to reach a larger target audience. Also, above all, this model causes inconvenience for the customer as well as saves them time. And it’s hard to walk to their physical store. There is an additional fee.
Prices are often competitive compared to actual store prices. Businesses following the online sales model often include marketplaces as common entry points that allow them to deal with various product vendors that allow them to grow the marketplace and therefore earn more.
In certain cases, sales are injected directly into the business where the profit is shared with nothing. Based on business size and point of sale traffic, certain business functionality is outsourced to third party vendors, typically for logistics and supply chain.
Direct To Consumer Strategy
Examples can be put in terms of all single store companies that sell their brand products on the internet through their online platforms. This constitutes a dedicated way of making sales and reaching a large number of customers. Amazon, Otto, etc. are examples of businesses that follow such a model for their web catalog based business on the internet. Also. Buy.com and Etsy are examples of such marketplaces while blood, woot! guut.de are examples of live shopping markets.
Next, in the list, we have an affiliate income model that deals with a business that follows the principle of commission. Merchants and vendors partner with prominent eCommerce platforms to advertise and sell their products giving them a percentage of the revenue as a commission.
An affiliate marketing is a well-known method of inviting as well as driving quality leads to their business. The process usually works as a link that is hyperlinked to the affiliate and archived on a host platform that gets regular traffic. Any user who clicks on the affiliate link is redirected to their website where the product or service is cataloged. The affiliate or the merchant pays an agreed commission to the host operator carrying the link for each traffic driven.
Amazon and affiliate are prominent examples that allow you to affiliate your product links and drive traffic. For every lead that is driven to your website, you have to pay a certain percentage to Amazon or affinet as their commission. Interestingly, this creates a win-win situation for both the merchant, who sells his product and the affiliate who advertises or markets their product. This eCommerce business model uses different variations like pay-per-click, banner exchange and also, revenue sharing programs that aim to drive the audience from one platform to another.
Electronic Commerce (e Commerce)
There are many other business models being used today to earn income from the online marketplace. However, it is natural that eCommerce business and digital marketing go hand in hand while serving the purpose of the business. Today there is an estimated increase of 17% in the eCommerce business since last year and has the potential to grow high in the coming years.
While physical shopping has never gone out of fashion, most businesses today find a way to manage both the physical and online marketplace. So, there is always scope for identifying a new way of doing business on the internet. This means, more business models are still unknown for the online eCommerce market. Many people only know about e-commerce and its basics but few of them know the types of e-commerce business models, so in this post, I’ll talk about them.
Let’s say we have a company, and we want to sell our products or services online through our website or any other online resource, then it can be defined as B2C model.
A good example of this is Amazon or eBay. We can call their business,
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