Examples of Different Internet Business Models

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A lot of new webmasters think the best ways of making money on the Internet is via advertising with Adsense in particular, this can certainly work and be a profitable strategy but there are other Internet business models well worth considering. In this post I’ll scratch the surface of a few, partially for my benefit in looking for ideas for future sites.

Advertising Based
This is probably the most well known Internet business model and is popular with both new and seasoned entrepreneurs. The idea is to build a site that will attract traffic and then monetise it by way of advertising. This is the model use by the majority of blogs.

Example sites: digg, SoftSift, Technorati

Advertising Networks: Google Adsense, Chitika, Kontera

Pros: Easy to get started, sites can require little to no maintenance, income is usually dependant on traffic

Cons: income is usually dependant on traffic, can be difficult to build traffic cheaply, a percentage of revenue is lost to advertising agencies

Affiliate Sites
With these sort of sites their primary purpose is to sell products where you will receive a commission. Commissions can vary drastically depending on product type with some electronic retailers paying only 1% whilst eBooks can pay over 50%. A lot of affiliate merchants provide full product feeds which give you and easy way to add a lot of up to date content to your site

Example affiliate sites: ebates, Jewelry Shop

Affiliate Networks: Commission Junction, Amazon (not exactly a network but do provide a load of products), Affiliate Future, Affiliate Window, Azoogle

Pros: 1000s of affiliate programs to choose from, ready made content available, large profits possible without insane amounts of traffic

Cons: A fair amount of competition, duplicate content, can take a heavy initial development investment (though there are plenty of affiliate scripts available)

Drop Shipping
With an affiliate shop the full order is processed by another site and you are paid a commission. Drop shipping is where your site takes the order and payment. You then need to pass the order on to another company (the drop shipper) and pay them an agreed amount to ship the product to the customer. Your gross profit is the difference between the two prices.

Example of a site that uses drop shippers: Just Buy Online

Pros: Can be excellent profit margins, you hold no physical stock

Cons: Upfront time investment to find reliable drop shippers, complexity of accepting a multitude of payment options

Physical Product Sales
A physical product site is the next step up from drop shipping. Here you have to source, stock and supply the products. This is effectively having your own shop on the web. Our guest author Jason has written an excellent Starting an Online Business (aff) guide which focuses on this kind of business model (though is helpful to all the other models).

Pros: You can maximise the gross profit and you choose the percentages that get paid , use affiliates and drop shippers to sell your products

Cons: Takes a large time and financial investment to get started, you need to physically stock the products, you need some sort of physical base so you can’t run the site single handedly when you’re out and about

Example sites: Your Favourite Shop, Amazon

Subscriptions
A subscription based site is were you can charge visitors a regular fee for using it (or for advanced features). You must obviously be providing a service or information that has value and people are willing to pay for.

Examples: Friends Reunited, Webmaster World

Pros: Generate reliable regular income, high profit margins achievable, predictable and solid traffic.

Cons: Can be resource intensive to start, need to find and provide something of value, needs regular additions to keep subscribers

For me personally I’ve mainly dealt with affiliate and advertising based sites so far but I certainly want to experiment with other models in the future. My ideal would be to have a site that takes the best (most profitable and enjoyable) bits from each model.

About Al Carlton

Al quit the 9 to 5 rat race in January of 2007, before then he was a software engineer and systems architect of financial system. Nowadays Al spends the days running his various businesses and experimenting with different ideas and opportunities.
Al can be found on twitter at AlCarlton.

Comments

  1. There are a number of problems with all the methods, mainly because people think advertising is somehow evil. Google and MSN especially frown on (thin) affiliate sites and most users are put off by too much adsense.

    On the other hand you see all the major news websites full to bursting with all the ads you can think of.

    I really think new sites should almost be advert free for at least a year until they build traffic and links. If a site has too many adverts then its rarely worth a link from one of my sites.

  2. Re-reading that post it sounds a bit negative.

    It maybe should have said “Don’t over monetize your site when its young”.

    Patrick šŸ™‚

  3. Thanks for the comments Patrick, I do agree with you there. I only started really monetising CG after it was getting a fair amount of traffic. If it had it’s current ad heavy layout from the beginning I’m sure it wouldn’t of been as successful, nowdays people seem to accept sites like that have lots of ads (I think I’ve only ever had one complaint).

    One of the things Scott and I decided to do here was to not really monetise it until we started getting some decent traffic. Though we have put Adsense on the side a) to fill up and bit of side space and b) because we were both interested in seeing the sort of ads it would attract.

  4. It is a good run down on the different options available, when you carefully mix some of them together that’s when you can do really well but I agree Patrick that you would have to be very careful on a new venture not to put people off your site, they may perceive advertising as spammy. The one I love the most is subscriptions šŸ™‚

  5. Great post

    I was always wondering what the alternatives for links and afflitates yet making money of my website

    Thanks a lot

  6. Hello Al,

    I read about you and Scott recently. Seems that you are genuinely out there to help your visitors and people who are just starting out in the Affiliate marketing world. I would like to give you a suggestion though, Please don’t make anything you are providing here on a subscription basis because not all (including me) can afford these high-priced courses and ebooks.

    I really liked the quality and content of your blog. I would like to see more!

  7. Good Post ad to the cons of drop shipping & Physical Product Sales, Customer Service this is an extreemly time consuming addition more with drop shipping than owning stock.

  8. Very good article, l just informed from many of these new ways to get ads to my blog. l will try many of them.
    Have you tried AuctionAds ? l need advice about it.

  9. Thanks for the feedback guys. Amit we have no plans making this a subscription based service but if we did (like I said though no plans) you could be sure it would more than pay for the subscription fee.

    Good point Neale, I can imagine the time involved in customer service to be extreme to say the least,

    I’ve not tried Auction Ads yet recep, but they are on my list for other treams to try shortly.

  10. i learned alot from this article, and i;m now researching drop shipping companies to ad a store to my site. the companies i’ve looked at so far have various start up fees, and monthly fees. should i be looking for a company that does does have these fees? also, what are other attributes to look for in a drop shipping company?

  11. Nice post about Internet Business Models.
    Maybe I’ll use some of the suggested links.

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