Continuous Learning

This is of course THE business model for the past decade. If you were are not on the internet, then you were not viable as a business

The best thing about internet is that there are no rules, and you can do anything you want. In fact, many internet companies are not software companies or even technology companies. Many do not even differentiate through technology and yet still makes money. Many do not even sell you anything and offer free service. Yet they flourish.

Formula

The general formula is to generate traffic. The more traffic you have, the more likely you will make money. Most follow the approach to give something for free first to generate the traffic. A good mantra is to “give first and you shall receive“.

A few different ways to generate traffics are

• Portal - offering wide variety of content
• Search engine - offer targeted content
• Content-led - specialized site offering specialized content to increase stickiness
• Community - let customers interact with each other to create a sense of online community via forums, newsgroups, or other type of social software
• Viral - leverage customers and use them to market your services; often build-into the software itself (such as hotmail)

Below are some of the better-known internet business models (by no mean is the list complete) - Infrastructure, eCommerce, Advertising, Software as a Service. I will not exhaust all different models here, but here is a good resource for additional models.

Infrastructure

Given that internet is built on top of commodity technology, there isn’t a lot of money for creating the infrastructure software such as TCP/IP, Web Server (this was Netscape’s model), etc. Instead, the money goes to the operation of the internet infrastructure, e.g. ISP, Domain Registrar, Certificate Authority.

Formula

Subscription-based. Given that anyone wanting to do business on the internet will need these services, there is definitely a market.

Advantage

Low startup cost. Almost anyone can start such a business.

Disadvantage

Commodity business. Difficult to differentiate and will suffer commodity pricing.

eCommerce

This is perhaps the most straight-forward formula - use internet as an alternative channel to sell products. Depending whether you own the manufacturing, your competitive advantage may vary.

Formula

Use internet as the channel.

Advantage

Cut out the middleman to offer better price for customers.

Disadvantage

Generally must compete on price (because product is commodity). Often have to deal with logistics, and will not operate profitably until there is a definite volume. The best example is Amazon.

Auction

This model can be considered a special form of eCommerce. There are so many different variations (B2C, B2B, reverse auction, etc). The best known example here is eBay.

Formula

create a market place for buyers and sellers to trade goods (sometimes services).

Advantage

Unlike the pure eCommerce model, you can truly act as a middleman without having to worry about logistics. Also, you can generate a network effect once there are enough buyers and sellers on your site.

Disadvantage

If you are starting late, you are likely to be too late (unless you have serious cash to burn).

Advertising

This is probably one of the more exciting model on the internet. We have witnessed the growth of internet advertising through banners, through the collapse of dot-com to almost pronounce internet advertising dead, and finally its rebirth through Google’s AdWords/Adsense, which provide targeted advertising and pay-per-click.

Formula

Subsidize free content through advertisement.

Advantage

It fits naturally with the traffic equation, and it also fits with the human nature of getting something for nothing. Furthermore, this model enables many site operators to make money purely through publishing free content.

Disadvantage

Advertising does not fit or work in all situations or all market segments.

Software Services

Some software is a natural to be offered as a service via internet, especially if it involves some form of data storage or manipulation.

Formula

Generally either through subscription and/or advertisement.

Advantage

It naturally creates stickiness, given that the customers will spend time with the application. Furthermore, the more data it stores, the more inconvenient for the customers to move the data (if at all possible).

Disadvantage

Not a viable model for all types of software, yet.

This is it for all software product business models folks. We will talk about services model next.