The term “business model” became popular in the late 1990s, during the Internet boom, in part because many website businesses seemed to plan for generating traffic without a clear view of how or when traffic would generate revenue and profits.
The term itself is a bit too trendy, in our opinion. Talk of the business model ought to be recast in more standard business terms, such as sales, costs, expenses, and profits. As you develop your strategy, focus on how your website will benefit your business. What is its payoff for your business?
The easiest payoff to understand is sales and profits, but there could be many others. Some websites exist just to support sales by making a buyer’s decision easier, some reduce costs, some improve customer satisfaction, some substitute for telephone communication or sales collateral.
While the classics below are fairly obvious, in reality there are infinite numbers of possible business models for websites. You might have a commerce site, content site, community site, portfolio site, or something else entirely. The main point is that there should be a payoff for your business. You don’t develop a website just because somebody says you should. You develop it because it has a business or organizational purpose.
The portfolio site: like a business card on the Web
These sites offer information. Their target users go to them to find out more about a business. The sites don’t specifically sell anything, but they do support sales by generating leads or making the viewer’s buying decision easier.
What we call portfolio sites are the millions of websites that don’t really sell anything but present the equivalent of sales literature on the Web. The restaurant sites that post their menus, the legal and accounting practices that post professional biographies and related information are just a couple of examples. The Web started with these kind of sites because they are relatively inexpensive to produce and provide significant benefits.
The basic commerce model: sales and profits
The simplest website business model is based on making sales and profits. A classic commerce website like Amazon.com or Buy.com sells products, takes orders, charges credit cards, and ships goods. Software and some information sites have the advantage of being able to deliver what they sell online, at the time of the transaction.
These sites normally offer their target customers the benefit of ease of use and selection. Amazon.com, for example, set the standard for commerce sites by offering a huge selection and a wealth of additional information on the products it sells.
The content model: based on advertising
The content sites work economically like mainstream network television in the United States, free content to users paid for by advertisements that users put up with. This is also a lot like the classic newspaper and magazine business, content paid for mainly by advertisers, with the exception that most magazines and newspapers sell for a small price while getting most of their revenue from advertisers. The “business model” isn’t really new, just the fact that it is offered over the Internet.
Consider Yahoo! And competing Internet portals, newspaper and magazine sites, entertainment sites, and other types of sites that are free to browsers and make money by charging advertisers or sponsors for banner advertising and sponsorships. These are content sites that depend on Internet advertising for their revenue.
Consider the business value of the bulletin board in a local supermarket. The market doesn’t charge for posting notices on the board, nobody pays to read them, but the business takes the trouble to manage the board. The underlying business benefit, we guess, is that the sense of community builds traffic and loyalty.
This value is similar in the Internet community site. A typical community site offers email, bulletin boards and forums, a common focus for some group that has a common interest. Community sites are often started by groups, clubs, and government organizations. Some of the best of them, however, are sponsored by businesses that want to take advantage of the common interest. For example, a rock climbing community site might be sponsored by a local store.
Most sites are really hybrids, combinations
In truth most sites offer a combination of target user benefits. This site, bplans.com, for example, combines content and community with a touch of portfolio and commerce. Amazon.com combines commerce with content and community; Yahoo.com also combines content, community, and commerce.
Business model summary
How will you turn users of your website into money? Is there a plan for it? How will you measure it? For a hybrid site you need to make sure you explain how the hybrid will make revenue. Will you have a commerce portion? Will you be depending on sponsorships and advertising? Will you be selling services to your users? Make sure that you think about how you will ultimately make your website venture bring in real money.
Try to think of your website benefits in monetary terms. This is a good time to your sales forecast. The sales projected might actually be business benefits instead of sales: increased closing percentage, increased customer satisfaction, or increased retail traffic. Think about how those benefits might fit into a sales forecast, because then you’ll be able to compare monetary benefits to expenses.