eBusiness has completely revolutionized the way we shop and redefined the possibilities of consumerism. If you’re an entrepreneur, you are probably wondering what are the four main types of eBusiness models? Choosing the appropriate business model will set your eBusiness up for long term success.
eBusiness is not going anywhere soon, especially since the rise of eCommerce. Every year eCommerce purchases account for a greater share of total retail sales in the United States. Creating an eBusiness has never been easier or more profitable than it is today thanks to eCommerce. Before you begin and turn your eBusiness idea into reality, you need to understand the different types of eBusiness. Understanding the various eBusiness models, how they work, and what your eBusiness ultimately seeks to accomplish, will be of paramount importance when you start out.
You cannot innovate or defy expectations unless you know what your business model is, have clear business goals, and can articulate how you will innovate. Let’s take an in-depth look at the main eBusiness models and how you can choose the right one for your eBusiness.
The Four Main Types of eBusiness Models
Almost all eCommerce stores, and consequently eBusinesses, can be placed into one of four general categories. Each category comes with its own challenges and benefits. Additionally, many eCommerce businesses operate within a few or all of these categories. The four main types of eBusiness models are:
- Business to consumer
- Business to business
- Consumer to business
- Consumer to consumer
Having an understanding of which business models fit your eBusiness idea will help you plan for any potential difficulties you may encounter and think creatively about ways you can innovate and disrupt the eCommerce sector. Let’s learn about each business model in more detail.
Business to Consumer
This is the most prevalent business model, and the one you are likely the most familiar with. In the business to consumer business model, businesses sell their products and services directly to consumers. Generally speaking, the decision-making process for business to consumer transactions is shorter than all of the other eBusiness models, with the exception of consumer to consumer transactions which are likely equivalent.
A shorter sales cycle means that business to consumer eCommerce businesses spend less marketing money per sale when compared to the business to business business model. However, business to consumer eCommerce operations also have smaller average order values and fewer recurring orders on average when compared with business to business eBusiness models.
The majority of eCommerce businesses will likely fall under the business to consumer business model. eBusinesses can leverage mobile applications to reach customers wherever they go, and offer them unique savings opportunities, services, and promotions based on their location. The business to consumer eBusiness innovators have used the capabilities of mobile technology to their advantage and have helped simplify the lives of their customers in the process.
Business to Business
In this business model, businesses sell their products or services to other businesses. In some cases the business who is acting as the customer will be the end-user, but in other cases these businesses will resell to consumers. Traditionally, business to business sales were done via catalog and order sheet, but eCommerce websites have quickly been replacing these antiquated methods of business to business sales as more millennials are employed as business buyers.
Transactions in this business model typically have a longer sales cycle, but the average value of the orders are usually higher, and there is a greater frequency of recurring orders. There is still a lot of room for eBusiness innovation in the business to business marketplace. eCommerce businesses are able to target specific niche markets, and this is a huge benefit for business to business sales because every business is unique and has unique needs that need to be met.
Being successful with a business to business business model requires a bit more patience for eBusiness owners due to the longer sales cycle. However, if you can establish your eBusiness in this business model, you can count on more stability with a higher average of repeat customers and recurring orders.
Consumer to Business
The consumer to business model is a reversal of the traditional business models we have discussed up to this point. In this business model, consumers sell products or services to companies. This business model would almost certainly not be possible without the advancement of technology and the power of the Internet. If you’re having difficulty wrapping your head around what this type of business model looks like in a real-world setting, a good example of a company that uses this model is Upwork, previously known as Elance.
On Upwork, freelancers can post their services and businesses are able to bid or negotiate directly with them. In this case, individuals are selling their services to companies. What makes this business model a solid choice for an eBusiness is that goods and services are competitively priced. Businesses have the ability to negotiate prices directly with consumers and compete with other businesses to get the best product or service. Your eBusiness could potentially use a consumer to business approach to find talent, or you could use this business model to create a marketplace that connects consumers with businesses, like Upwork.
One of the ever-evolving areas of the Internet that innovative businesses are taking advantage of is social media. Recent consumer to business innovations have included working to connect social media influencers with brands who want to market their products or services.
Consumer to Consumer
This business model was pioneered on the Internet by websites like eBay and Craigslist. The consumer to consumer eBusiness model connects consumers with one another and allows them to sell each other goods and services. This business model is often called an online marketplace.
The eBusiness that facilitates the marketplace makes money by charging service fees. Fees are typically charged per transaction and per listing, but you could create your own fee collection policy in order to compete with marketplace giants like Etsy and Amazon.
There are several advantages to the consumer to consumer eBusiness model. First, you don’t have to worry about carrying inventory or shipping products to customers. Plus, growth is self-propelled by your customers who are both buyers and sellers. The more motivated your buyers and sellers are, the faster you can grow your eBusiness.
The potential drawbacks of consumer to consumer businesses is the lack of quality control over products, increased difficulty managing customer service between buyers and sellers, and the technical maintenance of a marketplace website. Most of your potential technical issues can be mitigated by partnering with an app development partner to help manage the technical aspects of your marketplace.
How to Choose Your eBusiness Model
Now that you have a better understanding of the different types of eBusiness model, you are likely wondering how you can determine which model is the best fit for your eBusiness. When determining which business model is the best for your business, you need to consider the following things:
There is a good chance that your eBusiness could benefit from or fit into multiple different business models. You don’t have to choose just one model if your business could operate in more than one.
The first thing you need to determine about your business is who you are looking to serve. What does your ideal customer look like? What expectations will they have when purchasing the product or service you want to sell? When you have an understanding of who your customer is, what they expect, and what they want, you will be able to zero in on a business model that fits your eBusiness.
The products you sell will also be a big factor in determining which eBusiness model is right for your business. For example, if you are making your own products you may want to consider business to business or business to consumer business models. Wholesale and subscription sales can help you cover your production costs more efficiently. On the other hand, if you are not manufacturing products, you’re going to want to focus on expanding your customer base. In these cases, a business to business model might not make the most sense.
How will you position your brand, goods, and services? Your eBusiness positioning will have a lot to do with your customer and product, but having an understanding of how you will position yourself in the market will clarify which business model is best suited for you. Whether you are an eTail business or a customer to customer marketplace, you need to market yourself. Who is your competition? How do they market themselves? How will you be competitive? Determining what makes your brand stand out, will help you solidify which business model best fits your eBusiness.
eCommerce and other eBusiness ideas have transformed the modern consumer experience. There is a lot of space to innovate and reach niche audiences on the Internet. If you want your eBusiness to be successful, you need to choose the right business model to set yourself up for success. Your business could always fit into multiple business models, many businesses do. Take your time to consider your customer, product, and positioning and your ideal business model will become apparent.