Business Models

Business model is a “Description of means and methods a firm employs to earn the revenue projected in its plans. It views the business as a system and answers the question, "How are we going to make money to survive and grow?" (Business model).

There are many different kinds of business models. However, there are six main ones. They are described below.

The manufacturing, or direct model, is likely to be the oldest one. According to this model, a small businessman acts as a manufacturer of a product or a service. He/she sells products directly to the buyer with a license, lease or one-time payment.

Advertiser business model means that one gains profits from advertising other businesses. The firms which set billboards are the examples of this business model. Online examples can be advertising sites or search engines.

Data model is based on the use of information. Information is a commodity. The firms sell to other firms information about consumer behavior. Nielsen and Alexa can be mentioned as the examples of successful data models.

The merchant model is usually used by wholesalers or retailers of goods and services. The examples are shops and mail-orders through a catalog.

Some professionals who have special knowledge about a particular service use brokerage model. They share their knowledge with their clients for a fee. A good example is a real estate agent. He/she knows more than a common person about a real estate market, so he/she charges a fee for these services. In this model, the professional acts as the broker between the customer and the seller.

Commission model looks like advertiser model. However, businesses gain profits from commission, not advertising. This model is a cross between a brokerage and an advertiser model. However, it requires less initial investments and licensing than brokerage model (Bryant).

Nowadays Interned is used everywhere. There were no special online models before. However, now they exist. There are three most generally used online business models: made for the Web, brand extension, and the transmedia model.

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“Made for the Web” model means that the business is created for the Web. It cannot operate offline. Money flows happen only online. A good example is the Airbnb platform. Airbnb was created in 2008 and soon became the biggest community market for online accommodation booking (or via a cell phone). There commonly exists a traditional technique of renting apartments. It was turned into online communications with an innovative business approach.

The listing of your apartments is free of charge. When they are already reserved, the renter is charged 3% fee. All the deals are made through Internet. Airbnb even offers a free photo of your accommodation in most countries in order to provide a service of good quality.

Airbnb is currently ahead of all its competitors. It made an important step by making the service free and fully online.

Brand extension model is the most spread model used online. In modern world, practically all companies use it. Usually, brand is already known, and it is being extended through Internet. An example can be Luxury Hotels of the World. SLH offers a choice of over 520 small independent hotels in more than 70 countries. They communicate through their website as well as through other media channels like Facebook, G+, Twitter etc. The hotel can be also booked through phone application.

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Such communication helps engage with the customers and to monetize. The similar type of communication is used by Disney (Bozanic).

Offline business models exist now, however, in developed countries they start to disappear. Offline models are traditional. They do not require internet to operate. They mean just opening up a physical location where buyers come and purchase products or services. For example, Hollywood Video only has store locations. However, the most common examples are small local shops or service centers. Customers are attracted by their atmosphere or reputation (Online Business vs. Offline Business: Pros and Cons).

Online and offline business models have their own advantages and disadvantages. The advantages of online business are numerous. It can operate all over the world, and many customers can use online service. Due to that, the activity is spread and the profits can be increased. Dealing online is often more convenient and cheaper than doing that offline.

However, small businesses may not need online business models. They can benefit just from the location of their store, products and reputation. The online services may be unneeded. Moreover, it costs quite a lot to create, establish and manage online services. That is why small local stores may not need online services. They are not likely to benefit from them. In addition, there can be some issues with online services. Not all people trust them, especially the people of elder age groups. They like to see and touch the good themselves, not through the Internet. Therefore, online business models are beneficial, but not for all businesses.

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