The growth of internet based business models has seen tremendous growth in the past ten years since the dawn of the internet era. Over years, several organizations doing business through the Internet have come out with their own set of unique propositions to succeed in the business. For instance, online retailers like Amazon.com, Buy.com and Travelocity.com have been successful by cultivating relationships, offering exemplary customer service and customer discounts. Companies like Hotmail, Google and Yahoo made business by providing free products and services. Social networking sites have identified new revenue streams for their business through advertising. An online auction business like e-Bay has transformed auctions that were limited to garage sales and flea markets into highly evolved e-marketplaces.

 

Internet has been instrumental in creating lots of new business models, both innovative and legitimate. Most online businesses are successful except for a few which failed during the dot-com bust because of flawed business models. The online business models continue to evolve and firms have started combining many different models as part of their overall business strategy. Nine major categories are used to classify a number of different types of business models that have been identified in practice among Web-based enterprises:

 

Brokerage model – Brings market makers, buyers and sellers together and facilitate transactions. Examples include Orbitz.com, Priceline.com, eBay.com, Paypal.com & amazon.com

Advertising model – An extension of the traditional media broadcast model where content and services are mixed with advertising messages in the form of banner ads. Examples include Yahoo.com, Monster.com, Craigslist.com & google.com.

Infomediary model – Assists buyers and/or sellers understand a given market by independently collecting data about producers and their products. Examples include Doubleclick.com, Edmunds.com & collsavings.com

Merchant model – facilitates wholesalers and retailers of goods and services to sell online. Examples include Amazon.com, BarnesandNoble.com & itunes.com

Direct manufacturer model – Allows manufacturer to reach buyers directly. Examples include Dell.com

Community model – Community members are introduced to contextual advertising and sale of ancillary products and services. Examples include Redhat.com, Wikipedia.com, Flicker.com, myspace.com, facebook.com, Friendster.com & Orkut.com

Affiliate model – Provides purchase opportunities wherever people may be surfing. Examples include Amazon.com, google.com

Subscription model – Users are charged a periodic fee to subscribe to a service. Examples include Netflix.com, Listen.com, Classmates.com & AOL.com

Utility model – An on-demand model where metered services are based on actual usage rates Examples include Slashdot.com

 

Internet in some ways is not nourishing new business models. A striking example would be the online newspaper business model where a move from the traditional model to an online one has made readers worth less (in terms of advertising revenue generated), made content available for free and ultimately lose ownership over readers choices. Some of the early internet startups failed for various reasons, some of which include being non-innovative, offering services for free, creating technology or products too early to be adaptive, massive infrastructure and marketing costs and developing a critical mass of buyers and sellers at the same time.

 

Information systems are strategic to the extent that they support a firm’s business strategy . Most internet based business models used the Internet and its own information systems to support its strategy in several ways. In my opinion, IT is a strategic weapon rather than a survival tool. Opinions are highly contextual and can differ depending on the situation. In case of brick-and-mortar companies having an online presence maybe an extension of their business strategy, but for companies like Amazon and e-Bay, which entirely depend on the internet for survival, IT/IS is a critical core competency for sustained competitive advantage. A well established internet strategy built into the overall business strategy will provide competitive advantage and this can be illustrated through the success stories of Amazon, e-Bay, Yahoo, Travelocity & Google. Information technology has been extensively used by online businesses to leverage intangible, complementary human and business resources such as flexible culture, strategic planning-IT integration, and supplier relationships resulting in sustainable competitive advantage and business agility.