Studying web business for couple of years and seeing some start-ups thriving for a while then disappear! I realized that the web is nothing different from the traditional business which operate base on the same rule; if the total money generated is much more than the cost of providing your service or selling the product then you make profit. If this continues over time, you become a successful company!

I will be exploring with you in this article, “Web business model” which I think is critical to your success in building your own online empire like Google, Yahoo, Facebook etc. Let’s define what it really means, “a business model is the method of doing business by which a company can sustain itself — that is, generate revenue. The business model spells-out how a company makes money by specifying where it is positioned in the value chain.” As defined by MICHAEL RAPPA, note the emphasis as we will be talking more on these.

Before I go further, I want you to understand that, “What makes a business successful is its ability to provide value for its customer/client and being able to sustain their happiness with your service for as long as you want to remain in business.”  You may want to ask, what does Google sale? Or what service does Yahoo provide? You may still want to probe further to ask “How the hell does Facebook make money?” If you reflect on these and look critically, you may be able to answer these questions yourself. Now let me ask, why do you go to Google? Well your answer to that question is what gives Google its market capitalization of over $140billion.

So back to you, what value do you provide through your site and how much money can you make from it? I have seen people start “me too” businesses by creating exactly the services of these successful companies! Do you make more money than you spend? If yes, fine! Then all you need is to expand and see how much of the money you can make by reaching more customers! I have worked with couple of start-ups and most time I hear words like… I have spent so much money on this site! I receive good comment from my site, which is good for me! I love this thing and will continue to it! I am not against any of these, but if you cannot continue like this and be successful! Our concern here is sustainability and growth!

Understanding the Internet Currency

Well, you might think the currency spent on the internet is dollars, you are absolutely WRONG! The ultimate currency spent online is ATTENTION! The web is called attention economy! Yahoo, Google and Facebook are the world’s most visited website and obviously among the most successful (except for Facebook which is still in its infancy). Google commands far more than 69% advert revenue on the internet! For you to build a business on the internet, people must know about it because you created for them! Facebook generated a lot of hypes and it has compensated for it with good service which the public have been yearning for; privacy and simplicity!

Business models you can choose from

• Brokerage: this model is based on bringing the buyer and the seller to common place to bring about transaction from which the broker gets commission or percentage. Think of it like the normal brokerage services. The Internet facilitates this model effectively. Example: ebay.com
• Advertising: this model is where your revenue comes from placing advertisement on your site from second or third-party. Requires you to generate huge traffic. The content you offer on the site could be free but while they (visitors) enjoy your freebies you make money via ads. Example, yahoo.com, Nairaland.com, Google.com
• Infomediary: as its name implies, information intermediary! They are based on generating information from a given set to other group of people. Nielsen, Doubleclick (now Google).
• Merchant: These are more like the traditional brick & mortar with online presence. They produce/list various products from which they make profit from its listing price. E.g buyright.biz etc.
• Manufacturer (Direct): thinking about removing the middle man, this does it right! This model facilitates from factory-to-customer’s home. You have access to the end user of your service and sell to them at an affordable price which helps you lower your operating cost.
• Affiliate: this model is simply pay-per-performance. When you generate a sale for your affiliated site, you receive agreed percentage for the sale. While you can join existing one and build a site on the model, you can also create it around your products and services. Like the common link/banner exchange and the famous Amazon affiliate. Site that offers this model includes Omoobridal.com, Amazon.com,clickbank.com etc.
• Community: this is ultimately based on your user loyalty; make them gravitate towards your site each time they come online. Nairaland.com successfully used this model, in year 2005-06 I was personally addicted to it. The emerging communities are the social networks around, Facebook, Twitter, Flickr etc. You can also create community for a common interest; be it open-source and charge for support service. Joomla, Red Hat and WordPress are living examples.
• Subscription: You can create a special area for your site members, or have them per to gain access to your classified resources. This could be periodic; daily charge, monthly or annual fee. They are also called premium services; some dating (roommate.com) and social network (classmates.com) offer these services even though there are many free sites. Also consulting firm like McKinsey, they have both free and paid subscription.
• Utility: you can make your money via pay-pay use. Am sure you are currently paying for your web hosting in this format. ISP, Web Hosting.

Web 2.0 Business model

There have been arguments over the Internet on sustainability of the web model being used by web 2.0 sites, though most still fall back to the models mentioned above but their effect and hype are getting attention from every corner. As pointed out by Ken Yarmosh there are at least two models employed by web 2.0 site; Technology based and Network Effect. As he argued, even though both models are closely related and their successes are tied together, their approach to it is the distinguishing factor, looking at the way each model is pursued.

A technology based model lays more emphasis on Innovation, and product distinction in the market. This quest made it inevitable for them to enter into the heart of their users thereby creating an extreme network effect that now brings amount (based on market acceptability) the huge profit. Skype created its novel product and now it’s widely use and compete with Network carrier at some fronts. Twitter as the newest baby, made its API widely available, this makes it possible to use the service without ever going to twitter.com more than once (for signup). Though twitter is still in search of a magic wand to turn its technology into profit, as people continues to use it, its founders will be more open for ideas and a possible acquisition.

Network effect on the other hand is driven by hype and media, this raises the market expectation so high that, it keeps the founders out-of-the-box. Facebook was able to compensate for the market expectation by being innovative and expanding its borders. Facebook Connect is very good technology which will define and shape the future of socialization and identity recognition across the web.

I’m sure you can attest to the fact that Twitter is a Technology base model while Facebook is Network Effect based.

In Nigeria, we have over 20 social networking sites most of which copied features employed by Facebook and the likes. Some of the things that have kept them in the hide-out are the fact that they have not really come out with a sustainable business model. You should not be surprised if you see them fade-out one after the other. Other Web businesses are doing quite well, nairahost.com, Nairaland.com, 2deal4real.com, buyrigh.biz and a host of others.

To remain competitive in the web business, you need to fashion out a sustainable business model. See it as if you are starting a normal business and not just a hobby. Am sure if you want to start selling cloths, you sure will not sell below your cost price. It is very important that you choose a business model that fits your person and expertise. Innovation cannot be left out of this, even if you copy a model, let us see a personal touch of creativity and we can predict if you will be seen for long.

*Note: you can mix the models as you deem fit for your business. Just make sure you continue to serve your customer/users interest and don’t miss out on the ATTENTION.

I need you to say honestly, what is your business model? Drop it below…