I have been talking to a bunch of companies who are trying to figure out what business model to pursue. While this seems like a big science experiment, I think it’s a lot simpler when you stop and think about the universe of business models, generically speaking, that are well-defined and work today. Below is a list of what I consider to be the generic list of business models that seem to make sense in both offline and online contexts:
Brand advertising – A pretty basic and well-known form of generating money. Build an audience of some sort and allow brand advertisers to feature their brands and products in your venue. Online, this can be done at places like Yahoo! Offline, think sports stadiums, broadcast television, etc. Simple goal is to give the advertiser some exposure for his or her products.
Contextual advertising – A slight derivative of brand advertising is contextual advertising. In terms of differences, I would say the big difference is that contextual advertising does more to establish context for promoting a product as opposed to maximizing strictly for reach or impressions. Google is probably the best known contextual advertising mechanism on the web. In an offline world, niche cable channels, targeted magazine publications, and other such targeted venues.
Direct Sales – This is a pretty simple class of business models. Think Amazon, Wal-Mart, and Buy.com. Online or offline, you are selling a product directly to and end customer. This can be transactional, subscription, or any other scheme that gets a user to pay a service provider directly.
Marketplace/Hub – This is a classic business model whereby you bring together both buyers and sellers to transact. The canonical web example is eBay, but there are many other variants in both the online and offline world (shopping malls, for example). The basic idea is to aggregate buyers and sellers and then either take a piece of the transaction or otherwise benefit from facilitating connections between interested parties. Other examples include centralized job boards, dating services, etc.
Distribution Networks – The slight variant to these are things like lead generation and affiliate networks, which often take a transactional fee of some sort for facilitating transactions. I would break these out as separate because often times they don’t require centralized aggregation to work – AdSense, Amazon Associates, and Avon all more or less fit this model. In all cases, there is a centralized entity providing content or product and allowing a network of agents to distribute the content and share in the upside.
Directory – Also a pretty simple class of business models. Aggregate some type of information, organize it, and license it to a third party for use. Examples include the Yellow Pages, the White Pages, Lexis Nexis, and any other information broker. I also guess this class of business model includes people who offer their directories for free (Google, Yahoo, etc) and then layer on some other model (advertising) to generate revenue.
Obviously, there are lots of interesting combinations of the list of business models above. Yahoo and Google combine a directory with an advertising model. Amazon incorporates both a distribution network and direct sales. The list goes on and on.
And, it should go without saying that the real trick in picking the right business model is matching the needs of a particular business with the laundry list of options above. Writing down the list of possible options, however, makes the problem much more tractable.
Are there any other major business models missing from this list? Feel free to respond in the comments.