What is E-business Revenue Model? Types

What is E-business Revenue Model?

An e-business revenue model is a plan or approach that a company uses to generate revenue through its online activities. In other words, it outlines how an e-business generates income and profits from its online operations. There are various revenue models that e-businesses can use, depending on the nature of their business and the goals they want to achieve.

The main motive of any business organization is profit generation. The profit or amount of money an organization makes through the sales of goods and services in a given period is called the revenue of the organization.

Each organization needs to adopt a specific strategy to generate revenue. Thus, revenue models are part of any organization’s business strategies, including e-business organizations.

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Types of E-business Revenue Model

There are three primary revenue models used in e-business.

• Web Catalogue Revenue Model
  
• Digital Content Subscription Revenue Model

Web Catalogue Revenue Model

The Web catalog revenue model is known as the mail order model or catalog model in traditional organizations. In this revenue model, the seller first creates a brand image. Over some time, the seller uses the strength of the brand image to market its products and services through printed catalogs that are mailed to prospective customers.

But, this happens in a traditional brick-and-mortar organization. In an e-business organization, instead of mailing a printed catalog, the seller displays it on its website to give product information to customers browsing the sites. Customers can select an item from the catalog and place an order via email or direct phone call to the retailer. The payment received from customers is the source of revenue for this model.

This revenue model is very effective for selling a wide variety of consumer items, such as apparel, computers, electronics, furnishings, and gifts. Let us consider some examples of this revenue model for various consumer goods:

• Computers and consumer electronics: Dell uses the Web catalog model through its website (http://www.dell.co.in/), where it offers a high degree of configuration flexibility. Customers can specify their configuration requirements for computers and laptops on Dell’s website and purchase a system.
  
  
• Books, music, and videos: Amazon, Barnes & Noble, and Flipkart are the leading retailers in this field.
  
  
• Luxury goods: These include websites to book luxury holiday packages, hotels, restaurants, or retail properties. However, it is still not common to purchase such highly expensive items through the Internet.
  
  
• Clothing retailers: Many apparel sellers are using the Web catalog revenue models, such as Myntra, Jabong, and Shoppers Stop. These websites display photographs of clothing with price and size details. Some websites enable users to compare prices with other retailers.
  
  
• Flowers and gifts: Many gift retailers have adopted this revenue model. These include flower sellers, who have created websites to sell flowers and other gifts. Examples include http://www.myflowertree.com/, http://www.florista.in/, and http://www.indiangiftsportal.com.

Digital Content Subscription Revenue Model

The digital content subscription revenue model is mostly used by e-business organizations that use the Internet to distribute information. These organizations hold intellectual property (IP) rights for written information. Most of these organizations have adopted the digital content revenue model, which means they sell subscriptions for giving access to the information they own.

There are various types of information being sold through online subscriptions. The most common categories of information sold online by organizations are based on the digital content revenue model.

Let us discuss these different types of digital content in detail:

• Legal content: All the information related to the Supreme Court and the High Court can be accessed at this site: http://indiancourts. nic. in/. The information at these sites is related to judgments, cause lists, and case statuses for reference and status checks.
  
  
• Academic research content: There is a digital library called JSTOR (http://www.jstor.org/) which has more than 1,500 academic journals, books, and primary information. JSTOR has a research and teaching platform that assists users in finding, using, and building upon a wide range of content. It also helps in preserving the content for future generations. It collaborates with the academic community to create content on various subjects that can be accessed by other people for a fee.
  
  
• Business content: There are websites, such as http://www.vccircle.com or http://www.businessworld.in, that provide individuals with business news, information, and analysis for the Indian investment ecosystem. These websites cover investment acquisitions, equity, investment banking, and emerging companies and sectors. These websites are based on the subscription model, where individuals need to subscribe to the website for receiving specific news.
  
  
• Miscellaneous informative content: Some websites deliver content on miscellaneous topics, such as automobiles, adventure, entertainment, health and lifestyle, science, and technology. This content is based on the digital content subscription revenue model. To be able to access the content, people need to subscribe to these websites and are periodically charged a certain fee. The digital content revenue model subscription page of The Wall Street Journal.

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Advertising-supported Revenue Model

The third type of revenue model adopted by e-business organizations is the advertising-supported revenue model. This revenue model is similar to the one used by broadcast network television companies. Just like television broadcasters, e-business organizations run advertisements for different organizations to demonstrate their products or services to the audience along with advertising messages.

These organizations then collect revenue through payments for advertising, which is sufficient to support the operations of the network and create or purchase advertisements. However, two major issues impede the success of online advertising.

There is no agreement on how to charge for website visitors. The Internet allows several dimensions, such as:

• Number of visitors
  
• Number of unique visitors
  
• Number of click-throughs
  
• Other attributes of visitor behavior

All these factors have made it difficult for Internet advertisers to develop a standard for advertising charges. There are very few popular websites that have enough visitors to attract large advertisers. Generally, online advertising focuses on specific websites and ignores the remaining sites.

To overcome these issues, online broadcasters have created websites to gather demographic information about visitors. Advertisers pay a specific fee to support these websites. The advertising revenue so collected is sufficient to make these sites profitable.

The advertising-supported revenue model is based on three strategies, which are:

• General Interest Strategy
  
• Specific Interest Strategy
  
• Collection of Specific Interests

General Interest Strategy

Here, advertisers reach a large number of visitors by making low payments. Some websites have general interest content and have enough visitors to be profitable through advertising revenue alone.

For example, Yahoo launched the first Web directory listing links to other websites or Web pages. This attracted a large number of visitors. Due to sufficient traffic, Yahoo! was a pioneer in developing its web directory into a Web portal.

Specific Interest Strategy

Here, advertisers pay high rates to reach a small number of visitors with specific interests related to the theme of the website. For example, several newspapers now publish their news content on the Internet along with print media. Advertising revenues have always supported newspapers and magazines.

Other websites use newspapers as a medium for advertising their content, products, or services instead of a fee charged by newspapers. This helps publishers to generate revenue through the advertising-supported revenue model.

Collection of Specific Interests

Here, advertisers pay high rates for ads on specific pages that appeal to visitors with particular interests related to those pages or sections of the website. For example, some websites cater to niche markets to profit from the advertising revenue model.

Classified ads focus on niche markets. Websites that use classified ads have enough profit potential as they specialize in advertising products or services belonging to a niche market. This is particularly significant if they emphasize the narrower market as they can charge higher rates for advertising to reach the targeted audience.

In addition to Web portals, newspaper publishers, and targeted classified advertising sites, some other websites based on the advertising-supported revenue model include:

• Job portal websites
  
• Matrimony websites
  
• Travel and tourism websites

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Sources of Revenue through Model

The main sources of revenue through this model are explained as follows:

• Revenue From Subscription Access to Content
  
• Revenue From Pay Per View Access to Document
  
• Revenue From Cpm (Cost Per Mille) Displays Advertising on Website
  
• Revenue From CPC (Cost Per Click) Advertising on Websites
  
• Revenue From Sponsorship of Website Sections or Content Types
  
• Revenue From Affiliation
  
• Revenue From Subscriber Data Access for E-mail Marketing

Revenue From Subscription Access to Content

Various websites give access to a range of content, which can be accessed for a month or typically a year against a subscription fee.

For example, The Financial Times (http://www.ft.com/) provides access to its business news for about $6.25 per week.

Revenue From Pay Per View Access to Document

Some websites charge users for single access to a document, video, or audio before they are downloaded. The files may or may not be protected with a password.

Revenue From Cpm (Cost Per Mille) Displays Advertising on Website

CPM or cost per thousand (mille in Latin means thousand) is calculated by dividing the cost of an advertising placement by the number of impressions (expressed in thousands) that it generates.

For example, http://www.ft.com/ charges advertisers based on the number of advertisements displayed to website visitors.

Revenue From CPC (Cost Per Click) Advertising on Websites

Unlike CPM, where advertisers are charged based on the number of times advertisements are displayed, CPC is based on charging advertisers based on the number of clicks on their advertisement links.

Revenue From Sponsorship of Website Sections or Content Types

Some organizations prefer to sponsor only specific content on websites.

For example, a bank may sponsor market news on a website. Such deals are usually made for a fixed amount per year.

Revenue From Affiliation

Such revenues are based on commissions and referred to as CPA (cost per acquisition).

For example, website owners may display Flipkart advertisements on their websites, for which they earn 1% a commission per sale.

Revenue From Subscriber Data Access for E-mail Marketing

A website owner may send e-mails to its customers to seek their permission for receiving e-mails from third parties. The website owner charges advertisers for sending newsletters or other promotional e-mails to its customers on their behalf.

In conclusion, there are three main models of revenue generation in e-business: the web catalog revenue model, the digital content subscription revenue model, and the advertising-supported revenue model. Each model is designed to serve a specific business category. However, three models can be used in combination as well, depending on the business strategies of the organization.

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Issues in Revenue Strategy

Although the Internet has become one of the main channels for business operations in organizations, there are still some challenges to implementing these revenue models. One such issue is channel conflict or cannibalization.

This occurs when organizations use more than one channel for the distribution of products or services and these channels compete with each other for resources or output in terms of sales figures. Let us look at the concept of channel conflict or cannibalization.

Channel Conflict or Cannibalisation

Cannibalization can be defined as the negative impact on the sales performance of the existing products of an organization due to the introduction of new products. Similarly, an organization can suffer cannibalization in its business when it goes online.

It may be possible that an organization’s physical selling suffers when it sells through websites. This will make inventory maintained in physical stores obsolete and may lead to the wastage of organizational resources.

For example, Levi Strauss & Company sells its Levi jeans and other apparel through departmental stores and retail outlets. The organization started selling jeans through its website in 1998. After some time, the website started competing with retail outlets in terms of sales figures. Therefore, in January 2000, the company discontinued its practice of selling jeans through its website.

Such an issue where sales from an organization’s website conflict with that of its physical stores are called cannibalization. This is because sales through the website consume the sales that would have occurred at other sales channels.

Cannibalization can also occur when an organization aims to extend its brand. This is because the introduction of a new product might affect the sales of the existing product. Moreover, if an organization has established sales channels, it might compete with the organization’s website in direct sales.

For example, Eddie Bauer, a clothing company, sold its clothes through several distribution channels, including:

• Retail stores are located primarily in major shopping malls.
  
  
• Catalog divisions sell clothes through catalogs. Customers place orders by filling out a form after selecting the product from the given catalogs.
  
  
• Websites where customers can browse products on screen and place orders online.

However, sometimes, organizations deliberately use cannibalization as a business strategy to increase sales through online sales channels.