Navigating the Different Types of eCommerce Business Models
Before 2020 and lockdowns caused by the pandemic, the digitalization of business was increasing at a rapid pace. Amazon was already the largest direct-to-consumer platform on Earth and continuing to dominate other sectors. When governments required businesses to close their doors to the public, companies utilizing an eCommerce business model, like Amazon, thrived.
Since the pandemic started, businesses have been forced to adjust their model to accommodate a society that demands products and services without face-to-face contact.
The lockdowns and general hesitancy to support retail has disrupted the world economy. Economists believe COVID is responsible for speeding up an already increasingly digital world by several years. Consumers value speed and convenience provided by online businesses; as a result, the business model will continue to prosper long after the pandemic is over.
What is an eCommerce Business Model?
eCommerce or electronic commerce refers to businesses that provide goods and services over the internet. While many associate online retail companies that sell physical products with the phrase, the model extends to any company offering value distributed online.
Online business has existed long before the internet, or even personal computers were widely available to the public. Over the last 40 years, online business has evolved from the early dial-up connected marketplaces like CompuServe and the Boston Computer Exchange to massive corporations dominating modern retail commerce. Forbes predicts the global online business market will expand by $1 trillion over the next 3 years.
As 5G and broadband internet becomes readily available in rural areas and 3rd world countries, the model will continue to expand.
What are the Different Types of eCommerce Business Models?
Business-to-Business (B2B) – A type of transaction involving businesses, most commonly demonstrated in the manufacturer-retailer relationship.
Business-to-Consumer (B2C) – The selling of products from a business directly to the consumer.
Consumer-to-Consumer (C2C) – A model where 3rd party facilitates the transaction between private consumers.
Consumer-to-Business (C2B) – When a consumer creates value that can be provided to businesses. Examples include freelancing and online review platforms.
Business-to-Administration (B2A) – A model that sells goods or services to a government agency over the internet.
Consumer-to-Administration (C2A) – A model that allows consumers to post inquires directly from their local government officials electronically.
Types of Online Revenue Models
Each type of business model can utilize different patterns of generative profits. We cover common types of eCommerce revenue models below.
Dropshipping is a revenue model that allows a business to sell goods without holding inventory. The company focuses primarily on marketing other products manufactured by another entity.
Instead of buying the products in large quantities and storing them in a warehouse, the goods are purchased through the retailer’s online platform are shipped directly from the 3rd party to the consumer. The model allows companies to buy products in small quantities at wholesale prices. When a consumer makes a purchase, part of the payment is passed along to the manufacturer while the business keeps the net revenue from the sale.
Businesses typically build a website and focus on digital marketing to drive traffic to their online store. The model can be performed 100% remotely with minimal overhead.
The most common type of dropshipping business model is done with the Chinese online retailer AliExpress. Operators can advertise any products available on the platform, and all orders are sent to consumers directly from China.
Wholesaling and Warehousing
A wholesaling revenue model consists of a retailer buying goods from a manufacturer at a discounted price, then increasing the price and dealing with customers. A wholesaler can provide their B2B services to various retail companies and focus strictly on manufacturing goods.
Companies offering warehousing services provide a place to store inventory and typically provide logistics as well. For example, a clothing company can buy garments at wholesale prices, keep their products in a warehouse for a fee, and ship directly to the consumer from the warehouse. This business practice lowers revenue and gives growing retailers the opportunity to scale without extensive capital investment.
Warehousing has become an increasingly lucrative revenue model since the rise of online shopping. As more products are purchased online, there’s an increasing demand for space to store inventory. Part of Amazon’s success is the company’s ability to streamline every aspect of the process, including highly efficient warehousing and logistics practices.
Private Labeling Manufacturing
Businesses that manufacture goods can take direct orders from retailers to produce their private label product in a unique way. In the traditional private labeling revenue model, goods are created specifically for a brand with unique specifications and marketing.
Private labeling is an exclusive relationship between a manufacturer and a retailer. The vendor-specific goods are produced with the retailer’s specifications and are not available to any other businesses.
White Labeling Manufacturing
The difference between private labeling and white label manufacturing is the exclusive relationship between the manufacturer and retailer. In a white label revenue model, the manufacturer makes products that can be sold to various companies; there isn’t a private connection between the retailer and manufacturer.
A successful white-labeling business will supply the same product to many retail businesses. The products are made without any labels to be distributed to an array of retailers. When the products are purchased, the retailer is responsible for labeling, packaging, and distributing their goods to consumers.
Today, white labeling companies are also including dropshipping opportunities in their business model, instead of shipping the products to the retailers, the manufacturer labels and sends the products directly to the consumer, absorbing a larger share of the retail profits.
A subscription revenue model consists of a reoccurring transaction of goods or services. The retailer and consumer agree on a price charged regularly in exchange for the business’ product.
An excellent example is a prepared meal delivery service like Blue Apron. The company takes a reoccurring online payment in exchange for continuous delivery of pre-portioned food along with a recipe. A subscription service increases its value proposition through convenience and automatic billing.
Examples of eCommerce Business Models
The best way to differentiate the essential aspects of an eCommerce business model is to look at examples from successful companies. Below are examples from 4 prominent companies to help you fully understand the different e-business models.
The Alibaba Group is a family of internet-based businesses, including a platform for global wholesale trade and payment, shopping search engines, and data-centric cloud computing services. While the initial B2C business model consisted of an online marketplace, the company has expanded to offer services to other businesses, such as dropshippers, and created a C2C platform to trade goods.
Alibaba’s business model directly reflects Amazon’s, so much so that the eCommerce corporation is commonly referred to as the Chinese Amazon. However, both companies still offer a B2C model, allowing consumers to purchase products from their platform and receive them in the mail. As the digital landscape has evolved, Alibaba and Amazon have been successful because of their ability to innovate the model and accommodate needs in the market.
Amazon Web Services
While we all know Amazon for their online retailer services, efficient but controversial warehousing practices and 2-day shipping, a massive portion of their annual revenue comes from cloud computing.
AWS makes up 12% of Amazon’s profits and is growing at a rapid pace. Businesses rely on AWS to provide them with web services such as servers, databases, cloud storage, remote computing, email, mobile development, and online security. Amazon Web Services can accommodate anything from a static small business website to a massive streaming platform like Netflix.
Along with providing B2B services, AWS also helps governments with their online needs. Over 6,500 government agencies use AWS for various web services making the cloud computing services an excellent example of the B2A model.
Glossybox is a Berlin-based online subscription service providing beauty enthusiasts with samples of top beauty products. Customers agree to pay a monthly price and receive boxes curated to their specific beauty and makeup product needs. Glossybox is a B2C subscription model; however, they also provide other services that demonstrate consumer-2-consumer and business-to-business models.
Up and coming brands can pay Glossybox to get their product featured in their curated box. Companies use this marketing strategy to get products in front of new consumers. Instead of buying advertising, brands pay companies like Glossybox for exposure.
The beauty product subscription service also offers an affiliate program that fits the C2C business model. Content creators can use Glossybox in makeup tutorials and unboxing videos generating traffic to the site. Every time a consumer uses an affiliate link or is tracked from an affiliate account, the content creator receives a commission.
Fiverr is a freelancing platform that gives businesses access to various types of contract workers. Companies can hire web developers, graphics artists, and other freelancers for specific jobs. Fiverr provides the platform with services for both freelancers and businesses, including a payment escrow system, search engine optimization, and customer service.
Consumer-to-business companies are experiencing rapid growth due to the digitalization of the economy. As commerce transitions online, the demand for web and social media content is at an all-time high. Fiverr’s stock has increased 1400% from 2020 to 2021. Other platforms such as Upwork and Freelancer have also experienced exponential growth over the same period.
What are the Essentials of Every eCommerce Platform?
eCommerce companies utilize various business and revenue models; however, there are some key aspects that every platform must have.
A robust platform with fast page load speeds and easy-to-access content is essential for every online business. The website needs reliable hosting and internet infrastructure to ensure revenue isn’t lost due to downtimes.
Easy to Use UI
Consumers, businesses, and agencies need to be able to navigate the platform. In addition, content must be organized and displayed in an aesthetically pleasing way.
The user interface and customer experience are critical components of an online retailer’s sales funnel. The user should undergo a seamless process from the moment the user arrives on the platform until the payment is processed.
Every platform needs a reliable payment processing system. In addition, the company must accept a variety of digital payment methods and handle refunds.
Payments should be handled seamlessly, with security as the number one priority. Consumers want to be able to check out fast but prioritize the safety of their personal information.
Mobile accessibility has become increasingly important in the past decade. The majority of online traffic is generated from smartphones; to be successful in eCommerce, the business must accommodate mobile use.
Businesses transitioning to digital commerce are challenged with updating and modernizing their web content for smaller screen sizes. As a result, modern web developers use a mobile-first approach when creating a new online platform.
Every online business will encounter problems. When a 3rd party controls aspects of the supply line, issues can increase, driving the need for sufficient customer service care. Companies that don’t answer inquiries or resolve problems will lose loyal customers and suffer from online reviews.
Security and Data Management
Online shoppers want to feel safe when navigating a website and entering payment details. Therefore, proper security measures like SSL are needed to instill consumer confidence.
As internet users become more aware of how their data is distributed, they are increasingly cautious about sharing their information with online entities. Successful online companies offer transparency to how their handle customer data.
The Future of the Economy
The digitalization of commerce isn’t going to stop even after the pandemic is over. Consumers have become accustomed to receiving cost-effective products quickly and directly to their mailbox. While there will always be an opportunity for brick-and-mortar business, we expect eCommerce business to dominate the economy moving forward. Furthermore the Metaverse could also be the next big think for eCommerce.
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