TAXONOMY OF INTERNET BUSINESS MODELS
A large variety of Internet business models have emerged since the mid-1990s. Most business activities on the Internet are covered by five categories: content, connection and communication, community, coordination, and commerce (Afuah and Tucci, 2007; Wirtz et al., 2010).
As many business models rely on hybrid or integrated versions, these categories are not mutually exclusive (Wirtz et al., 2010). Although the value propositions and revenue models of these five activities differ, they are all based on the exchange of information via the Internet to some extent and are therefore influenced by the properties of the Internet. Concerning revenue models on the Internet, several common direct and indirect forms of generating revenue have emerged (Table 17.1).17.4.1 Content
Content-oriented business models deliver information, games, movies or related products over the Internet. Companies offering entertainment heavily capitalize on the Internet’s properties of universality, mediating technology, and ubiquity. Players of massively multiplayer online games (MMOGs) like World of Warcraft, for example, can interact simultaneously with thousands of other players worldwide. Media companies providing information depend on the Internet as a distribution channel and mediating technology. Their value proposition is to collect, select, compile, remix, distribute, and/or present content online in a user-friendly and convenient way. Digital technologies had a
Table 17.1 Typical Internet business revenue models
| Direct Revenues | Indirect Revenues | ||
| Usage-dependent | Usage-independent | ||
| Non-recurring | Recurring | ||
| Transaction fees Value-added service fees License fees | Admission fees Donations Crowdfunding | Subscription fees | Advertising fees Monetization of online behavioral data |
Sources: Mertens et al.
(2007); Zerdick et al. (2000).tremendous impact on how content providers create and capture value. New players have diminished the power of established gatekeepers and caused dis-intermediation finding new ways to create value. While many companies offering information still struggle to find a sustainable revenue model on the Internet beyond indirect, transaction-independent online advertising, entertainment-oriented business models have increasingly found such sustainable revenue streams such as subscription (e.g., Spotify, Netflix, World of Warcraft), individualized online advertising (e.g., Hulu.com), or pay-per-view services (e.g., Apple iTunes).
However, information providers could achieve success in the balance between subscription and advertising. Since March 2011 The New York Times, for instance, has adopted a paid-access model. This model allows reading a particular number of articles each month for free before readers have to pay. In October 2012, The New York Times had almost 600 000 paid digital subscribers (The Economist, 2012). Although the Internet traffic dropped by around 20 percent, resulting in decreased online advertising revenues, the additional revenues from digital subscriptions could well make up for the losses in advertising.
17.4.2 Connection and Communication
Connection-based Internet business models provide physical network infrastructure and/ or allow communication or participation in communities. Companies that provide consumers physical interconnections with the Internet or enable consumers to conveniently put content online are Internet service providers (ISPs), or providers of web hosting or ‘infrastructure as a service’. These firms typically generate direct revenues on a subscription, time, or volume basis. While markets for physical Internet access are increasingly commoditized with shrinking profit margins, providers of virtual interconnections enabling users to connect to other people in online networks or to communicate by e-mail, text or video chats, or Voice-over-IP could capture much of the value added.
These services capitalize on the Internet properties: time moderator, low-cost standard, infinite virtual capacity, and universality. The providers’ business models of communication services and communities are primarily based on indirect revenue streams, predominantly online advertising, but direct revenues such as subscription fees are also increasingly common. Often providers combine indirect and direct revenue streams, employing a ‘freemium’ model that charges consumers for premium services while the basic service remains free (Anderson, 2009).17.4.3 Context
As online information is growing fast, providers of context-oriented services help users to find individually relevant information rather than creating content themselves. The value proposition of these services is to reduce complexity and to structure the inevitably unstructured Internet. Prominent examples of these services are search engine providers like Google or Bing, which assist users in identifying websites that satisfy their particular needs. Their revenue streams are usually indirect, resting on (targeted) online advertising or commissions.
17.4.4 Commerce
Electronic commerce is defined as a digital trade transaction including the stages information, initiation, negotiation, clearing and delivery using computer networks; that is, the Internet (Bons et al., 1998). Buying and selling information, products and services over the Internet are globally increasing at an estimated rate of 19 percent per annum and sales are expected to reach about US$1 trillion in 2013 (Khan et al., 2011). The Internet’s universality, ubiquity, and low access costs allow organizations and individuals to trade products and services worldwide with minimal transaction costs. The most common forms of e-commerce are B2C (e.g., Amazon, Groupon), B2B (e.g., Covisint), business-to-administration (B2A), or consumer-to-consumer (C2C; e.g., eBay). The value proposition of firms like Amazon or eBay is to offer a large variety of goods or services and handle transactions cost-efficiently for sellers and buyers. As price competition in e-commerce is fierce, logistics are complex, and handling of returns is expensive, online merchants increasingly seek to foster indirect revenue streams (commission based) replacing direct revenues from online sales.
17.5