Learning the 4 Main Types of e-Commerce Business Models
E-commerce grew to be a monolith in this age of technology. With the existing slur between the types of e-commerce and its affiliated business models being used in the industry today, how do you identify which platform would best serve your purpose?
If you have little to no experience in business and you want to start your own digital venture, understanding the foundation of starting an e-commerce would be a great starting point as this is where everything will be hinged — from your product and service offerings, inventory, and tax obligations.
In this series of blogs, we'll be discussing the two classifications of e-commerce.
- According to Business Model (this blog)
- According to Revenue Model
For the first release, let's break down what are the different e-commerce business models and the service value they bring to the table.
- Business-to-Consumer (B2C)
Types of e-commerce business models
Under this classification, we focus on the parties involved [buyer and seller] and how the business operates in the online platform, particularly how they sell their products or services. There are 6 primary business models for e-commerce and below is a discussion of each.
Business-to-Business (B2B)Most of these business models are straightforward, just like this one. B2B e-commerce is a high-value partnership where a business offer goods or services to another business. It also branches out into two divisions:
Vertical approach— where you offer your services or products to clients under a particular field;
- Horizontal approach
— encompasses clientele from a plethora of industries.
Depending on what kind of market you want to tap, you can either leverage the field expertise (vertical) or extensive market reach (horizontal).
Compared to directly selling to consumers, B2B is the second-best when it comes to the percentage of sales as they have a longer sale cycle, but they acquire greater order value, continual purchases, and even forge long-time partnerships should the quality of provided service is maintained.
However, challenges are present in this business model as well. For one, there can be some sort of friction in finding and convincing your target companies to invest in what you can offer. B2B transactions are also known for high-end pricing, adding up to the long decision-making phase.
Business-to-Consumer (B2C)B2C is the most prevalent among the many e-commerce business models. When your entity targets individuals and is geared towards providing their needs and wants, you fall under B2C. In this case, consumers are the ones who come to you for a direct purchase, which translates to the traditional retail trade except for having the need to go to a physical store to complete a transaction.
Expanding into 5 sub-models, B2C umbrellas these approaches in direct-to-consumer solutions.
- Direct selling
— consumers buy from online stores.
Online intermediaries— they bridge the sellers and customers together and slash their fees on every transaction made.
Advertising-based— free content on a heavy-traffic website is mixed with online ads where people come across them.
— Meta, formerly known as Facebook, is a good example of a community-based model that helps market directly at consumers based on demographics and geographical location.
Fee-based— a fee is charged in exchange for the consumption/access of content, like Netflix or The New York Times.
Among the common constraints of B2C are the logistics matters and their affiliated costs. It also has a tendency to operate in a sporadic manner since recurring purchases are lesser and average orders are lower. On the upside, it has a shorter sales cycle compared to that of B2B.
Currently, businesses are either opting for a mix of brick-and-mortar shops and online channels (hybrid approach) or shutting down their physical stores for a digital platform.
- Direct selling
Consumer-to-Consumer (C2C)This is a unique e-commerce business model. The rising consumer confidence introduced C2C functions which allowed them to sell directly from consumers to consumers using a digital third-party [such as eBay, Craigslist, and Etsy] in exchange for a small commission to the site.
Even though C2C is leaning toward a more standalone enterprise, it's worth noting that it is still subject to an e-commerce business license from the state and federal issuing agencies.
Read Next: Checklist in Obtaining E-Commerce Business License in the US
Consumer-to-Business (C2B)Implied on the name itself, C2B reverses the role of B2C as individuals are the ones offering services to businesses. In this scenario, workers make their services available to companies and have them bid for the opportunity to leverage their [individual's] expertise. Freelancing is a great example of a C2B case, which became more prevalent over the past years.
One great advantage of C2B is the upper hand given to the consumers in naming their price, meaning they can look for a firm that would exactly meet their needs.
Gone are the days when the mantra this is how we've always done it, ruled the way executives conduct business. The intervention of advanced technology proved to be beneficial in defying conventional practices, which then introduced innovative approaches in doing business online. Once you know which among the types of e-commerce would best fit your offering, you can start figuring out how you can position your company in the fast-growing competition of the online business arena.