Infomediary Model - What Is A Business Model?

WHAT IS A BUSINESS MODEL?

Whether a company sells products or services to consumers, other businesses, or both, there are many different ways to approach the marketplace and make a profit. Business models are used to describe how companies go about this process. They spell out the main ways in which companies make profits by identifying a company's role during commerce and describing how products, information, and other important elements are structured. Just as there are many different industries and types of companies, there are many different kinds of business models. While some are simple, others are very complex. Even within the same industry, companies may rely on business models that are very different from one another, and some companies may use a combination of several different models.

General business models by themselves do not necessarily map out a company's specific strategy for success. Strategic marketing plans, which are a specialized type of business model, are used for that purpose. They identify the specific situation in which a company finds itself in a particular marketplace, the differentials that set a company apart from its competitors, the marketing tactics used to accomplish strategic objectives, and so on.

Business models involve different levels in what are known as supply/value chains. Value chains outline the activities involved in creating value from the supply side of economics, where raw materials are used to manufacture a product, to the demand side when finished products or components are marketed and shipped to re-sellers or end-users. Companies review and analyze different steps in value chains to create optimal and effective business models.

Some long-established business models used in the physical world have been adopted on the Internet with varying degrees of success. Among these are mail-order models, advertising models, free-trial models, subscription models, and direct-marketing models. Other business models are native to the Internet and e-commerce and focus heavily on the movement of electronic information. These include digital-delivery models, information-barter models, and freeware models.

Every business model has its own inherent strengths and weaknesses. Just as is the case in the physical world, online business models vary in their suitability for different enterprises. Business models themselves are not enough to guarantee success in the physical or online worlds. As Jeffrey F. Rayport explains, "Every e-commerce business is either viable or not viable. They hardly qualify for the paint-by-number prescriptions that business people seem to expect. Business models themselves do not offer solutions; rather, how each business is run determines its success. So the success of e-commerce businesses will hinge largely on the art of management even as it is enabled by the science of technology."