E-Commerce Business Models In A Nutshell

We can classify e-commerce businesses in several ways. General classifications look at three primary categories:

• B2B or business-to-business, where therefore a business sells to another company.
• B2C or business-to-consumer, where a business sells to a final consumer.
• C2C or consumer-to-consume, or more peer-to-peer where consumers sell to each other.

Rather than getting bogged down in too many classifications, we’ll very practically look at the revenue streams of several successful e-commerce businesses, and see if we can borrow any of those elements and apply them back to our e-commerce business model.

Business Model	Explanation
1. Business-to-Consumer (B2C)	In the B2C model, businesses sell products or services directly to individual consumers. This is the most common e-commerce model, with online retailers like Amazon, Walmart, and eBay as prime examples.
2. Business-to-Business (B2B)	B2B e-commerce involves businesses selling products or services to other businesses. It includes online marketplaces, procurement portals, and wholesale distributors. Examples include Alibaba and SAP Ariba.
3. Consumer-to-Consumer (C2C)	C2C e-commerce enables individual consumers to sell products or services to other consumers. Online marketplaces like eBay and Craigslist facilitate these transactions, where users act both as buyers and sellers.
4. Consumer-to-Business (C2B)	C2B e-commerce reverses the traditional model, with individual consumers offering products or services to businesses. Examples include freelance platforms like Upwork and influencer marketing.
5. Peer-to-Peer (P2P)	P2P e-commerce platforms connect individuals who want to rent, share, or trade goods and services directly with each other. Companies like Airbnb and Uber operate on this model.
6. Subscription-Based	Subscription-based e-commerce offers products or services on a recurring payment basis. Subscription boxes, streaming services (e.g., Netflix), and software as a service (SaaS) are prominent examples.
7. Dropshipping	In this model, online retailers don’t maintain inventory. Instead, they partner with suppliers who ship products directly to customers. Dropshippers manage the storefront and marketing.
8. Marketplace	Marketplace e-commerce platforms bring together multiple sellers and buyers, offering a wide range of products. Examples include Etsy, Taobao, and Shopify’s marketplace feature.
9. Direct-to-Consumer (D2C)	D2C brands skip traditional retail channels to sell their products directly to consumers. They often focus on creating unique, high-quality products and building strong online brands.
10. Omnichannel	Omnichannel e-commerce integrates various sales channels, such as physical stores, websites, mobile apps, and social media, to provide a seamless shopping experience for customers.
11. Social Commerce	Social commerce leverages social media platforms to facilitate buying and selling. It includes features like shoppable posts on Instagram and Facebook Marketplace.
12. Niche-Specific	Some e-commerce businesses focus on niche markets, catering to specific interests or product categories. These businesses often target a highly defined customer base.
13. Flash Sales	Flash sale e-commerce models offer limited-time discounts on products, creating a sense of urgency and exclusivity to drive sales. Groupon and Zulily are examples.
14. White Labeling	White labeling involves selling generic or unbranded products that other companies can rebrand and sell as their own. It’s common in industries like cosmetics and electronics.
15. Crowdfunding	Crowdfunding platforms like Kickstarter and Indiegogo allow entrepreneurs and creators to raise funds by pre-selling products or services to backers.
16. Auction-Based	Auction-based e-commerce platforms enable buyers to bid on products, with the highest bidder winning the item. eBay is a well-known example.
17. Digital Products	E-commerce businesses can sell digital goods like e-books, software, music, and online courses. These products can be downloaded or accessed online.
18. Green E-commerce	Green e-commerce emphasizes eco-friendly products and sustainable practices. Brands in this category focus on environmental and ethical considerations.
19. Cross-Border E-commerce	Cross-border e-commerce involves selling products internationally, often requiring localized websites, payment options, and shipping solutions.
20. Collaborative Commerce	Collaborative commerce platforms enable individuals and businesses to collaborate on product creation and distribution.
21. Direct Selling	Direct selling companies recruit independent representatives (often called consultants or distributors) who sell products directly to consumers through personal interactions. Companies like Amway and Avon use this model.

Amazon hybrid model

What can we learn from Amazon? Amazon is an interesting example, as it had the time to evolve over two decades.

So from Amazon, we can get what worked and see if that might work in building up our own e-commerce platform.

Amazon e-commerce, is structured around few lines, that make it solid:

Sell your own products to kick off the e-commerce

You might not know, but Amazon also sells a wide variety of brands that are owned by Amazon.

Therefore, over the years, the company internalized some of the successful products on the platform so it could gain better control over sourcing and perhaps customer experience.

Therefore, if you’re kicking off e-commerce, think of some simple products you can develop and start to sell to kick off the platform. And from there expand on third-party products

Host other physical stores that need a digital presence

In addition to that, Amazon hosts a wide variety of third-party products. Therefore, Amazon is an e-commerce platform, hosting other small e-commerce brands.

Here it’s important to offer a great hosting platform that works out well, and it’s smooth. And from there, you can build other revenue streams.

Transaction-based: Most of Amazon’s earnings as e-commerce is based on getting a commission on the transaction happening on the platform.

At the same time, Amazon also offers some related services. Thus, once the e-commerce has been kicked off, you can start offering some related services.

Build services on top of your e-commerce

Over the years, Amazon developed its fulfillment part, which comprises an inventory of products for third-party sellers, and shipping. When third-party e-commerce jin into Amazon fulfillment services, they don’t have any more inventory and delivery expenses, as they outsource them to Amazon.

However, they give up a good chunk of revenues, as Amazon will collect more from. the transaction.

When kicking off the e-commerce platform, and you have a critical mass of sellers, think of all the ways you can make their life easier (analytical tools, shipping tools, and so forth).

This will make them stick longer, and perhaps also create an additional revenue stream for your business.

Build membership services to abate shipping costs for customers

Building up also a related subscription-based service, on top of e-commerce, can be a great idea, to increase repeat customers, by making it more convenient to shop on e-commerce, by, for instance, abating the shipping costs.

That is what Amazon achieved with Prime, by offering a playlist of movies and entertainment (similar to Netflix).

You don’t have to go that far. All you need to do is to create a membership program, that gives access to special discounts and perhaps free delivery (we’ll see how Walmart has successfully implemented that).

Offer premium listings, or paid visibility

Once you do have kicked off the e-commerce you can also have it, in part subsidized, by other businesses selling their products. For instance, you can sell more visibility on e-commerce just like Amazon does. Indeed, Amazon e-commerce also has a successful advertising line, that enables better product placement and visibility.

eBay complex fee-based model

eBay is also a great example, as the company makes money primarily through fees collected on successfully closed sales on eBay and StubHub.

In addition to that, eBay also built a classified ads platform and a few other seller services.

eBay is a classic example of an e-commerce platform, that enables people to sell any sorts of things. The company has a compelling value proposition, which the company expresses in:

• Easy listing, with a quick and simple set up.
• Free listing, as sellers, can have up to 50 items for free every month, and only pay when they sell.

In addition, eBay counts over 170 million buyers and a stable and secure platform.

eBay collects fees in four ways:

Insertion fees as an entry-point

As explained on eBay:

When you list and sell items on eBay, we charge selling fees. There are two main types of selling fees: an insertion fee when you create a listing, and a final value fee when your item sells.

Therefore, the seller has 50 free per month products to feature, and beyond that, the fee for listing in mostly $0.35, but it can vary.

Final value fees to make it compelling to selers to join

In final value fees, the e-commerce platform only makes money if the transaction is closed. On the eBay case, those fees can be 10% or lower.

Listing upgrades as additional option

With optional upgrades like international site visibility, larger photos, bold character, more space to images, and more, listing upgrades can be a great option for sellers and a good way for the e-commerce platform also to subsidize it.

Fees in selected categories and based on selling-volume

Fees are different for certain categories and depending on whether the seller is a low or high volume. Therefore, eBay has a more complex fee structure, built over the years, also based on its experience.

Etsy simple fee model

Etsy is an incredible example of a two-sided e-commerce platform, also called a marketplace, as it enables smooth interactions between creative and buyers.

Etsy has a solid mechanism of category-suggestion when sellers are entering their items on the platform.

Etsy also has a very simple fee structure:

Etsy made its fee structure straightforward, and broken down in:

• Listing fee.
• Transaction and payment processing fee.
• Offsite ads fee (only. for those who opt-in to Etsy offsite advertising program).

Etsy also offers seller tools to make their presence on the platform more valuable:

GrubHub bidding system

GrubHub has an interesting business model, comprised of several brands. There are a couple of things worth exploring for GrubHub:

• The pre-order commissions charged to restaurants as soon as diners place an order on the platform. Therefore, the company generates revenues primarily when diners place an order; this commission is born by restaurants.
• Bidding revenues: restaurants can choose their level of commission rate, at or above the base rate. A restaurant that pays a higher rate will have a higher prominence and exposure to diners on the platform.

Shopify subscription-based service

Shopify is an e-commerce platform, that hosts other sellers’ websites. As such, it has a very simple pricing structure, made of three tiers:

Those pricing tiers are made of a few key elements:

• Store’s features: store features comprise things like product uploads, support, SSL certificates, professional reports, and more.

• Shipping: it comprises discounts which are higher for those with the more advanced plans.

• Payment: fraud analysis, credit card rates that decrease with higher-priced packages.

Additional Case Studies

Walmart Online Marketplace Model:

1. Own Products and Third-party Vendors: Similar to Amazon, Walmart sells its own products and also allows third-party vendors to list and sell their products on its platform.
2. Subscription Service – Walmart+ : A subscription service that offers members free shipping on eligible items with no order minimum, free grocery delivery, and more.
3. Pick Up In-Store: Customers can order online and pick up their items at a local Walmart store, often getting discounts for choosing this option.
4. Advertising: Walmart offers an advertising platform for vendors to promote their products within the marketplace.

Zalando Hybrid Model:

1. Fashion-focused E-commerce: Zalando started as an e-commerce platform focused on shoes but quickly expanded to a full range of fashion products.
2. Partner Program: Brands can join Zalando and sell their products directly, with Zalando handling logistics.
3. Zalando Lounge: A members-only shopping club for flash sales.
4. Pre-owned Section: Allows customers to buy and sell pre-owned fashion.

ASOS Marketplace:

1. Fashion Resale: ASOS Marketplace is a platform for selling vintage clothing and independent brands.
2. Boutique Fees: Independent boutiques pay a monthly fee to list on the marketplace and a commission on sales.
3. Advertising: Boutiques can pay for additional advertising and promotions on the platform.

Instacart Grocery Delivery Model:

1. Delivery Fees: Customers pay a delivery fee for each order or can subscribe to Instacart Express for unlimited free deliveries.
2. Partner Grocers: Instacart partners with grocery stores and earns a commission on each order.
3. Advertising: Brands can pay for premium placement and advertising within the app.

Dropbox Prosumer Model:

1. Freemium Model: Dropbox offers a free version with limited storage and a paid version with more storage and features.
2. Business Subscriptions: For enterprises and teams with additional collaboration tools.
3. Third-party Integrations: Dropbox integrates with third-party apps and can earn referral fees or commissions.

Rakuten E-commerce Model:

1. Online Marketplace: Rakuten operates an online marketplace where third-party sellers can list and sell their products.
2. Rakuten Points: A loyalty program where customers earn points for purchases that can be used for discounts on future purchases.
3. Rakuten Advertising: Brands can advertise their products for increased visibility.
4. Additional Services: Rakuten also offers fintech services, digital content, and more.

Redbubble Artist Marketplace:

1. Artist Sales: Artists can list their designs on products like t-shirts, stickers, and more. When a product sells, Redbubble handles production and shipping, and the artist gets a commission.
2. Promoted Listings: Artists can pay for better visibility in search results.
3. Licensing: Redbubble partners with brands for licensed merchandise, allowing artists to create designs for popular franchises.

Key Highlights

• Amazon Hybrid Model:
  • Sell Your Own Products to Kick Off E-commerce: Amazon sells its own products alongside third-party products to gain better control over sourcing and customer experience.
  • Host Other Physical Stores That Need a Digital Presence: Amazon hosts third-party brands on its platform, offering a smooth hosting experience and building additional revenue streams.
  • Transaction-Based Revenue: Amazon’s primary earnings come from getting a commission on transactions that occur on its platform.
  • Build Services on Top of E-commerce: Amazon developed fulfillment services for third-party sellers, offering tools to make their lives easier and creating additional revenue streams.
  • Build Membership Services to Abate Shipping Costs: Amazon’s Prime subscription offers convenient shopping with free shipping and access to movies and entertainment, increasing repeat customers.
  • Offer Premium Listings or Paid Visibility: Amazon offers advertising services to sellers for better product placement and visibility.
• eBay Complex Fee-Based Model:
  • Insertion Fees as an Entry-Point: eBay charges sellers an insertion fee when they create a listing on the platform.
  • Final Value Fees to Make It Compelling for Sellers to Join: eBay earns money through final value fees, collecting a percentage of the transaction when it is successfully closed.
  • Listing Upgrades as Additional Options: Optional upgrades like international visibility or larger photos provide additional revenue opportunities for eBay.
  • Fees in Selected Categories and Based on Selling Volume: eBay’s fee structure varies depending on the category and the seller’s volume.
• Etsy Simple Fee Model:
  • Listing Fee: Etsy charges sellers a fee for listing their items on the platform.
  • Transaction and Payment Processing Fee: Etsy earns money through a commission on each transaction and payment processing fees.
  • Offsite Ads Fee: Sellers who opt-in to Etsy’s offsite advertising program pay an additional fee for promoted listings.
• GrubHub Bidding System:
  • Pre-order Commissions: GrubHub charges restaurants a pre-order commission when diners place an order on its platform.
  • Bidding Revenues: Restaurants can choose their commission rate, and a higher rate offers more prominence and exposure to diners on the platform.
• Shopify Subscription-Based Service:
  • Subscription Tiers: Shopify offers different pricing tiers with varying features for merchants to commercialize their products.
  • Store Features: The subscription includes store features like product uploads, support, SSL certificates, and professional reports.
  • Shipping: Shopify offers shipping discounts, with higher-tier plans receiving better rates.
  • Payment: Fraud analysis and credit card rates are included, with lower rates for higher-priced packages.

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