e-commerce-business-models

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.

Amazon hybrid model

amazon-business-model
Amazon has a diversified business model. In 2019 Amazon posted over $280 billion in revenues and over $11.5 billion in net profits. Online stores contributed to over 50% of Amazon revenues, followed by Physical Stores, Amazon AWS, Subscription Services, Third-party Seller Services, and Advertising revenues.

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-business-model
eBay core business is a platform business model that makes money from transaction fees happening through its marketplaces (eBay and StubHub). eBay also makes money through advertising on its classifieds marketplace and other services. The company primarily makes money by charging fees on successfully closed transactions.

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.

fees-from-ebay

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

examples-of-listing-upgrades-from-ebay-website

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.

low-volume-seller
Example of fees for high-volume sellers, based on the vehicle category (eBay seller website).
fee-seller-ebay
Example of low-volume sales fees based on the vehicle category (eBay seller website).
optional-fees-ebay
Example of optional listing (eBay seller website).

Etsy simple fee model

etsy-business-model
Etsy is a two-sided marketplace for unique and creative goods. As a marketplace, it makes money via transaction fees on the items sold on the platform. Etsy’s key partner is comprised of sellers providing unique listings, and a wide organic reach across several marketing channels.

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-two-sided-marketplace
category-suggestion-etsy

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-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:

etsy-seller-tools
Seller tools are key elements of e-commerce platforms built to host third-party sellers.

GrubHub bidding system

grubhub-business-model
Grubhub is an online and mobile platform for restaurant pick-up and delivery orders. In 2018 the company connected 95,000 takeout restaurants in over 1,700 U.S. cities and London. The Grubhub portfolio of brands like Seamless, LevelUp, Eat24, AllMenus, MenuPages, andTapingo. The company makes money primarily by charging restaurants a pre-order commission and it generates revenues when diners place an order on its platform. Also, it charges restaurants that use Grubhub delivery services and when diners pay for those services. 

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-business-model
Shopify is an e-commerce platform enabling merchants to commercialize their products via a monthly subscription fee, and additional services provided by the platform. Its core business is subscription-based, even though in 2018, the company made over 50% of its revenues from another stream called merchant solutions.

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

shopify-pricing-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.
shopify-features
  • Shipping: it comprises discounts which are higher for those with the more advanced plans.
shopify-shipping
  • Payment: fraud analysis, credit card rates that decrease with higher-priced packages.
shopify-payments

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which target is to reach over two million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get in touch with Gennaro here