Understanding Online Business Models

If you’re serious about making money online, you have to think about your undertaking in the form of models. The reason why you need to use a model-specific approach is that it will allow you to develop systems, and it will allow you to become methodical in your efforts at putting in extra dollars in your pocket.  

Make no mistake about it, the big difference between people who successfully make money online and hobbyists that basically just hope to get lucky with a few dollars here and there is the existence of a system. That’s how you can tell true success from people who just got lucky. If you want to make money online on a sustainable and continuous basis, you have to think in terms of models.  

This is why I’ve broken down the twelve key models that you can use to sell products online. These are of course general clusters, and there are sub-types for each. But all these types have enough similarities with each other so you can get a general idea of how they work, what to expect from them, and other information that you need to make a truly informed decision.  

Also, I’ve broken down the models based on two questions. One, why do people need this? And how do you make money with this model? 

Written content  

You can make money selling written content online. On the Internet, content is king.  

The reason why there will always be a demand for content is, for the most part, the Internet is still made up of text. People go online to look for information. This information is usually presented in the form of text. Pretty straightforward. 

People who are trying to make money with their websites are constantly in need of text to put on their websites. This is why there’s always going to be a need for written content.

Elance is the one of the best known sites to sell written content  

How do you make money with this model? 

You can make money with the written content either through custom written materials or prepackaged materials.  

Custom-written materials are often offered on a freelance basis or on an as-needed basis. If you are looking for a more consistent source of online income, you might even hire yourself out as a monthly freelance writer. You would have maybe a handful of customers who would retain you on a month-to-month basis. 

The other approach is actually more lucrative. You can offer content on a prepackaged basis. Basically, you write the content once, and you sell the package many times all over.  

There are many names of this type of business model. One very common designation is private label rights (PLR content). The whole point of PLR content is the buyer would not get into legal trouble for using your online content because you give them the right to use your content when they buy the PLR package from you. 

The downside to this is that PLR package isn’t normally very cheap. So it’s kind of a volume deal. For you to make a decent living selling PLR packages, you have to crank them out in volume. 

The big advantage of selling PLR compared to freelance content writing is that it’s passive income. You only need to work once, and you can make money many times over for your past work. 

Compare this with freelance writing where a client would order content from you, you write it, you get paid, and then to get paid again, you have to write new content for somebody else. It can get old. In fact, it’s no different from working a nine-to-five job. This is a why a lot of online entrepreneurs prefer the PLR model because it is passive income. 

Videos 

In addition to text, websites also feature videos either to sell products or services or to convey information. If you think that pictures are worth a thousand words, how many words you think a video is worth? Make no mistake about it, videos are very powerful whether you are sharing information or trying to sell products or get the viewer to do whatever it is you want the viewer to do.  

There’s a huge demand for videos because not everybody can come up with quality videos. At the very least, not everybody can come up with videos that would convert viewers into buyers. With that said, there is a large market for a video work.  

Just like with the discussion on text content described above, you can sell video on a custom basis, or you can sell video on a PLR basis.  

The same dynamics are in play. With custom video production, you can make money on a per order basis. In other words, if you want to continue to make money, you need to attract more clients and have them order videos from you. It’s like working a day job. With a PLR model, you just need to produce videos on your own schedule and on your own terms, and you can have a decent passive income stream. 

Many make a living by putting videos on youtube

Images 

Did you know that one of the most lucrative ways to make money online is to take your digital camera and just snap away? Seriously. 

Thanks to the explosive growth of blogging and website publishing, more and more online publishers are in need of custom pictures. You might think that eventually the Internet would run out of custom pictures, but you would be absolutely wrong.  

The reason is there’s just so many sub-niches out there. Also, there are certain topics that people write about that just scream out custom pictures. Stock photography or preexisting photos just won’t do them any justice. This is why there’s always a need for custom images.  

Again, just like with the discussion about text content above, you can offer this type of digital content on either on a custom basis or a prepackaged basis.  

How do you make money with this model? 

With the custom photography model, you’re basically freelancing. Somebody would tell you that they need a picture that has something to do with a particular concept. You then come up with a composition plan, you take pictures, and then you send it to the client. When the client approves, you get paid. 

Again, the problem with this way of making money online is you have to actively work for those dollars. It’s not like you can just sit back and make money off your past work.  

That is precisely what you will enjoy if you use a PLR method. In fact, when you look at popular stock photography websites like Shutterstock and other websites, they use a PLR model. The client pays a fee, and the fee establishes a balance. And every photo that the customer takes out from the database will result in deductions to the balance until the balance is depleted. Pretty passive and pretty straightforward. 

There’s really no right or wrong way to make money with images. One thing that you have to keep in mind is that the more customized your image, the higher the amount of money you can make money off it. 

The downside is your image might be so customized and so niche-specific that you really don’t have that many customers who would order that type of picture. So in such a situation, it’s probably better to go with the custom photography model instead of a PLR or prepackaged content model.  

Authority website

One of the most powerful ways you can make money online is to put up an authority website.  

You have to understand that people will not buy from you if they don’t trust you. That’s true online as it is offline. It’s just basic human nature.  

If somebody came up to you, and you didn’t know and say to you that they want to sell you a cup of coffee, for example, chances are you’d tell them to get lost. You don’t know anything about that person. The coffee might be spite. You don’t know about the quality.  

Now, if the situation was changed, and you read articles written by that person or people talk highly about that person and that person selling you coffee actually has a name tag with a logo that you recognize and you trust that logo because that logo is often equated with quality coffee, chances are much higher that you would do business with that person. 

The same plays out online. People will not normally buy products or services, unless they have a high enough level of trust regarding the website pushing a particular service or product.  

This is where authority websites come in. Authority websites are a specific type of website that focuses on a specific body of information. The best way to describe an authority website is that they are an inch wide and a mile deep. In other words, they look at all the body of knowledge and choose to focus on only a tiny sliver of information, but they really drill down deep. In other words, they really give you everything, including the kitchen sink regarding that particular body of information you are looking for. 

For example, if you got injured in a car accident, and you’re looking for a personal injury attorney in Los Angeles, you can just go into Google and type in “personal injury attorney so on, and so forth” and chances are you find a decent personal injury practitioner.  

However, if you really want to know the ins and outs of the personal injury law in your jurisdiction, you might want to go to an authority website. This authority website would then list out all sorts of tort cases regarding personal injury, the different types of personal injury, what to expect regarding recoveries, what other remedies are available, so on and so forth. They might also spell out the kind of remedies available to you if the defendant, the person that you’re claiming harmed you, was actually employed by the government in driving a government vehicle.  

You won’t necessarily get that information from just random blogs all over the Internet. You would get that information from an authority website.  

As you can probably already tell, authority websites build a high level of trust because they’re so focused regarding a specific body of information. It’s easier to convert people who visit authority websites into either list members or product or service customers than the typical run-of-the-mill website. This is why building an authority website is lucrative. 

How do you make money with this model? 

As I’ve mentioned earlier, you can make money through the trust that you built. Especially when people join your mailing list, you basically have them feeding off the palm of your hand. 

The downside to this promotions model is that it can cost you a pretty penny. No joke. True story. 

Specialized knowledge is extremely expensive. I don’t care if you are outsourcing your writing to the Philippines, India, Bangladesh, Pakistan. If you hire a writer worth his or her soul, it’s going to cost you.  

The upside is that the high level of trust you develop in the mind of your site visitors makes the added expense more than worth it. 

An amazing example is the Home Lottery site, which is an authority site on charity lotteries. Another is House and Car.

Blogging 

This particular method of making money online is nothing new. In fact, a few years after the commercialization of the Internet in the United States in 1995, blogging became a big craze. It’s still very big, but blogging has definitely evolved. It used to be that a blog was a very simple online journal posted by somebody that’s interested in a particular topic and basically reads like a diary.  

Well, the blogging has definitely evolved. There are multimillion dollar blogs. If you don’t believe me, just look up the Huffingtonpost.com. That’s one of the biggest news blogs on the Internet, and there are dozens more like it. Blogging has matured and continues to change.  

The reason why people build blogs is because it’s a very effective selling platform. While it’s not as powerful as an authority website, it gains its authority from its newsworthy information. 

For example, if you are in the market for baby shoes, and you’re looking for the latest trends in baby shoes, it would be a good idea to go to a blog that specializes in baby shoes. This blog would publish press releases of baby shoe companies, newspaper clippings regarding baby shoe trends, so on and so forth. While the information may not be as trustworthy and insightful and deep as an authority website’s content, there’s enough timely information there for you to make an informed decision. 

How do you make money with this model? 

Pretty much the same way you make money with an authority website, but the big difference is it costs you less money. The great thing about blogging is that you only need to be current. And the good news is that if you have a Twitter account, and you know how to set up Google Alerts; you can drastically reduce the price of your content. Either you blog yourself or you hire an outsource blogger from the Philippines or India; you only need to look at updates published by other blogs in your niche or news websites and reword those.  

Now, be very careful regarding U.S. copyright laws. U.S. Copyright Law prohibits derivative works. Basically, if somebody created an original content, and you made something that is derived from it or just a rephrased version of it, you can land in legal hot water.  

Thankfully, the U.S. Copyright Law has the safe harbor provisions and one of these provision is commentary. So it’s always a good idea to comment on original copyrighted information so your blog can avoid legal liability. Make no mistake about it, if you got by an intellectual property lawsuit, it can set you back quite a bit because the penalties spelled out by the relevant provisions of the U.S. Copyright Law are quite burdensome and quite heavy. 

Check out copyblogger to find out more on this model

E-commerce website 

A very popular way to make money online is through an e-commerce website. I say “popular” because people know about e-commerce websites. I don’t mean they’re popular in that everybody and his dog are putting up e-commerce websites. This is obviously not true. When people are looking for stuff to buy online, usually they’re looking for e-commerce websites, and this is why they are popular. 

This is a great business model to implement if you are clear as to the level of effort you want to put in. The great thing about e-commerce websites is that they have evolved to the point where you can pretty much decide how much time, effort, and energy you’re going to put into your online venture.  

It used to be that the best way to put up an e-commerce website is to basically build it from scratch. Thankfully, this is no longer the case. There are all sorts of open source platforms that you can customize so you can put up an online store easily. In fact, you only need to hire an outsourced web developer from India or Philippines to put one up for you at a very affordable price.  

You also would need to hire a writer, or you can write the descriptions yourself to ensure that when people look at the description of the products offered on your store, they would get excited about what you have to offer, and they would click through and buy.  

Besides setting it up in a relatively painless way, you can also minimize your headaches by using a dropshipper method. Traditionally, putting up an e-commerce website means you have to have a warehouse. You have to handle returns. You have to have software to track products from many different vendors. It can really be a huge headache. Who needs the drama? 

The good news is that you can use a storefront model outlined above, but the actual fulfillment is done by a dropshipper. There are dropshipper companies that basically will act as your back end. All your website does is feed them the orders, and they will handle the payment processing, the shipping, and if there are any problems, the returns. Amazing stuff.  

I suggest highly that if you want to go into e-commerce, use the dropship method because unless you’re already making a lot of money with your e-commerce store, setting up a pure e-commerce store from scratch is really not worth the headache.

Curated content website  

Let’s face it. Blogging and authority websites take a lot of work. It takes a lot of work to write the content. It takes a lot of work to research. There’s just so many things going on and at the end of the day, you might not really be sure that you would get maximum return on effort.  

There is a shortcut when it comes to using content to drive sales. The shortcut is to use curation. A curated website is basically a website that republishes snippets of content found on other websites on your blog or website.  

Now, you must be asking yourself, “Isn’t this copyright infringement? Doesn’t this violate the law?” 

Well, not necessarily. Again, according to international copyright law, as long as you are fostering discussion and there is a valid non-commercial value to your republication of somebody else’s intellectual property, you won’t be penalized by copyright infringement laws.  

There’s a fine line between piracy and content curation. Make sure you walk that tight rope very carefully. If you just copy and paste somebody else’s materials, you are violating their intellectual property rights. However, if you copy blocks and you give attribution to the source and most importantly, you provide original commentary or there’s some sort of value added material, chances are you can escape liability.  

The reason why many people are putting curated content websites is because they are easy to put up. They basically enable you to build a very deep content website without the expense normally associated with building an authority website or high-quality blog.  

Community website 

When you build a community website, you are basically betting that the people visiting your website would talk amongst themselves enough that this interaction would provide enough useful content for you to not have to worry about the writing the content yourself. This is called user-generated content. 

This is a model that has been tried before in many different ways and the most effective way to this really is a forum. Forums and message boards are not new. They’ve been around forever. People already know what are expected of them when they join a forum. 

The downside to running a community website is that you really have to police your website properly because there are a lot of spammers. There are also a lot of trolls that basically would publish offensive information just to get a rise out of people, and they can really harm the quality of your community. Also, you have to actively foster conversations so that users are generating content on a regular basis.  

It takes a lot of work. It’s not a set-it-and-forget-it automatic moneymaking system. Not by a long shot.  

How do you make money with this model? 

The most obvious way to make money with a community website is through advertising. You can also build a mailing list as well as run special offers and services.  

Marketplace website 

Marketplace websites are very lucrative platforms for making money online. People go to a website to buy or sell items. The marketplace website can look like a classified ads website. It can also look like a more involved and intricate online market.  

Regardless of the particular format you use, the overall operation and model are the same. Users post the content because they’re looking to sell or buy stuff. Other users respond by contacting people, or they promote your website by sharing the listings on social media.  

If you set up the system properly and you monitor it properly, it can run on its own. It can be a self- fulfilling and self-propagating online content model.  

One of the biggest international examples of this is OLX. OLX.com has actually many branches in many different countries, and it’s really just an online classified website. The best part of it all is that all the content is produced by people looking to sell or buy. 

However, to get to that level, you have to have a high volume of users. If you don’t have many users visiting your online marketplace, your marketplace might no gain any attraction. For any one successful online marketplace, there hundreds of failed marketplaces that never really caught on. 

How do you make money with this model? 

You can run ads. You can run services. Or you can charge people extra money to place premium ads. 

Software as a service 

One of the most significant trends in making money online is to offer service as a software. There are many types of services that people would be interested in that are normally done manually. If you can convert that into software, you can have a powerful source of passive income. 

The problem with local software, however, is that it’s often dependent on operating system compatibility with the end user. Also, if there are local viruses and local problems with the end user’s computer, this can really get in the way of people appreciating the software that you are offering.  

This is why more and more entrepreneurs are using software as a service as a platform. Instead of buying local and installing it on your computer, you only need to visit a website, sign for an account, and access the software services online.  

The benefits are immense. First, it’s available on 24/7 basis. You don’t have to upgrade on your computer. Security issues are taken care of on the server level. This means that you don’t have to run your own antivirus on your computer. It’s all taken care of remotely. Fourth, you pay for only the level of service you’re looking for. The big problem with most bundled software is that you end up buying capabilities that you never had any intention of using. You’re only actually buying the software for one particular feature. You’re able to do that with software as a service.  

It is no surprise that software as a service is fast becoming the preferred way of using software. As more and more people access the Internet through mobile devices like smart phones and tablets, software as a service is continuing to grow in scope, reach, and power. Not surprisingly, even Microsoft is migrating its traditional software suites like Microsoft Office to the web in the form of software as a service.  

How do you make money with this model? 

This is actually my favorite way of making money online. It’s passive income. You set up the software, and it runs automatically. People sign up for a subscription and month after month, you have dollars deposited to your bank account. It doesn’t get any more awesome than that.  

Best of all, if you need to upgrade, or if you need to fix certain problems, you only need your technicians to work on one central location instead of having to deal with a flood of local customer support requests.  

Mobile apps 

Thanks to the explosion of smart phones in 2007 with the launch of the iPhone, mobile apps have really changed how people make money online. Mobile apps really operate in the same way as software as a service but in a more stripped down and localized version. Take my description of software as a service above and strip it down to a local mobile presence, and you have the typical mobile app.  

1You can make money off apps through a wide variety of ways. You can sell advertising. You can sell custom services. Or you can sell add-ons. The only limit really is your imagination.  

The great thing about making money through apps is that you can reach the customers wherever they are and whenever they want to be reached. It’s amazing.  

The downside is to get people to download your app. This is not as simple as you may think because for every Instagram, there are thousands of failed apps out there. So keep that in mind. Whatever function you are considering reducing or transforming into an app must be compelling enough that it would have a wide user base. Otherwise, you might just be wasting your time. 

E-books 

You can make money online through e-books. E-books are really the epitome. E-books really are the most powerful embodiment of passive income. You write or dictate a book once, and then you make money many times from it after you publish it.  

Also, the market for e-books has evolved in such a way that there are so many venues that you can publish your e-book to and generate dollars month after month from. The biggest example, of course, is Kindle by Amazon. Kindle is a massive online marketplace for digital books. You can write a book every quickly by having it outsourced to the Philippines or India, and you can make money every time somebody buys your Kindle book. It’s really amazing. There’s just so many ways you can go with an e-book business model. 

The downside is saturation. You have to really know what you’re doing regarding the topics that you choose to focus on because if you hit the wrong niche or the wrong market, you might just be setting yourself up to fail. There are certain niches that are really so saturated that it’s a waste of your time to compete in that niche.  

The secret to success in making money online with e-books is to find niches that you are so passionate about that you can write a high-quality book on it and has a high commercial demand yet at the same time has a low level of competition. The good news is that they do exist. It just takes quite a bit of research on your side to find them. 

I hope you found the discussion of business models outlined above educational. I’ve painted in broad strokes these online moneymaking opportunities. You really have to fill in the details based on your actual experiences and based on your actual projects. I’ve laid out in broad terms the general framework for each model so you can get a clear idea as to what is available out there.  

As I repeatedly say, the key driver to your success is your level of passion and focus. Whatever you focus on; your energy will flow to. So pick the best business model that you think will help you achieve the most amount of success and throw everything you’ve got at it. You need to do whatever it takes for however long it takes to achieve the level of success you’re looking for.