What is an E-Commerce Business Model?

An e-commerce business model is a strategic plan outlining and defining how an individual or company will conduct electronic trade or Internet commerce (e-commerce). The model provides an organized and structured guide to ensure the business makes a profit, generating enough revenue to be self-sustaining. Generally, the e-commerce business plan covers how to decrease operating costs and increase profits, as well as clearly define the roles of each person involved in the business. Specific details of each e-commerce business structure is dependent upon the type of business covered by the plan.

Also referred to as an Internet business model, the e-commerce business model typically modifies a business plan that is already successful in "brick-and-mortar" businesses and adapts it to suit the specific business category. The model takes into consideration the differences of conducting business online, as compared to face-to-face, addressing both the risks and the rewards. Several categories have proven to be successful as e-commerce businesses. These include selling Internet advertising; selling various types of products and specialized services; information industries that provide knowledge and expertise in many topics; electronic publishing; and Internet-based careers, previously unknown before the advancement of technology and Internet accessibility.

The best e-commerce business model typically includes a specific e-commerce business structure or Internet business design customized for the particular type of business. A popular business magazine has described three primary types of Internet business plans. Each of these e-commerce business models has its own set of responsibilities or obligations, along with related operational costs and potential profit margins.

Each common e-commerce business model described includes product sales, service sales, and information delivery. An entrepreneur may even combine two or more of these models, depending on the nature of his or her e-commerce business. Each setup features variations within the respective e-commerce business model.

For instance, someone who engages in product sales through e-commerce may choose to sell through an online storefront, mall, or auction site. Similarly, an entrepreneur offering various types of services may do so through online storefronts or malls. The third most common type of e-commerce business is information delivery. In this technological age, providing information on matters of interest is quicker and more convenient than ever before, either through online publications or portal sites offering numerous topics. These e-commerce endeavors may be extensions of existing brick-and-mortar businesses, or stand alone.

Regardless of the e-commerce type or structure, any entrepreneur or businessperson who has a thorough e-commerce business model in place is more likely to succeed than one who does not. An old adage says, "Those who fail to plan, plan to fail." This bit of wisdom emphasizes the importance of a strategic e-commerce business model that concisely addresses the needs of a specific business enterprise.