introduction

2. Introduction

The growth of the Internet and the web has been phenomenal since the commercialization of the browser in the mid-1990s. Since that time many firms—including most of the Fortune 500—have established a presence on the web. Not all web initiatives are designed to generate revenues. However, the wide variation in start-up costs has also produced a boom in the number of small, established firms and new firms who are attempting to generate profits through the web. Some of these new firms, including Amazon Books and Yahoo, have become household names and created spectacular IPO results. However, the vast majority of the Internet businesses that have been started do NOT generate business profits.

This paper examines the revenue generating models that firms are using on the web today. Borrowing from the efforts of Mary Cronin, Eugene Marlow and Robert Peterson we recognize four basic revenue-generating models that firms can use on the web:

Sell goods and services: This is the easiest model to understand and has the largest number of permutations. Many firms are attempting to use the unique properties of the web (24-hour operation, worldwide reach, high-income customers) to sell goods and services. Examples of firms using this model include the Boston Red Sox and Dell Computer.

Charge fees for advertising: A limited number of web businesses are attempting to generate revenues solely through advertising while a larger set of firms are attempting to leverage the notoriety of their web sites to generate some additional revenue through the sale of advertising. Yahoo is perhaps the most well known case of a firm supporting itself through advertising revenues. Although the company has moved to a mixed revenue model, it existing solely on advertising revenue for some time—one of the only businesses that managed to do so.

Sell digital content: The web is a digital marketplace and it is designed to deliver digital content to users. Many web sites provide some or all the content to surfers for free. However, web businesses such as the Wall Street Journal on-line edition and ESPN Sportszone have attracted large numbers of subscribers who pay a fee to access the digital content provided by these businesses.

Charge for transactions: There are several revenue models that are built around the collection of fees for creating or processing the transactions that occur between two parties on the web. Some of these models—like the one used by Auto-By-Tel—involve the subscriber paying a fee to have sets of transactions forwarded. Other firms have established themselves as intermediaries that only handle transactions such as credit card processing and settlement.

Several other models have been suggested by these and other authors. One other suggested model is the provision of technical services for a fee. This can be the type of service where customers submit e-mail questions or access a site on-line with a technical problem. This model was not considered as a separate option because it is a variant of the content model or the transaction model. The other popular revenue-generating model involves selling lectures and books about Internet commerce. This is by far the most profitable revenue-generating model but is in fact not a web-based business.

The remainder of this paper explores each of the four primary revenue generating business models being used on the web today. In addition to providing examples of the implementation of each model, the subsequent sections explore some the challenges and opportunities for each model. The paper concludes with some predictions about the future and the viability of these models.