How do e-commerce sites earn money?
10 ways e-commerce sites make money.
One thing common between every e-commerce (successful e-commerce) company is that they started with solving a problem. Profits came later. Every e-commerce was started to solve a specific or generic problem for a particular user base.
1. They earn by selling their products
Company A manufactured a product which was in good demand. It also had retail stores across the country. Many customers inquired if the company can deliver to their homes? The company said yes. And then the customers started placing orders via call. However, this was possible only at office hours. And the company had to spend a lot on tele-callers. A few days later, customers asked if they could place an order online at a time they feel convenient. The company felt that a website with inventory management makes sense. Hence the company opened a website only for itself. Now customers can place orders anytime. Also, the company could now ship multiple orders with fewer milk runs.
The company made good profits via its e-commerce website because it gave them better margins. The company even closed a few retail stores and it saved a lot on operations.
The best example of this is in 1974 Tesco (supermarket chain) which launched its first online store in Gateshead and Mrs. Snowball, 72, is the first online home shopper.
The Michael Aldrich Archive
2. They earn by helping someone else sell a product
Now, seeing company A selling products online, Company B also wanted to open its site. However, it would require a huge investment from Company B and it didn’t have that kind of money. Dejected, Company B went drinking at the local pub where he met Technical A. Now, Technical A was the same company that made the website for Company A. After hearing the plea of Company B, Technical A came up with an idea. He did a small market survey and found that many other companies like B were interested in selling their products online but couldn’t afford the cost of the operation. Technical A thus came up with a common platform where all these companies can list their product and customers can order online.
Technical A made profits from commissions, advertising, and promotions.
Book Stacks Unlimited started. It was created by Charles M Stack in 1992, which was 2 years before Amazon Inc.
Book Stacks Unlimited
3. They earn by selling somebody else’s products
Technical B upon seeing the business model of Technical A felt that it can have a dominance in the market in terms of sales and customer base if it invests in a warehouse that will hold all (most of the fast-moving) items and crater to customers directly. This would eliminate the middlemen and Technical B can make more profits. Thus Technical B, in collaboration with Consultant A started a company where they invested heavily in technology, warehouse, and delivery chain. They held an inventory of millions of products and intended to make profits over economies of scale and world dominance!
Amazon started in 1995 as the classic example wherein they started as an online bookstore and diversified into selling electronics, clothing, and whatnot. It took Amazon 8 years to become profitable in 2003.
Flipkart, Paytm (company), and Snapdeal.com (product) are examples of similar sites in India.
4. They earn by helping two people connect
Citizen A wanted to move out of town because he got a job in a new city. He calculated that the shipping cost of his household items exceed the cost of items. Hence he wanted to sell some of those products. He told a few of his friends and they told their friends. They shared pictures of items by email along with an Excel of the price list. Soon the products got sold. But it took a lot of man-hours. A similar process was followed when Citizen B wanted to sell his furniture and books. Techie A was observing this pattern and found that there was a huge potential for an online store where they can connect a buyer and a seller to discover products and make a commission out of it.
eBay (product) is one classic example of a company that helps 2 people buy and sell products. Olx and Qickr are examples of similar e-commerce sites.
5. They earn by solving problems for customers and companies
Citizen A wanted to buy an item from Citizen B. They both had found each other on eBay. However, the problem was that Citizen B had to wait for the cheque or draft from Citizen A, en-cash it and then only ship the product. Citizen A was skeptical as to what if Citizen B never shipped the product even after sending the money. And eBay was wondering how they could make a profit in this whole process. Then came Techie E saying that they can provide an online platform for cash transfers which is highly secure and reliable. Many companies liked it and started using it. Techie E made profits by taking a commission on every transaction.
PayPal (product) is a classic example online money exchange that started in 1998. eBay later acquired PayPal for $1.5 billion in 2002 and presently comprises over 40% of revenue for eBay.
6. They earn by aggregating related services
Citizen A wanted to book a movie ticket for the night show. There are 2 options: 1. Go to the movie theatre beforehand and get a seat. However, this means he had to make two trips to the theatre. 2. Go to the theatre just before the show starts. The catch is here that he has to return empty-handed in case of a full house.
The same goes for booking flight tickets, bus tickets, concert tickets, and the like.
Ticketing is a classic example of this business model. Customers faced difficulty in booking bus tickets. RedBus solved the problem by aggregating every possible bus operator in India. MakeMyTrip aggregated bus, air, and hotel operators. BookMyShow aggregated all movie theaters in India. Eventbrite aggregates and gives a platform for event organizers and participants.TheCollegeFever.com is another niche that aggregates college events across India and provides organizers a platform to sell tickets. Students, they have the benefit of searching every possible event happening around them.
Such companies make profits from exclusive commissions and promotions.
7. They earn by helping people in finding the services they need
Citizen A is new to the city. He doesn’t have any friends. He used an aggregating e-commerce site to reach and book a room. However, he has no idea about which restaurant to go to or how to get reservations. Customer A is also looking for some laundry service in the city or he wants to gift some flowers to a person he visited. Many e-commerce companies solve this problem. They help customers in finding the right services.
Yelp and Zomato (product)for example are companies that help customers in discovering restaurants in their locality. They also help with seat reservations or with ordering food online. They make profits via commissions of direct sales or via advertising.
8. They earn by empowering customersCitizen
A lives alone in a big house. He doesn’t have much of a family and wants to share part of his house in exchange for some cash. Citizen B also wants to do the same. Citizen C, a traveler wants a homestay at an affordable price. They all put up their requirements on a site called Airbnb (product) which empowers people to sell the beds.
The same goes for Uber where the company helps people in sharing cabs. This is good both for the owner and traveler as they could share the burden of gas.
Such e-commerce companies make a profit by taking a cut of every exchange that happens on their site.
9. They earn by helping people and companies get visibility
Company A wants to hire a few people, Startup A wants to hire a few freelancers, and Citizen A wants to apply for Company X. Many e-commerce companies help in solving the problem of hiring people or as an online marketplace where people can exhibit their skills.
They make profits
Fiver, Freelancer, Naukri, Monster, and many other companies make profits by connecting candidates with companies and vice versa.
10. They earn by localizing intelligent minds
Student A lives in a remote part of the world but is interested in learning about supercomputers. However, he does not have access to such teaching. Professor A of an Ivy League college finds his true calling in teaching the underprivileged. They both can interact with each other using a site that gives such a platform. These companies make profits by selling premium, professional courses to corporate or charging users for the certificate.
Khan Academy, Udemy, Codecademy, and many other sites have a common mission of giving world-class education to everyone in the world.
Do mention your inputs on other business models that should have made it to the list.