Top 6 eCommerce Business Models in 2021 with Pros and Cons
When we think about eCommerce, the first thing that comes to mind is that it is an online commercial or sales activity between a retailer and a buyer.
Although the definition is sound, there are a number of other factors that divide eCommerce into distinct categories.
Just a few years ago, there were just a couple of e-commerce companies and a limited pool of consumers who were trying to comprehend the advantages of shopping online rather than in stores.
And now, millions of eCommerce businesses exist, each representing different types of ecommerce model and targeting a global audience
Instead of driving several miles to return to a brick-and-mortar store with minimal product inventory, people would rather shop on online platforms, all day on their smartphones and monitor their orders easily.
Even the most recent eCommerce websites encourage visitors to shop or browse through a gallery of items in a variety of niches, including home décor, electronics, books, apparel and just about everything else.
The first thing to consider is the type of business deal you want to make. Who do you see yourself selling to as you consider the company you want to start?
Is Ecommerce Getting Better, Or Are People Realizing Its Value?
In the coming sections, we’ll see that eCommerce has advanced over time with better payment options, automated order fulfilment, quicker delivery, more developed user interfaces, and various innovative models.
There are various classifications of eCommerce as a result of these various forms of eCommerce market modes.
These major advancements are the reasons why people began to recognise the value of eCommerce and began to embrace it at such a high level.
However, with the millions of e-commerce companies that exist, it’s possible that there may be some uncertainty about what constitutes an e-commerce business model.
Individuals or organisations wishing to enter the eCommerce industry may find the uncertainty to be a significant challenge.
So, in this article, we’ll look at the various types of eCommerce business models and then explore the benefits and drawbacks of using all of them to operate an e-commerce venture.
Before we go any further, let’s describe a business model.
A business model is a blueprint for successfully implementing operations of a business and how it relates to the industry’s current products and services.
It also encompasses the sources of revenues and the prospective customer base.
Assuming, that now you have an established understanding of what a business model is, we can move on to discussing the various core business models used in eCommerce industry.
Types of Ecommerce Business Models
Primarily, there are six distinct categories of ecommerce business models, such as:
- Business-to-Business (B2B)
- Business-to-Consumer (B2C)
- Consumer-to-Consumer (C2C)
- Consumer-to-Business (C2B)
- Business-to-Administration (B2A)
- Consumer-to-Administration (C2A)
1) Business-to-Business (B2B)
A business-to-business (B2B) model focuses on selling goods from one company to another.
Although many businesses in this niche are service providers, this category also includes software companies, office furniture and supply companies, document hosting companies, and a variety of other ecommerce business models.
All electronic transactions and dealings relating to goods and services are included in this form of eCommerce model.
These are primarily conducted between businesses, and they involve traditional wholesalers and producers who work with retailers.
According to Statista, The total product value of B2B ecommerce transactions is expected to increase from 5.83 trillion dollars in 2013 to 12.2 trillion dollars in 2021.
Examples of B2B
- An eCommerce company using a cybersecurity firm’s online security software to prevent credit card fraud.
- A heavy equipment dealership is attempting to market and sell industrial equipment to a construction company.
- When a software development company offers its IT services to certain real estate companies looking to create an app for their client base, the software company advertises its service on their website, and interested real estate companies may request a price quote via the same portal.
- The B2B market is both predictable and steady.
- Customer satisfaction is higher in B2B than in other eCommerce models.
- Since most procedures are automated and valid for a long time, B2B has lower operating expenses after the initial setup.
- Loyal customers or Repeat customers can provide you with a consistent and a healthy profit margin.
- Setting up a B2B eCommerce business also necessitates a large sum of money. The costs of starting a company, naming it, and setting up a physical or virtual office are all included.
- When compared to other business models of e-commerce, there is a smaller pool of customers.
- Since B2B marketing is aimed at corporations, sales are a little more difficult to come by because companies take longer to make decisions.
2) Business-to-Consumer (B2C)
The transaction and partnership between companies and their end consumers are central to the Business-to-Consumer e-commerce model.
This is primarily in relation to the online retail eCommerce trade. B2C eCommerce has progressed significantly since the internet’s inception.
Today, there are a plethora of electronic shopping sites and virtual stores on the internet that offer a wide range of goods, including computers, clothing, and even necessities.
In this case, the consumer has access to more product information in the form of informative content, as well as the opportunity to purchase goods at reduced prices.
And, majority of the times, the order is delivered quickly as well.
According to Grand View Research industry analysis, in 2020, the global B2C e-commerce market was estimated to be worth USD 3.67 trillion. From 2021 to 2028, it is projected to rise at a 9.7% compound annual growth rate (CAGR). The rise in disposable income, global per capita income, and internet penetration can all be attributed to the increase.
Examples of B2C
- Major online retailers, such as Alibaba and Amazon, and payment processors, such as PayPal, are included.
- freeCodeCamp, for example, is a digital education platform that allows users to learn basic computer programming for free.
- A traveling agency that provides ticket and travel insurance policies to clients.
- Under minimal supervision, anyone with a simple understanding of the internet can set up and run a B2C eCommerce store.
- It entails selling to a diverse group of people with well-established buying patterns.
- Scaling a B2C eCommerce business is also easy.
- In contrast to the B2B model, the retailer is in control of discounts and giveaways.
- It’s easier to inspire B2C eCommerce consumers to buy on impulse because you can run ads target towards customers who aren’t even looking for anything to buy.
- As compared to other business models in eCommerce, it needs a relatively small amount of start-up capital. Drop shipping, for example, helps you to sell goods without having to worry about inventory or delivery.
- The B2C industry is fiercely competitive, with most companies already controlling a large portion of the market.
- If you choose the wrong shipping business, shipping goods across borders can be a daunting task.
- Many people still tend to purchase in stores rather than online.
- The market is constantly changing and evolving, hence B2C requires more frequent updates as compared to other models.
- Throughout the year, finding hot and cheap items on a regular basis, to list on your eCommerce store is difficult.
3) Consumer-to-Consumer (C2C)
This eCommerce model entails electronic product and service transactions between two customers.
These are usually done through a third-party service that offers an online portal for these types of transactions. C2C eCommerce sites are those where old products are purchased and sold.
In general, the C2C e-commerce business model encompasses all online peer-to-peer purchases of products and services.
It necessitates a high degree of trust between customers, and not necessarily between customers and the platform on which the exchange is conducted.
It’s worth noting that most companies use both the B2C and C2C models at the same time, even though they choose to start with one. However, in most instances, the B2C comes first, with the C2C following closely as a complement and additional revenue source.
Examples of C2C
- An auction platform like eBay, which connects sellers and buyers, is the most prominent example of C2C through a third-party website. eBay charges a fee on any sale it facilitates, while the other parties involved in the transaction are responsible for resolving issues including product quality, packaging, delivery, and refunds.
- Users will make over-the-counter transactions on cryptocurrency exchanges. In this case, the exchange will charge a fee for the transaction while still allowing users to trade cryptocurrencies with one another.
- A C2C trade can be facilitated by any online platform that allows two or more people to communicate.
- In contrast to B2C, where the bulk of the goods are fresh, C2C allows for the selling of used items.
- Getting your product listed on a third-party C2C website normally comes with no upfront costs.
- Since different buyers are on board and selling numerous goods spread around different niches, the product gallery with C2C is limitless.
- C2C is often used as a backdoor market for companies to buy products that would otherwise be unavailable in the primary market.
- The cost of each selling on a third-party site like eBay using the C2C eCommerce model may eat into the merchant’s profit.
- In terms of product consistency, C2C faces a higher risk than other eCommerce business models. Most C2C transactions necessitate mutual confidence between the parties.
- Users of auction sites may end up purchasing products at inflated rates, which is not a wise financial decision.
4) Consumer-to-Business (C2B)
In this eCommerce model, the sale and purchasing processes are fully reversed. The C2B eCommerce model is the polar opposite of the B2C model, in which potential customers are now the ones offering products and services to business owners.
This is especially true in crowdsourcing projects. Individuals create their goods or services and sell them to businesses in this situation.
Since the transactions are borderless, the C2B industry is arguably the most important employment channel other than office jobs.
We categorise C2B eCommerce owners into two groups:
Freelancers — On freelancing platforms like Fiverr and Upwork, the majority of C2B eCommerce owners are service providers and product sellers.
Independent workers — These individuals offer goods or services via a website they built specifically for this purpose. They can communicate directly with clients and strike deals on their own terms thanks to this strategy.
Businesses use these sites to find professional service providers who advertise their gigs, and they end up recruiting someone who suits their goals.
Commissions are charged by the platform for linking companies with these service providers.
Examples of C2B
- In return for profits, a sports blogger bills a gaming business to advertise their services on his blog or signs up for Google AdSense to view ads that are relevant to his audience.
- social media administrators, content developers, brand managers, programmers, and a slew of other service providers.
- A photographer who sells his photos on sites like Fotolia or 123rf.
- Surveys filled out by social media users is another representation of C2B space.
Since service providers and their clients may determine criteria such as how to receive payment, project length, product supply dates, and more, the C2B industry has a different revenue model than the B2C industry.
- It also allows businesses to prioritise recruiting from areas with a lower cost of living, thus, reducing the amount of money that goes on the paycheck.
- Companies use C2B to explore and employ a diverse range of service talents and commodities from all over the world.
- It also helps service providers to gain experience working on various projects while being well compensated.
- In terms of working hours, freelancers have more latitude and flexibility.
- To communicate project ideas, excellent communication skills are needed at regular intervals.
- Companies that employ freelancers can find it difficult at times to send payments to freelancers in certain parts of the world.
- Since outsourcing is a possibility, the freelancer who is paying for the job will or may not be the one who completes it. This situation could place the employer at a disadvantage because he would receive a lower-quality service than what he paid for.
5) Business-to-Administration (B2A)
The B2A eCommerce model, as the name implies, is one in which a company sells its product or service to the public administration of the country or region in which it operates.
Most companies under this umbrella have only these government or public administrative offices as customers, and they earn long-term contracts.
In such a scenario, they can easily quantify revenues and effectively allocate funds when providing their solution to a large audience.
Unfortunately, their company may be adversely impacted if the government changes and the new authority refuses to uphold the current contract.
Consider the following scenario:
A sitting government hires an online marketing firm or influencer to manage its political campaign by broadcasting promotional material to the public through social media and other digital channels.
Now by any chance, If the ruling government loses the election, the new authority will most likely hire another online marketing firm or influencer to do the job that was previously handled by another person.
In this case, one B2A company benefits and the other suffers or loses out.
Example of B2A
- A government uses software created by a creative organisation to build a virtual workspace.
- The situation in Ohio, where the state’s tax department employed a third-party to collect and convert cryptocurrency tax payments to fiat currency.
- It has a higher profit margin and a longer lifespan than the majority of other eCommerce business models.
- B2A companies can take advantage of tax breaks, which are not available to other eCommerce merchants.
- It improves government administration’s flexibility and efficiency.
- A change of government may have a negative impact on a B2A product or service provider.
- It also necessitates a large sum of money to get started.
- It could also limit a company’s operations to a particular geographical area, defeating the aim of eCommerce transactions, which is to provide borderless product and service delivery.
6) Consumer-to-Administration (C2A)
C2A is just the opposite of the previous eCommerce business model you went through, this time, it is the citizens or members of the public who provide value to the government or public administrative agencies.
However, it’s still the public administration or government, who initiates the transactions, ostensibly to simplify its operations and relieve the citizens of certain burdens.
The public is not liable in any way if the network that facilitates C2A transactions goes down or fails to deliver.
Examples of C2A
- A state’s tax department has decided to abandon paper tax filing in favour of an electronic filing portal.
- A state is developing an information-sharing website to enable people to get the most up-to-date information in the event of a natural disaster.
- An electronic voting app that allows people to vote in elections without having to go to a polling station or fill out paperwork.
- Other types of transactions between people and the government, either directly or through a third-party facilitator.
- It improves the flexibility and efficiency of government administration.
- It promotes public awareness of web-based technologies.
- For third parties, who are contracted to handle C2A transactions have massive profit potential
- To introduce the public to such systems, public awareness and education campaigns may be required.
- In some areas, a lack of internet service can limit the output of C2A eCommerce.
If you choose to work in the e-commerce industry, then the insights you’ve gained from this article will be essential when you choose a career route.
Before you start writing your business plan, you can accurately weigh in the benefits and drawbacks of all the different types of eCommerce business models.
You may also easily determine which model to begin with or which models are consistent with your business goals. That perfectly prepares you for the journey ahead and increases your chances of quickly reaching the top of the heap!