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Introduction

Online merchants have no shortage of business models from which to choose. While it is critical to offer unique value to customers and continually generate revenue, the right business model accelerates the way to success. A solid business model enables online merchants to not only survive downturns but also strengthens and grows businesses long term. It pays to carefully study, choose, and implement the right business model for your market while being aware of and committed to identifying and tracking key business metrics.

Metrics are vitally important, as emphasized by Daniel James, CEO of Three Rings Design, at the 2009 Game Developers Conference in San Francisco, "Make it simple, monetize early, and spend one-third of your time on data analysis, it’s that important." [1]

This paper defines the key terms for online business models and describes the most common types of those models, their pros and cons, and the key metrics associated with each. In addition, to illustrate the different business needs and requirements of online merchants, this paper delves into the models and performance projections of two fictitious companies: Cloud.com, a Software-as-a-Service (SaaS) provider; and Ninja Pirates, a game startup.

Two other sections shed light on other factors that affect the selection of business models, including pricing, packaging, promotions, and revenue recognition. Subsequent to that are best-practice tips, followed by an overview of the advantages, disadvantages, and costs of developing billing solutions in house versus using on-demand services.

The References section at the end of this paper points to a number of related articles around the topic of business models.

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