Internet Business Models

Several business models exist on the Internet, but four dominate: Business-to-consumer (B2C), business to- business (B2B), consumer-to-consumer (C2C), and business-to-government or government-to-business. Business-to-consumer models have the most public visibility and are what most people consider as business on the Internet. B2C models are essentially online storefronts, but there are many variations, ranging from strictly informational sites all the way to highly interactive and personalized transactional sites. Although statistics of Internet usage are suspect due to different measures, the numbers provide some insight.

In the U.S., 84% of Internet users have purchased something online (NUA, 2002b). Even though B2C e-commerce is only about 1% of all retailing, 49% of Internet users bought online in 2001 and spending online have increased threefold since 1999, probably due to increased consumer confidence and perceived convenience. Interestingly, consumers express considerably more trust in some institutions than others. A national survey of Internet users revealed that 68% of them trusted information from small businesses almost always or most of the time, but only 32% held that much confidence in large corporations (Princeton Survey Research Associates, 2002).

Business-to-business e-commerce dwarfs that of B2C. B2B models range from procurement (including electronic data interchange) to supply chain management (SCM) to customer relationship management (CRM). B2B models include both informational and transactional activities between businesses. International Data Corporation (IDC) forecasts global B2B revenues to climb from (in U.S. dollars) $282 billion in 2000 to $4.3 trillion in 2005, a compound annual growth rate (CAGR) of 73% (IDC, 2002). The potential for growth is evident by estimates that online e-commerce was only about 2% of all U.S. B2B trade in 2001 and that only 11% of U.S. companies have fully implemented e-business strategies (Cyber atlas, 2002). While most B2B transactions occur in the U.S., B2B e-businesses in Western Europe and the Asia–Pacific region are expected to grow rapidly. For example, B2B e-commerce was about $9.2 billion in Asia in 1999, but it is expected be $1 trillion in 2004 (Lewis, 2000).

IDC predicts the B2B market in the Asia–Pacific region (excluding Japan) to grow at an exceptional rate over the next few years to about $500 billion by 2005, as online access improves and firms become increasingly interconnected (IDC, 2001). Cyber atlas (2002) predicts a CAGR of 68% from 2001 to 2005 in the U.S., Western Europe at 91%, and the Asia–Pacific region at 109%. As can be seen, B2B e-business is expected to be the focus of most of the rapid growth of global e-business in the near future.

Consumer-to-consumer e-business is most evident in the U.S. in auction sites such as eBay and barter sites such as Swap Village. The size of this market is difficult to measure, since some goods are exchanged, rather than purchased; thus figures reported underestimate the true value of this activity. However, eBay is considered the largest C2C site with 2001 sales of $748.8 million and a growth rate of almost 74% in 2001 (Hoover’s Online, 2002). This model has increasingly been adopted in some European countries where auctions are already common and require few new consumer behaviors.
 
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