Who is making money on the Internet?

Posted Friday, May 16, 2003

We are going to discuss some of the different types of businesses on the net and how they make their money. We will then discuss some basic "internet business models" you can use to make money online as many people still don't understand the concept of these business models. There are only four basic types of companies doing business with any impact in cyberspace today:

1.Large Corporations (A.K.A. "Fat Cats")

Many of these companies don't do anything to promote online, perhaps thinking their URL and external promotions are sufficient. And they are probably often correct in approaching the net this way. The ones that do promote online prefer to purchase banner advertising on high traffic sites; a tactic that apparently pays off (we are talking here about huge companies like Pennzoil, Nike, CNN, etc.).

2.Medium Sized, Savvy Businesses (A.K.A."Risk Takers")

The companies referred to here are the electronic cowboys like Yahoo (the search engine), Netscape (the browser) and Netcom (the ISP). These companies took a very different approach to business on the net hoping it would pay big dividends in the end. Many failed, but a few succeeded and grew to enormous size, such as the ones listed above.

Yahoo for example, gave away free listings anticipating people would come and the net would "catch on" with the general public. They lost a lot of money with no revenue stream in the beginning, but once the internet grew, they could charge big dollars for advertising on sites with as many as 15 million hits every day. They got so big they were able to go public and make millions with their stock offering.

Yahoo took a big risk and a loss in the beginning only to reap huge rewards in the end, and the same thing happened with Netscape. They gave their software away to become a dominant force and create a monopoly on web browsers and then made their money by selling advertising packages, and co-partnering with other products later. A risky strategy that has paid in the billions.

3.Small Inexperienced Companies (A.K.A. "Gold Rush Co.")

These are small companies run by individuals who are inexperienced in traditional business or the ways of the internet. They are of the "gold rush" mentality and make the same miscalculations made by inexperienced people in any business venture.

These business owners often think there is one secret to success. They think if only they could just find that one trick, their work would be done and they could then lie on the beach with an ever-growing bank account. But as we will see, there isn't any one big secret, just a whole bunch of little ones!

4.Small Savvy Companies (A.K.A "Winners")

The "winners" are smaller companies run by experienced business people who exhibit a high level of awareness and hard work promoting their website. These companies are currently having the best success on the Web, just as this type of business owner is having the most success in your local neighborhood. They usually start as one-man operations and can grow enormously into outfits with many employees.

But whatever approach you decide to take, learn from others' mistakes. Don't re-invent the wheel. If you try to, you are taking a big risk. Model your business after another that has already proven to be successful and yours likely will be too.

Some keys of any successful product or service:

1.Go after a very specific "niche" market (I did this with most of my online businesses). Try to offer a specialty product or service that is generally unavailable through traditional retail channels. It is critical that the target market be specifically identified and located online.

2.Go after the general public - something everybody wants and try for high volume, not the profit margin or specialty product angle.Example: An online CD store with a selection like no other and better pricing to boot.

In my opinion, running two or three (or more) websites and targeting a niche for each one is the easiest way to make money on the net. Everyone is looking for the "big buck" makers and often niche markets are ignored. This is how I have made most of my money online.

I offered something in demand for a small market, and expected only to make $20-50,000 a year from it. But I soon learned that if I set everything up to be completely automated, I could run three or four (or even more) businesses this size in only a few hours a day. By combining several small incomes like that, it is easy to earn in excess of $200,000 a year, all for investing about an hour a day (per business) now that everything is mostly fully automated (as I teach in my internet marketing course).

If you really want to "retire" after you set up your businesses, hire a manager to work a few hours a day to take care of the daily chores that need to be completed. This is how I started. I ran everything myself at first, then got so busy I had to hire someone part-time, then in less than 1 year, had to hire 3 more people full-time just to handle the daily operations of the 2.4 million dollars in business I do between my four online businesses.

So when you grow a little, hire an employee to run your daily operations. I know many homemakers with kids who would be thrilled at the opportunity to bring home fifteen grand a year... and often have lots of free time between 10am and 3pm when their kids are in school. Your help could be doing all the routine chores and you could be traveling around the world or just sitting on your patio knowing you're making $500 to $1,000 a day doing absolutely nothing. This is not a "pipe-dream"... with today's technology you really can do it (heck, I do! -- although I have to admit, I love to work, so I work a lot).