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In a previous post, “IM In An Uncertain Economy“, I discussed the potential impact of the worsening US economy on the business models we pursue online. At this particular point in time things are looking very scary for the US economy and the proposed moves to inject some life into it by the government appear to be the equivalent of spitting on a raging inferno.

It’s going to get uglier before signs of a recovery begin to appear I’m afraid.

However, I don’t want to play Chicken Little here and scream that we’re all doomed. Instead, I’d like to continue with what I touched on about different business models and how they could possibly be affected by economic trends.

Let’s refer to these various business models as part of the “IM Food Chain“.

Actually, I should give credit to a member at a private forum that I used to frequent for hammering this concept home to a few of us. It opened my eyes up to what it is I’m actually doing most of the time online.

Starting from the bottom of the “IM Food Chain”:

*Traffic Brokering - this consists of business models where a spread between PPC search engines is exploited using arbitrage or the spread between PPC search engines and CPA/CPL offers. Click arbitrage is true bottom feeding, where a spread of only a few cents is exploited. It can be said that chasing pennies will only earn you pennies, and in many cases this turns out to be true. However, I know from my own experience, that I can make some nice dollars chasing after pennies. Though I don’t advise making this your sole business model or even a core model. Instead, view it as part of a diversified portfolio of income streams along with the other models further up the “IM Food Chain”.

*Affiliate Marketing - of all the online business models this one is probably the best known and most widely practiced. That just makes sense, since it’s both easy to understand and to implement. Affiliate Marketing can also benefit from both PPC and organic traffic sources and these two methods can probably be sub-categorized into their own positions on the “IM Food Chain”.

There are tons of affiliates who make extremely good money promoting other people’s products and do nothing else but AM. However, there are some serious drawbacks to AM that you must be aware of:

–The affiliate marketer assumes a lot of risk in terms of paying for PPC traffic, time and effort in building Websites/landing pages, etc., in return for a small percentage of the sale.

–Unless affiliate marketers capture leads, they are not retaining customers. Therefore things link relationship building and backend sales are lost. Many times the merchant “steals” your customers by building relationships with them instead.

–Affiliate marketers are treated poorly in the vast majority of cases. Merchants can be unresponsive to the needs of their affiliates and a few may even engage in underhanded tactics to deny AMers their commissions.

The core model of my business up to this point has been AM and I certainly don’t dismiss it as a lousy way to make money online. Again, it should be but one of several models in your portfolio. Just be aware that AM is akin to being an online salesman — you need to keep humping for the next sale or else your income will quickly dry up.

*Your Own Products - this is the pinnacle of the “IM Food Chain“. When you have your own products or services to offer you are in control of the relationship with your customers. And it should be pointed out that these don’t even need to be products that you create yourself. For a price, usually quite small, you can obtain resell or PLR rights to a host of info products and software. Physical products also fall into this category with drop shipping being the preferred way to handle physical products by many IMers.

Just keep in mind that delivering crappy products and services won’t cut it for very long. At this level you can no longer remain anonymous like you can do further down the chain. Ultimately, this should be a good thing, but along with it comes more risk exposure:

–Since you probably aren’t anonymous at this level your good name and reputation are on the line. You can be smeared even if you deliver fantastic products and customer support. There are always jealous competitors and a few customers that can never be satisfied.

–You now bear the responsibility of providing customer support. It’s several orders of magnitude greater if you sell software products. A help desk and detailed user manuals are an absolute must when selling software!

–You are more exposed to legal action. Having a higher profile simply puts you in the sites of litigious individuals and organizations.

Perhaps the greatest benefit of marketing your own products is that it puts you in a much closer relationship with your customers. Compare this relationship with what little you know about people clicking through on your affiliate links. A lot of time and money is spent surveying the wants and needs of markets, so what better way than to have an on-going dialog with existing customers in your market?

My personal goal is to structure my online business like I do my investment portfolio — for the long term with plenty of diversification.