Virtual businesses are any enterprises that conduct all or most of their operations online. They may or may not have a physical presence, such as an office or warehouse, but there is no physical location for customers to visit.
What are virtual businesses?
Virtual businesses are those that focus on their digital capabilities to reduce their physical presence. While virtual businesses are united in their efforts to move work online, they maintain varying levels of physical operations.
In the extreme case, all employees work virtually, and the “headquarters” is where the CEO resides. In less extreme examples, virtual businesses may still have a headquarters where employees work, or they may have a warehouse where employees prepare packages for shipment to customers.
Note: At a minimum, virtual businesses are defined by the absence of a physical location where customers can interact with the company face-to-face.
How do virtual businesses operate?
As anyone working in an office can attest, the vast majority of work can be completed via computer. Virtual businesses take advantage of this by trimming unnecessary costs. This can include outsourcing all business functions such as product development, marketing, sales, and shipping.
One of the easiest costs to cut for many businesses is the overhead associated with retail space. Businesses can sell their products online at a cost that represents only a small fraction of the expenses that would come with opening a physical retail store.
Therefore, it is not surprising that online virtual commerce is the most common form of virtual business. The earliest examples of consumer-facing e-commerce can be traced back to CompuServe’s Electronic Mall, launched in 1984. In 1994, SSL security measures made it much easier for the average consumer to stay safe while using their credit card to purchase items online. Business activities swelled during what is known as the dot-com bubble, but even after that bubble burst, companies like Amazon, eBay, and Priceline continued to thrive.
The largest virtual business
Amazon started as an online bookstore specializing in e-books, but it has since become the largest and most well-known example of a virtual business. In the first quarter of 2020, Amazon generated over $75 billion in sales from e-commerce, cloud computing services, and even Whole Foods – the traditional grocery chain purchased by Amazon in 2017.
While the shift to virtual work in the retail industry has been among the most noticeable trends in the digital age, many other industries are making the same leap. Generally, the more work that can be done on a computer, the easier it is for that work to transition into virtual business, which is why the IT sector has embraced many aspects of virtual business.
Software development companies often hire developers who do not live near the company headquarters. They complete their portion of the code from home, send it to colleagues, and communicate about projects via email, video calls, and phone.
Customer service centers have another business model that fits virtual business. Customer service representatives can handle calls and emails from home.
Advantages and disadvantages of virtual businesses
Advantages
- Cost savings on buildings and commercial space: Reducing the need for workspace for employees and commercial space saves on operational costs associated with physical businesses – also known as brick-and-mortar businesses. These costs include commercial property leases, utility bills, insurance premiums, and more.
- Flexibility: A non-rigid organization can adapt more quickly to changes in the market.
- Employees
- Increased happiness: Working from home creates a better work-life balance for employees.
- Larger employee base: Since employees can work from anywhere, organizations can offer job opportunities in rural areas or areas with high unemployment rates.
Disadvantages
- Lack of institutional cohesion: Having employees in diverse locations, with potential language and cultural differences, can lead to a lack of company identity and cohesion.
- Potential communication issues: The absence of face-to-face interaction among employees and teams can lead to communication-related problems.
- Increased likelihood of productivity loss: It can be difficult to ensure continuous productivity from employees who lack self-discipline when working from home.
Takeaway
Virtual businesses are those that conduct a significant portion of their operations online. Typically, virtual businesses do not have a physical storefront for customers to visit and may also allow employees to work digitally from home. The retail and information technology industries have heavily relied on virtual businesses.
Sources:
- Concordia St. Paul. “From Storefronts to Search Engines: A History of E-Commerce.” Accessed July 28, 2020.
- Google. “SSL/TLS Overview: History.” Accessed July 28, 2020.
- Stern School of Business, New York University. “DotCom Mania: The Rise and Fall of Internet Stocks,” Page 1113. Accessed July 28, 2020.
- Amazon. “Amazon and Whole Foods Announce Acquisition to Close This Month, Will Work Together to Make High-Quality, Natural and Organic Food Affordable for Everyone.” Accessed July 28, 2020.
- Amazon. “Amazon.com Announces First Quarter Results.” Accessed July 28, 2020.
Source: https://www.thebalance.com/virtual-business-definition-and-examples-4773309
Source: https://www.thebalancemoney.com/a-definition-of-virtual-business-2948416
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