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[edit] Short definition
Business model = how will you make money?
A humorous VC blog post on "business models" http://earlystagevc.typepad.com/earlystagevc/2006/07/business_model_.html
[edit] Discussion
The term "Business Model" is an interesting term because it can mean many different things to different people. When talking about a business model, people are generally referring to archetypes of different ways a business achieves organizational leverage.
For instance, speciality retail shops achieve leverage by aggregating many products aimed at a particular demographic and a particular domain/use case/setting within that demographic. Example: Jack & Jane targets affordable luxury aspirationals that have young children. The term "speciality retail" implies that they are driving organizational leverage by aggregating infant products targeted at a demographic that they supposedly spend more time understanding than the next business. Therefore, one area of organizational leverage is that they focus on a defined customer group: aspirational infant parents. Additionally, they have decided to use physical locations to appeal to people within a very confined geographic area (although most speciality retailers are now extending their understanding of their demo onto the web and eliminating the geographic limitation). So, if someone says they're using a speciality retail model, you can instantly assume they've made the following strategic choices:
1. we're generally selling other people's products, not our own,
2. we believe we understand a particular market segment better than other people,
3. and, we are mastering the art of product presentation to achieve higher than average returns.
So, when someone asks what your business model, they're really asking what high-level strategic choices have you decided to pursue to drive organizational leverage (and, presumably, make a lot money). The interesting thing about the Internet is that some business models forgo initial economic considerations in pursuit of audience aggregation in the hopes of "flicking the switch" at some later point in time (hello Google).
There are several different business models for Web 2.0 companies and the revenue stream ideas are expanding each day. Revenue generators range from advertising and affiliate programs to sponsorships to selling subscriptions/memberships to enter the site. Some up-and-coming revenue ideas include selling e-books, eCourses and eSeminars. Many Wiki sites, such as Wikipedia, earn revenue from donations from users.
[edit] Types of Business Models
For a general introduction to business models on the web, see this excellent article by Michael Rappa -- http://digitalenterprise.org/models/models.html
Social Networking Business Model, see this blog post on GigaOM regarding SNS biz models -- http://gigaom.com/2006/06/19/of-social-networks-and-business-models/
News Website Business Models, see this analysis from First Monday, an Internet consulting firm -- http://www.firstmonday.org/issues/issue8_6/schiff/
The Advertising Business Model is discussed in more detail as well.