A Definition of Virtual Business

Remote employee working virtually while sitting on the beach.

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 A virtual business conducts all or most of its business via the internet and does not have physical premises to interact with customers face-to-face. A purely virtual company may outsource nearly all of its business functions such as product development, marketing, sales, shipping, etc. However, most virtual businesses retain some of these activities in-house and may still require a physical presence in the form of headquarters, warehouses, shipping and delivery hubs, and other functions.

Retail Virtual Business

Virtual retailing is the most common form of virtual business. It began in the early 1980s (before the widespread adoption of the internet and world-wide-web) as companies such as AOL and CompuServe began offering subscription-based, dial-up services such as email, chat, electronic bulletin boards, and forums, all delivered through primitive text-based interfaces on various computer platforms. Available services eventually expanded to include newswire, stock quotes, and online shopping.

The advent of the internet opened up a vast online marketplace for virtual business. The development of security protocols such as SSL in 1994 enabled sensitive data such as credit card information to be safely transmitted over the World Wide Web (WWW) and e-commerce exploded as a result. Unfortunately, the move to internet retailing was a case of too much too fast and during the dot-com crash of 2000 – 2002 few internet retailers survived. Those that did such as Amazon, eBay, Priceline, etc. became e-commerce giants and today are thriving.

The Largest Virtual Business in the World

Amazon is the most famous virtual retailer and the largest in the world, with over 150,000 employees and over US$90 billion in annual revenue. Founded by Jeff Bezos in 1994, it began as a virtual bookstore and with the advent of digital books (ebooks) and e-readers has turned the publishing industry on its head. Traditional “bricks and mortar” booksellers such as Borders (who at its peak had over 600 retail stores) were unable to compete with Amazon’s huge selection, low prices, and free shipping. Borders filed for bankruptcy in 2011. In addition to ebook sales, Amazon markets its own line of Kindle ebook readers. On average, 12 new books are added to Amazon’s catalog every hour of the day.

Amazon quickly expanded their online offerings to include sales of CDs/DVDs, video games, electronics, and a huge variety of dry goods in almost every retail category including apparel, home, and garden, automotive, hardware, etc. In 2002 Amazon began selling cloud computing services and is now the world’s largest cloud computing provider.

Virtual Is Not Just for Retail

Non-retail industries are also embracing the virtual business model. One example is the IT sector. Nowadays it is common for software development firms to have employees in multiple different geographic locales working collaboratively on diverse projects. This allows for the distribution of labor to lower-cost jurisdictions as well as continuity of customer support across different time zones. Email and online meeting/conferencing facilitate communication and reduce or eliminate the need for face-to-face interaction.

Many businesses virtualize part of their operations by, for example, allowing employees to work from home or outsourcing business functions such as human resources. Call/contact centers are another ideal candidate for virtualization and many organizations such as IBM and JetBlue allow their call center employees to work from home.

Virtual Business Advantages

Virtualizing business activities has many potential advantages, including:

  • “Bricks and mortar” cost savings: reducing the need for employee workspace saves money on overhead (expenses such as commercial building leases, utilities, insurance, etc.)
  • Flexibility: a less rigid organization can react faster to changes in the marketplace.
  • Happier employees: working from home creates a better work/life balance for staff.
  • A larger employee base: Since employees can work anywhere, organizations can provide employment in rural locations or areas of high unemployment.

Virtual Business Disadvantages

The possible disadvantages of business virtualization include:

  • Lack of cohesiveness in the organization due to employees being located in diverse regions, with possible language and cultural differences.
  • Lack of face-to-face interaction between employees and teams resulting in communications-related issues.
  • Reduced productivity from work-from-home employees who lack self-discipline.