A while ago, I was trying to explain internet business models to a couple of friends of mine, who are part of the brick-and-mortar business world.
Some of the points I tried conveying are:
What makes internet business models work is economy of scale - the more customers you have, the more economical and the more profitable your model is.
Internet users expect things for free (search, mail, etc.), so advertising-based model usually works (via Adsense or sponsored search)
Subscription-based services are also common and popular (such as Flickr and 37signals' products)
Due to the internet's inherent nature, the barrier to create a global business is less.
It's very easy to lose a customer to a competing portal. So, user engagement is important.
The brand is important. Mindshare, marketshare, and all that stuff.
Innovate or die?
Today, I came across this list of business models by Professor Michael Rappa that covers pretty much everything that is on the internet.
I'm looking for more articles on the subject that make it more clearer and easier for me to explain these things.
Update: I was wondering if the Amazon.com model of 'Get Big Fast' still works today. I think there are some hints of that in bloglines and del.icio.us which have an amazing number of users but do not have a business model (at least that is known to public) yet.