The merchant model is perhaps the best known e-commerce business model, exemplified by companies such as amazon.com and play.com. Amazon initially sold books online from a database of over a million titles. The company's wide selection and deeply-discounted prices were major factors in its success. It is now the world's largest online retailer and has branched out into selling CDs, DVDs, electronics and apparel.
Many online retailers are able to offer products at a cheaper rate than high street shops as they don't have the same expenses in keeping stocks, and buy from manufacturers in large quantities, enabling them to command large discounts. They often operate from cheap, out-of-town warehouses, but may also use a technique known a drop shipping, where they carry little or no stock, but order items to be shipped directly from the producer to the customer after a purchase is made.
Online retailers appear to be most successful when selling small items, of relatively low value, and with low postage costs, such as books and CDs. Many "bricks and mortar" retailers, including Tesco, Marks and Spencer and Argos have adopted the merchant model for their online presence, sometimes with varying degrees of success. Companies which operate in the real world as well as online are sometimes referred to as "clicks and mortar" retailers.
Many companies also use the merchant model to sell in niche markets. Examples include Dabs (computers and peripherals), Expansys (mobile phones and accessories) and Battery Force, which sells all sorts of batteries at prices up to 70% cheaper then high-street retailers.