What Is a Virtual Business?

A virtual business is any business that conducts all or most of its business via the internet. It may or may not have some kind of physical presence—such as an office or warehouse—but there isn't a physical location that customers can visit.

Here are the basics of virtual business, some examples of industries that are particularly well-suited to go virtual, and the pros and cons of making the switch.

What Is a Virtual Business?

A virtual business is one that focuses on its digital capabilities to scale back its physical presence. While virtual businesses are united in their efforts to move work online, they all retain different levels of physical operations.

In the most extreme example, all employees work virtually, and the "headquarters" is wherever the CEO lives. In less extreme examples, virtual businesses may still have a headquarters where employees work, or they may have a warehouse where employees prepare packages to ship to customers.

How Does a Virtual Business Work?

As anyone who has worked in an office can attest to, the vast majority of work can be completed with a computer. Virtual businesses take advantage of that by trimming unnecessary costs. This could include outsourcing nearly all of its business functions such as product development, marketing, sales, and shipping.

One of the easiest costs for many companies to cut is the overhead that comes with retail space. Businesses can sell their products online for a fraction of the cost that would come with opening a physical retail store.

Therefore, it's not surprising that virtual retailing is the most common form of virtual business. The earliest examples of consumer-facing e-commerce might be traced back to CompuServe's Electronic Mall, which was unveiled in 1984. In 1994, the introduction of SSL security protocols made it much easier for the average consumer to stay safe while using their credit card to buy things online. The flurry of commercial activity swelled into what became known as the Dot-Com Bubble, but even after that bubble burst, companies like Amazon, eBay, and Priceline persevered.

While the shift to virtual in the retail industry has been among the most noticeable trends of the digital era, many other industries are making the same leap. In general, the more work that's done on a computer, the easier that business can shift to a virtual business, so the IT sector has embraced many aspects of virtual business.

Software development firms commonly hire developers who don't live near the company's headquarters. They complete their section of code from home, send it to colleagues, and communicate about projects via email, video chats, and phone calls.

Customer service centers have another business model that lends itself to virtual business. Customer service representatives can answer calls and emails from home.

Pros and Cons of Virtual Businesses

Pros Explained

• Brick-and-mortar cost savings: Reducing the need for employee workspace and retail space saves money on overhead costs associated with physical businesses—also known as brick-and-mortar businesses. These costs include commercial building leases, utility bills, insurance premiums, and more.
• 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.
• Larger employee base: Since employees can work anywhere, organizations can provide employment in rural locations or areas of high unemployment.

Cons Explained

• Lack of institutional cohesiveness: Employees being located in diverse regions, with possible language and cultural differences, can cause a lack of cohesive company identity and culture.
• Potential communication issues: A lack of face-to-face interaction between employees and teams can cause communications-related issues.
• Increased likelihood of lost productivity: It's harder to ensure consistent productivity from employees who lack self-discipline when they're working from home.