Week 5 Summary

TOPIC 5 Summary: Business Models

Definitions: (Sourced from: http://mylams.com/ebusiness/topics-1-6/topic-5-business-models/, https://www.weforum.org/events/world-economic-forum-annual-meeting-2016, http://moodle.federation.edu.au/course/view.php?id=28650, http://digitalenterprise.org/models/models.html)

“A business model is the method of doing business by which a company can sustain itself — that is, generate revenue.

“The main point is that they (online business models) are continuing to evolve. In the most basic sense, a business model is the method of doing business by which a company can sustain itself — that is, generate revenue. The business model spells-out how a company makes money by specifying where it is positioned in the value chain.”

Revenue models are how you plan to make money and a business model is how you plan to continue to make money.

Business models often overlap, and you will find different authors contribute alternative ideas.

Brokerage: Brokers are market-makers: they bring buyers and sellers together and facilitate transactions.

Advertising: The web advertising model is an extension of the traditional media broadcast model. The broadcaster, in this case, a web site, provides content (usually, but not necessarily, for free) and services (like email, IM, blogs) mixed with advertising messages in the form of banner ads. One of the oldest money-making sources, this model is under constant evolution. With the general internet population having access to ad-blocking tools, the industry has gone on to employ complex and creative methods to stay relevant.

  • Display Ads – e.g. Yahoo!
  • Search Ads – e.g. Google
  • Text Ads – e.g. Google, Facebook
  • Video Ads – e.g.  YouTube
  • Audio Ads – e.g. Saavn
  • Promoted Content – e.g.  Twitter, Facebook

Infomediary: Independently collected data about producers and their products are useful to consumers when considering a purchase. Some firms function as infomediaries (information intermediaries) assisting buyers and/or sellers understand a given market.

Merchant: Wholesalers and retailers of goods and services. Sales may be made based on list prices or through auction.

Manufacturer (Direct): The manufacturer or “direct model”, it is predicated on the power of the web to allow a manufacturer (i.e., a company that creates a product or service) to reach buyers directly and thereby compress the distribution channel.

Affiliate: In contrast to the generalized portal, which seeks to drive a high volume of traffic to one site, the affiliate model, provides purchase opportunities wherever people may be surfing. It does this by offering financial incentives (in the form of a percentage of revenue) to affiliated partner sites.

Community: The viability of the community model is based on user loyalty. Users have a high investment in both time and emotion. Revenue can be based on the sale of ancillary products and services or voluntary contributions; or revenue may be tied to contextual advertising and subscriptions for premium services.

Subscription: Users are charged a periodic – daily, monthly or annual – fee to subscribe to a service.

Utility: The utility or “on-demand” model is based on metering usage, or a “pay as you go” approach.

In the most basic sense, a business model is the method of doing business by which a company can sustain itself — that is, generate revenue. The business model spells-out how a company makes money by specifying where it is positioned in the value chain.

The Four Basic Online Business Models – Marko Hurst

In this video interview, Internet marketing expert Marko Hurst discusses the four basic online business models and how each of them generates income. (1) E-commerce sites sell goods or services at a profit, (2) Content sites sell advertising, (3) Customer support sites save money for the business, and (4) Lead generation sites provide information for your company or to pass along to generate money from future sales. Most sites have at least 2 of the 4 business models; Amazon.com uses 3 of these.

Notes:

  1. Freemium model

Perhaps the most common model used by Web services. The idea here is to sell a basic free product to as many customers as possible, but keep the premium features exclusively for paying customers. A large number of SaaS products use this model.  For instance, Dropbox offers 2GB of free cloud data storage. But if one wants more space, one has to pay up.

Selling through e-commerce can include:

  • Retailing – e.g. Myntra
  • Marketplace – e.g. Snapdeal
  • Sharing Economy – AirBnB
  • Aggregators – e.g Taxi for Sure
  • Group buying – e.g. Groupon
  • Digital goods / downloads – e.g. iTunes
  • Virtual goods – e.g. Zynga
  • Training – e.g. Coursera, SimpliLearn
  • Pay what you want – e.g. Instamojo (optional)
  • Auction commerce – e.g. eBay
  • Crowdsourced Services – e.g. Elance, oDesk”.

Where Australia ranks in terms of web readiness, mobile technology:

Australia ranks at number 16 in the world. With a networking readiness index of 5.5.

Networked Readiness Index is measured as 1-7 (best). Look at each of the 10 pillars of performance and comment on your blog on Australia’s performance for each pillar:

1st pillar is the: Political and regulatory environment. Australia ranked 15th with a score of 5.3.

2nd pillar: Business and innovation environment. Australia ranked 23rd with a score of 5.1.

3rd pillar: Infrastructure and digital content. Australia ranked 6th with a score of 7.0.

4th pillar: Affordability. Australia ranked 28th and scored 6.2.

5th pillar: Skills. Australia ranked 17th with a score of 5.9.

6th pillar: Individual usage. Australia ranked 15th with a score 6.1.

7th pillar: Business usage. Australia ranked 24th with a score of 4.7.

8th pillar: Government usage. Australia ranked 23rd and scored 5.1.

9th pillar: Economic impacts. Australia ranked 24th with a score of 5.1.

10th pillar: Social Impacts. Australia ranked 14th with a score of 5.6.

MY NOTES ON VIDEOS:

 4 Basic online models:

  1. E commerce: selling goods and services for a profit, it is easy to measure through profit revenue. The way to improve with conversion rates and to optimise parts of the site such as: shopping cart, product details etc.
  2. Content: Eg New York Times.com, make money on advertising, page views and click through to the sites. Most sites use 2-4 business models.
  3. Customer support: eg Amazon has a system where you can contact them online and not through a call. They will help you solve your problems at a much cheaper rate of calling consumers.
  4. Lead Generation: Collecting personal identification information from customers when they use the site. Using it from CRM, passing it on to third parties (multi step sale process).

REVENUE MODELS:

1. Advertising

One of the oldest money-making sources, this model is under constant evolution. With the general internet population having access to ad-blocking tools, the industry has gone on to employ complex and creative methods to stay relevant.

•Display Ads – e.g. Yahoo!

•Search Ads – e.g. Google

•Text Ads – e.g. Google, Facebook

•Video Ads – e.g.  YouTube

•Audio Ads – e.g. Saavn

•Promoted Content – e.g.  Twitter, Facebook

•Paid content promotion

•Recruitment Ads – e.g.  LinkedIn

•Classifieds – e.g.  JustDial, Quikr

•Featured listings – e.g. Zomato, CommonFloor

•Email Ads – e.g. Yahoo!, Google

•Location-based offers – e.g.  Foursquare

2. Freemium model

Perhaps the most common model used by Web services. The idea here is to sell a basic free product to as many customers as possible, but keep the premium features exclusively for paying customers. A large number of SaaS products use this model.  For instance, Dropbox offers 2GB of free cloud data storage. But if one wants more space, one has to pay up.

Dropbox_Freemium_Screenshot_YS

Dropbox’s purchase plans

Other examples include Adobe Flash, Evernote, Google Docs/Drive, LinkedIn, Prezi, Slideshare, Skype, WordPress, and many mobile games like Farmville, Angry Birds etc.

3. E-commerce

The traditional world of retail comprising of malls and high street stores changed forever in the 90s when companies like Amazon emerged. Because they could save on expensive real estate costs, the prices offered on these stores were significantly lower.

ecommerce

Selling through e-commerce can include:

•Retailing – e.g. Myntra

•Marketplace – e.g. Snapdeal

•Sharing Economy – AirBnB

•Aggregators – e.g Taxi for Sure

•Group buying – e.g. Groupon

•Digital goods / downloads – e.g. iTunes

•Virtual goods – e.g. Zynga

•Training – e.g. Coursera, SimpliLearn

•Pay what you want – e.g. Instamojo (optional)

•Auction commerce – e.g. eBay

•Crowdsourced Services – e.g. Elance, oDesk

4. Affiliate Marketing

Mostly followed by high-traffic blogs, this is a model wherein the publisher signs up for affiliate programs related to their service/content and convert their users to customers of their affiliates/advertisers.

In most cases this involves a publisher earning a commission when a user follows a link on their blog to another site and this converts into the user buying something at the affiliate site.

A recent example is several well-known bloggers pushing out MotoG reviews and then linking to the Flipkart exclusive sale site for commissions.

5. Subscription Model

Newspapers, Gym, Magazines – yes, all of them use a subscription model. So, it has been existent since long.

 In the digital domain, software, which was once dominated by the licensing model, is slowly moving towards a subscription model. Generally, unlimited usage is offered, but a few have a specified cap above which they charge a higher rate.

NYtimes_Subscription

The different sub-models are:

•Software as a Service (SaaS) – e.g. Freshdesk

•Service as a Service – e.g. PayU

•Content as a Service

•Infrastructure/Platform as a service – e.g. AWS, Azure

•Membership Services – e.g. Amazon Prime

•Support and Maintenance – e.g. Red Hat

•Paywall – e.g. ft.com, NYtimes

6. Licensing

Very common among software companies, this model is however losing its sheen due to the emerging trend of SaaS subscription models.

 

Licensing could be for usage, which is the model for Intellectual Property (patents, copyrights, trademarks). This type of license is usually limited by time, territory, types of products, volume, etc. The other kind is for certification, like the McAfee SECURE trustmarks used for Internet websites.

•Per Device/Server License – e.g. Microsoft products

•Per Application instance – e.g. Adobe Photoshop

•Per Site License – e.g. Private cloud on internal infrastructure

•Patent Licensing – e.g. Qualcomm

7. Selling Data

Have you heard the phrase, ‘If you are not paying for the product, you are not the customer, you are the product being sold.’

High-quality, exclusive data is very valuable in the digital age. Many companies specialize in lead generation of potential customers and sell them to third parties.

You don’t pay for services like Google, Twitter and Facebook. But they aggregate high quantities of data about you and several millions like you and show you contextual advertisements based on this data. Which is why ‘you are not the customer, you are the product being sold.’

•User data – e.g. LinkedIn

•Search Data – e.g. Google

•Benchmarking services – e.g. Comscore

•Market research – e.g. MarketsandMarkets

wikipedia-donation_YS

The famous annual appeal from Jimmy Wales

8. Sponsorship/Donations

Many services are sponsored by government organizations and major funds if it directly helps them or the world at large, for example, Khan Academy is funded by the Gates Foundation and Google.

Then there is the Wikipedia model where the users are asked to willingly donate small to large amounts of donation to help support the initiative. Many browser extensions and WordPress plugins etc. also follow this route.

9. Build to sell (to Google, Facebook and others)

This might be counterintuitive and not the best of ‘revenue models’ because there is no revenue involved. But many companies have built traction over time and never worried about how they are going to make money, and have finally sold for big bucks to the internet giants, for example, Instagram, Pinterest.

Mobile and Gaming Revenue Models

•Paid App Downloads – e.g. WhatsApp

•In-app purchases – e.g. Candy Crush Saga, Temple Run

•In-app subscriptions – e.g. NY Times app

•Advertising – e.g. Flurry

•Transactions – e.g. Airtel Money

•Freemium – e.g. Zynga

•Subscription — e.g. World of Warcraft

•Premium – e.g. xBox games

•Downloadable Content – e.g. Call of Duty

•Ad-supported

INTERNET OF THINGS: Means that business objects have functional and digital processes. Things plus IT equal functions and service. Digitally charged products, high resolution management.

Business canvas:

  1. Customer segment
  2. Value propositions
  3. Channels
  4. Customer relationships
  5. Revenue streams
  6. Key resources
  7. Key activities
  8. Key partnerships
  9. Cost structure
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