An Overview of Some Common Business Models

Change the Model

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Freemium is a Hammer: but Not Everything Is a Nail

The freemium business model, albeit an effective one, is not appropriate for every business enterprise. For some businesses, it is akin to using a hammer to drive a square peg into a round hole. It just doesn’t work! This has been addressed in previous posts and I won’t belabor the point further.

What I want to explore today, are alternatives to the freemium model. What else is out there? Freemium seems to be at the heart of so many Internet enterprises, we can easily lose sight of the fact that other options (tools) are available. Basically, a business model can be defined as a method of doing business that generates adequate revenue for the business to sustain its operations and grow. We’ll look at 3 today.

Subscription Model

The first alternative to the freemium model is the subscription model. The subscription model has some commonality with the freemium model. In the subscription model, users are charged a fee, usually monthly or annually, to subscribe to the service. Three major business types are drawn to the subscription model.

Content Providers

Frequently, these enterprises will provide free content, and like a freemium model, reserves premium content for paid subscribers. Subscription fees have no relationship to usage volume or frequency. Content may be text, video or audio

Person to Person Enterprises

These businesses act as conduits of distribution for information submitted by users. Examples include dating sites, genealogy sites or sites bringing old classmates together, through user driven databases.

Internet Service Providers

Businesses offering network connectivity and recently, businesses offering cloud computing services such as SaaS, PaaS and managed service providers, often turn to the subscription model as the most practical approach to conducting business.

Brokerage Model

A second business model is the brokerage model.

In the brokerage model, buyers and sellers are brought together and transactions between them are facilitated. These transactions may be business to business (B2B), business to consumer (B2C) or consumer to consumer (C2C).

The brokerage model has multiple variations.

Marketplace Exchanges

These comprehend the full range of services inherent in the transaction process: market assessment, negotiation, and fulfillment. Market exchanges may operate independently or receive sponsorship from an industry consortium.

Buy/Sell Fulfillment

Largely the same as a market exchanges, sans assessment.

Demand Collections

This is best exemplified by Priceline.com. These companies act as a broker to find goods or services that meet the binding bid of users.

Auction Broker

These companies act as auctioneers for sellers, be they individuals or merchants, charging the seller a commission and or listing fee to generate its revenue stream. There is a myriad of bidding rules, as wells as goods and services. The variations are endless!

Transaction Broker

These enterprises provide a third-party payment method allowing buyer and seller to conclude a transaction. PayPal is an example.

Distributor

These firms are similar to the mail order catalog of the past, connecting wholesale and/or retail buyers to product manufacturers and then facilitating the fulfillment of the transactions.

Search Agent

These are companies that seek out by price, availability (or both), goods or services as specified by the buyer. Some companies may specialize in difficult to find data or other types of information.

Virtual Mall

In this subset of market exchanges, we see a hosting model. These firms provide services to merchants and generate revenue by charging set-up, listing and/or transaction fees. Some provide automated transaction services as well.

Advertising Model

The third model we will explore today is the advertising model.

This model has its roots in the traditional media broadcast model but, is instead a website providing content, often for free. They may also provide services such as email, instant messaging and blogs. These are mixed with advertising messages and which may represent the only source of revenue for the business. Sub categories of the advertising include the following:

Portals

These are usually browsers and most include various content features and/or services. Because they enjoy a high volume of traffic, advertising generates sufficient revenue to support further diversification of the services and features offered. These portals can be personalized or they can be niche portals catering to a particular demographic.

Classifieds

These sites list items for sale, items wanted, etc. Craigslist is an example. Revenue is generated from listings fees, commissions upon sale, and even by subscription or membership fees.

Registration Sites

Usually content based, these sites are free to access, but users are required to register and provide data that can ultimately be used in targeted marketing campaigns.

Introductory Advertising

These companies market advertising that precedes the users intended destination, forcing the user to view all or least part of the ad before getting to the desired content.

Über Advertising

For lack of a better term—is similar to introductory ads, but requires viewer interaction before allowing the user to proceed to the desired content.

Some models are less complicated than others, but the important take-away is that there are alternatives to the freemium model … many that may be better suited to your enterprise. We’ll discuss additional options in our next post.

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