Most common business models in tech

--- tags: Week 1, H3, M1 --- # Most common business models in tech So, to recap: :::info :bulb: A business model is the way in which a company creates, delivers and captures value. ::: It's important for you to understand the different business models out there. Essentially, it's the way your company will make money, and your pricing will be structured accordingly. Let's have a look at the most common business models in the tech industry today:   ## 1. Subscription ### Business model definition The subscription business model is defined as a business that sells a product on a subscription basis rather than a one-off basis. ### Why does this business model work for companies? Stable, recurring cash flows for the lifetime of each customer can be achieved, creating a financially healthy business. Certain segments of customers want to pay in many small chunks rather than one large chunk, in case they might want to cancel soon. No need to re-order products regularly. ### Example companies using this business model * SaaS companies: Salesforce, Google Apps * Media Companies: Spotify, magazines, online content   ## 2. Freemium ### Business model definition The freemium business model is defined as a business that offers a low-tier product for free (some businesses even lose money on this) and asks users to pay for higher-tier products or upgrades. ### Why does this business model work for companies? Free-tier products are the bait to get users to sign up, to self-learn about the product, and then to get ‘stuck’ with the product when all their hard work cannot be transferred to a competing service. Once users are stuck with you, they will hopefully upgrade once they hit the free tier limits. ### Example companies using this business model - Gmail for Businesses (Google Apps) - Adobe PDF Reader - Many apps whose premium features are charged while basics are free (e.g. Spotify, Tinder, New York Times)   ## 3. Pay-Per-Use Also known as the "Pay as You Go" business model. ### Business model definition Pay-per-use is a model in which the customer pays for using the product rather than having to buy it. In this case, the more a customer uses the product the more they pay, and vice versa. ### Why does this business model work for companies? Customers love it when they only pay when they use, so it is usually easier to get customers on board. Overall, it is an extremely fair way of treating the customer or consumer as those who use a service sparingly can pay as they go, making it often practical and affordable. If you are curious, see more details [here](https://www.linkedin.com/pulse/pay-per-use-business-model-explained-robert-frith/). ### Example companies using this business model - Carsharing and mobility providers (Zipcar in the US, Share Now in Europe, Tier, Lime and many others) - Movie or music streaming apps where you pay per additional download or feature   ## 4. Marketplace ### Business model definition A marketplace business model is defined as a business that charges a transaction fee via a platform for buyers and sellers. ### Why does this business model work for companies? There isn’t much cost to run a server these days, and the costs only get lower. It’s just connecting supply (sellers) and demand (interested buyers) rather than dealing with inventory (a lot less risk). ### Example companies using this business model - Amazon (they are a vendor themselves, but also have millions of different vendors and buyers) - eBay (millions of different vendors and buyers) - Uber (consumers booking drivers / mobility services, Uber just provides the platform)   ## 5. Sponsorship ### Business model definition The sponsorship business model is defined as a business that makes money from sponsors, where the users do not have to pay. ### Why does this business model work for companies? Great products that are free tend to attract millions of users. People do not mind unobtrusive ads or logo placements. ### Example companies using this business model - Online Services – Youtube, Gmail, Wikipedia - Sports Industry – Football teams, sports associations   ## 6. Reseller ### Business model definition The reseller business model is defined as a business that gets ‘reselling agents’ to sell products on their behalf. Hence, a reseller is someone who sells products that are sourced directly from a producer or manufacturer. ### Why does this business model work for companies? For the manufacturer using resellers: Lower inventory risk, which is passed on to the reselling agent as well as fewer marketing and salespeople needed, which reduces a lot of HR cost. As a reseller, you don’t need to manufacture any products yourself. You’ll also rarely have exclusive access to the products you’re selling. Your business plan depends on you being able to add improvements to the way the product is sold, e.g. having better access to a particular customer group, more experience in marketing etc. ### Example companies using this business model - Website hosting companies: Godaddy, Bluehost - Automobile dealerships - Computer retailers   ## 7. White labelling/private labelling ### Business model definition The white labelling/private labelling business model is defined as a business that does not sell products under their own brand name. Instead, the products are labeled and sold under another company’s brand name. Though the products are not manufactured by the resellers, they can still sell those products under their brand name. As a reseller, you can then control product factors like pricing and branding. ### Why does this business model work for companies? As "manufacturer", there is lower risk of damaging your own brand. You can focus on product development and leave marketing and sales to those with expertise. ### Example companies using this business model - OEM manufacturers: Foxconn - SaaS companies: Klipfolio, Godaddy, Talkwalker   Those are some of the most common business models out there, but remember, they're always evolving. What's important is that you clearly understand your company's business model 😉 To solidify your understanding of what different business models are, watch the following videos explaining how the business models of Amazon, Spotify and Tinder have disrupted their particular industries. <iframe width="560" height="315" src="https://www.youtube.com/embed/avWVPaJFgFk" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>   **Let's do a short final quiz before we move onto your module assignment! 🚀** <style> body > .ui-infobar, body > .ui-toc, body > .ui-affix-toc, body > .ui-community, body > .document-footer { display: none !important; } </style>