The term ‘Business Model’ may sound like a little buzzword to you and it’s been used quite a lot these days. But it’s important to learn and understand what that term means and how it is beneficial.
Any company, any startup doesn’t need staff or employees to be successful. Any firm doesn’t need business strategies to be successful. Any organization doesn’t need the customers to be better than other businesses in the industry. All a company or a business needs is a web-based business model that promises wild profits in near future.
Let’s be honest. Some of the most dynamic and forceful innovations in any industry today doesn’t involve breakthrough technologies or new advanced tools and mechanisms. Instead some of the most mighty and influential corporations involve the development and implementation of fundamentally new business models, which eventually make the business super successful.
No doubt, some business models have been used vigorously and have been upgraded every two decades or so. Although the business models used earlier were stable and governed a few key ideas of the business. For example, the ‘bait and hook’ business model was used in the 1920s, where customers were enticed with a cheap initial product (bait) and then compelled to buy the endless refills (hook). The ‘franchise model’ came in 1950s that was introduced and established by McDonald’s. In 1960s, came the business model of ‘hypermarkets’ like Walmart. All businesses and organizations from every sector implemented and continued using all these business models till the invention of the internet in 1990s.
From 1990s, the major business models were reinvented and joined the revolutionary radical growth. And within two decades, we were introduced to some new platforms in record time like bitcoin and blockchain that used the ‘trusted third party’ business model. And since then, the bar for crowdfunding and old traditional funding ways, was raised!
Cut to today, we are now witnessing some of the best business models that are on the verge of redefining business over the next few decades. Though there are a countless business that are connected and tied up by the mentality of maintaining the business operations as expected, it is highly important than ever to leverage the existing business models to have optimum success. At present, the business models implemented and used by many industries and each sector, are nothing but new ways of creating value.
People today call the current business models – ‘disruptive business models’, because everyone should have at least the basic understanding of the business models. Even if you don’t have a business, neither you’re planning to start one in future, still you should know all the kinds of business models and understand the strengths of each model.
You will hear the phrase ‘disrupt or be disrupted’ in the Silicon Valley. There in the Silicon Valley, everyone looks for an opportunity or a business niche to disrupt industries with new innovative business models. Hence, undoubtedly there’s a lot of people talking about the business models there. Practically, new business models are never used in any industry. Rather, the existing business models are just twisted and used for every new industry or a new product or service.
You might have seen many cases of how many industries and organizations had to deal and cope with the existing disruptive business models. The best example here is that of a taxi service, that was under huge pressure by Uber, as they connected the guests and drivers on a platform via internet connection, instead of re-dialing a new number in each new city and look for taxis.
There are some disruptive business models that generally focus on customers, as the new technologies have changed the customer behavior. This shift in customer behavior has enabled the business models to meet such needs. Not to forget, other models like subscription and platforms are becoming successful business model in today’s time.
There’s no rule to implement business model as it is. Many industries have combined a few business models and even used new business models altogether for each compartments or sections of the organization. And it’s worth to mention, that the right combination of innovative business models and the right technology can together give your success!
The whole concept of business models is a little flawed and weird, since everybody that talks about the models makes up a new one. There are a number of business models and it becomes little difficult to figure out how to use the business model. The value purpose of all the business models remain the same – how do we efficiently deliver value to the customers? Business models are designed in a way that they’re sustainable, so that the businesses sustain in the market in the future too.
A business model plays an integral role in the success of a brand or a company, since it explains how the company will make revenue. Sometimes, the business models are often referred to as revenue models, since the business brings in revenue based on the business model. For many online marketers and entrepreneurs, an innovative business model is used in acquiring investors and clients, and building new partnerships.
Being an aspiring entrepreneur, a business model should made one think of the overall business plan.
There are various kinds of business models available today, existing in different industries. More than one business models can be combined together in a business plan as per the requirement. For example, a retail store may sell on store’s website or online store for extra revenue, apart from traditional marketing practices. A good business models remains powerful and important to every successful brand and organization, no matter how new or old the company is.
Honestly, a business model is nothing but stories that explain how an enterprise works. Developing a business model is more like writing a new story. At a certain point, all new stories are just variations of old ones. Let’s dig in and learn various successful business models one by one.
1. Subscription Business Model
Generally, products and services are offered as subscription to the customers and prospects at an amount that usually occurs just once or a service that’s billed at a regular period. The aim of such a business model is to tie and bond the customer for long term. Unlike those one-time purchases, the customer gets the extra benefits and extensions of the services in this model.
Wondering what products and services can fall under this model? Well, all non-divisible products can be transformed into the subscription business model Some of the successful and best examples of this business model are Amazon and Netflix. More and more businesses are adapting and implementing the subscription business model to sell their products and services.
The best way to understand how this business model works, is by learning about the magazine business model. In a typical magazine business model, the company offers the customers a periodic purchase of magazines ranging from months or years, instead of just selling the magazine (product) as a one-time purchase. The offer in this case is designed in such a way that it’s a win-win situation for both the parties – the customers gets a special discount on buying the long-term subscription, while the magazine company gets the loyal customer that will stick at least as long as the subscription.
Giant corporations from the entertainment sector like Netflix, Spotify and hundreds of other subscription box startup companies, have now joined the race and are making billions every year with this business model. One of the massive advantages of any niche subscription business model is the presence of huge number of loyal customers. This presence of regular customers makes the working of a subscription business different than traditional trading business models, since other new costs and revenue streams are also added into this model.
Subscriptions being the new trend in the market, the vendors also find it convenient as there’s no easy way to find a loyal customer than to offer him a subscription package. With the advent of growing technologies, users are becoming busy and thus, the subscription business model seems an easy way to conduct business with them and deliver the products or services on a regular basis.
2. Pyramid Business Model
This business model is names so because it resembles just like a pyramid structure with a single point at the top and progressively getting wider at the bottom. Although the pyramid model is considered to be a little unsustainable and sketchy, the model heavily profits from the fees of the new recruits. So, basically in this business model, there are a few top-level members who recruit new members, the new members pay the upfront costs in the chain to those who recruited or enrolled them into the business line. This process seldom involves the sales of actual goods and services with intrinsic value. When the recruited new member enrolls underlings of their own, some part of the subsequent fees also is added up the chain.
For example, Anthony alone sits at the top of the business chain and recruits 10 other second-tier members to the level directly under him, where he gets a cash payment by each new member he recruits, as a privilege of joining the business. The 10 new recruits should then recruit 10 other third-tier newbies of their own (making a total of 100), who will pay subsequent fees on joining to the second-tier recruits, who in turn send a part of their fees back up to Anthony on top. Apart from the individual fees from each member under a recruit in the chain, Anthony gets those buy-in fees directly into his pocket, as profits!
There are various schemes of this business model available in the market:
- Chain Emails: This scheme induces and convinces to naïve recipient to donate their chunks of money to each person listed in the email. Once the donation is done, the donor is invited to delete the first name on the list and replace it with his own. Then he forwards the chain along with his group of contacts, in the hope that one of more contacts on the list will send cash his way. So theoretically, the recipients keep on collecting the donations from the list, until their name is deleted from the list.
- MLM Scheme: The Multi-Level Marketing scheme is actually an old traditional pyramid model, but involves the sale of actual goods and services. Here, the members or the participants who join the scheme are not forced to close any sales in order to generate an income by enrolling members below them.
Thus, the pyramid business models are feasible as long as the lower level of the chain or model remain wider than the upper ones. And when the bottom level shrinks somehow, the entire structure collapses. Mathematically, it’s not possible for pyramids to last forever, as people will lose their money after a certain point of time.
Since, the model of profiting by using network often traps individuals in the chain into enrolling their contacts, which at some time can feel a little slimy for everyone involved. Thus, the Pyramid Business Model in some countries is purely illegal. The investors should be more careful with such schemes and business models and try to avoid them.
3. Marketplace Business Model
This model is one business model that upcoming entrepreneurs indulge in and can start their own business. This model is nothing but a marketplace, where sellers and buyers meet, with a huge pool of implications. For certain industries in the market today, the marketplaces already have had the great disruptive potential. The model here, uses the digital platform as the marketplace, and income is generated through fixed commissions, transaction costs or brokerage fees. Through advertising and paid promotion, extra income can also be generated via membership fees on the digital platform.
Airbnb, Alibaba, Amazon and Uber are just a few examples leading the marketplace business model. Because of the variety of options and choices and shopping experience, the customers and trust these online marketplaces.
How do you start this online marketplace business model, when you have no sellers and buyers on your platform transacting each other? How do you convince someone to join your platform? The more sellers you can attract to your digital store or online marketplace, the more value you can provide to your customers. Thus, the higher value leads than buyers, increases the value of sellers.
In order to attract buyers to your marketplace, you can give them rewards for joining. For example, a simple sign-up can come up with a $10 gift card or simple 10% discount on the shopping basket items after a certain threshold. Recently, some of the marketplaces have great market-oriented mission to solve a current pressing problem. The bigger the problem, the easier it will be to attract customers to the platform.
Similarly, for a seller, try to make your digital marketplace easy. The easier your platform is for the sellers to sell, the more likely the sellers will figure out the process and start selling on your platform. To attract more and more sellers to your marketplace, build dedicated seller programs in order to shows all the possibilities and selling options on your platform. Here, the key point to remember is – the more you can educate people about your platform, the more they will engage with it. The prices of the products on the platform (marketplace) are decided by the sellers themselves. The e-commerce company only acts as the middleman and doesn’t really own the products or services provided on the platform. The marketplace simply charges a small fee from the sellers, as it provides a huge network of buyers to the sellers.
The marketplace has its own brand, but the sellers or partners can promote and sell the products and services using their own brand. As far as the quality of the product is concerned, in a marketplace each seller or partner has a different product quality than the other. Thus, the marketplace has numerous sellers with different product quality, serving different customers.
4. Freemium Business Model
The term ‘Freemium’ itself states a combination of both free and premium. So, in case of a freemium business model, the company or business offers both complementary and extra cost services to the customers. Here, the firm or organization provides free or complementary services to the customers for trial period, and provides additional features (add-ons) and more advanced services to the customers at a premium level.
Do you know the power of the freemium business model? Less than 20% of the users pay for LinkedIn Premium services, but still the company was able to make $1 billion in revenue in just first quarter 3 years back. Now, that’s the power of freemium business model!
Using this business model, a business or brand gives away a service to the users for free as a way to build a strong foundation for future transactions. Generally, a firm or company offers the basic-level services to the users for free, thereby building relationships with customers for long-term. Then, the company eventually offers the users the more advanced services, ad free user experience, enhanced storage and usage limits and so on. Usually, this business model works well with internet-based services with high lifetime value and that has a pretty small acquisition cost. This is the basic strategy of the new startups and businesses that are just starting out, as they want to attract users to their services or software. The freemium business model enables users to utilize the basic features of a game or service for free, then charges the users for ‘upgrades’ to the desired basic package.
With the advent of technologies and internet, the customer behavior and expectations have changed variably. The customers want to test out or try everything for free before making that big final purchase. This change has led to the birth of freemium business model.
Companies like LinkedIn, Candy Crush, YouTube and Tinder, use the freemium business model to increase their customer base and therefore, generate more revenue by implementing the micropayment strategies.
Since 1980s, this model has been heavily used by IT software and gaming companies, where they offer basic programs or services to users for free with limited capabilities. And when a consumer wanted to get a full package, he then had to upgrade and pay a charge. Similarly, for gaming sector, users are welcomed to play the game for free, but advanced levels are only unlocked when the users pay for the charge.
5. Crowd – Economy Business Model
Did you know the Airbnb is now the world’s biggest hotel chain, yet it doesn’t own a single hotel room? The company instead leverages (rents) the assets (extra bedrooms) to the crowd all over the world, with over 6 million flats, houses and rooms in over 80,000 cities globally.
So, what makes this model unique? Well, the crowd-economy business model is just a dynamic community productive people who participate via a platform with a purpose to achieve mutually beneficial and useful results.
All the developments like crowdsourcing, ICOs, crowdfunding, staff-on-demand and other leveraged assets have influenced billions of users already and more billions to come online in the future. All these developments have boosted and revolutionized the way we do business. Big corporations like Uber and Airbnb have enabled companies and other firms to scale at a higher rate.
The crowd-economy depends heavily on the staff-on-demand that provides a company with the required agility to adapt to the changing environment. Following are some of the features of Crowd-Economy Business Model:
- Creates meaning experience and share value
The crowd economy personifies a work culture with shared value creation along with social responsibility that distinguishes itself from traditional thinking mindsets and practices of old economy.
- Crowd economy promotes faster, cheaper processes
Digital crowd applications for disaster relief, civic activities have created widespread impact. Whether it’s sharing economy, collaborative consumption, or crowdsourcing, the powerful crowd economy is the base for all kinds of critical challenges.
- Crowd economy is disruptive and human-centric
The human-centric values and features are required to be embedded in the applications that are inclined towards the crowd economy.
- Emphasis on participation and co-creation
The real power of participation and co-creation to boost innovation is seen in crowdfunding, which has enabled new early ideas with a jumpstart.
- The Essential Platform required
In the crowd-economy business model, the crowd needs a platform or a platform to interact and produce outputs or results, since the platform amplifies human interactions with powerful data. This leads to new business paradigms talking shape, for future.
6. On-Demand Business Model
Any kind of discussion or argument cannot be complete without mentioning of an idea that disrupted the taxi industry. This is the only idea that’s been around for over 10 years, worth $48 billion and is present in about 78 countries, and serves around 1 million people every single day. It’s Uber. The way people do business has evolved from one business model to another. We have innovated the way we do business in order to find the ideal method suited for the times to live in. Many entrepreneurs and new startups are integrating this business model into their business. The discovery of the On-Demand Business model by mankind has now gained a lot of interest worldwide.
Uber is the best example since it works purely on On-Demand Business Model, and has excellently identified that there’s a demand in the market for taxis and that option is present at your doorstep within minutes. After years of practicing and innovating, Uber found a loophole in this market and thus, built a platform for the vendors (taxis) to meet their customer and take them to their destinations.
The On-Demand Business Model is one model where the firm or brand provides a platform for a particular niche and there, vendors get to meet their potential customers. Also, no to forget – customer is the key here, since the customer gets to decide whether to start a trip (transaction) with the vendor (taxi), or not.
What differentiates the on-demand economy from other business economies? Well, it’s the disruptive idea of developing and creating an online platform to sell offline products and services, on-demand. Today, many companies use this business model, like: Shyp for courier services, Upwork for freelance gigs and work, Udemy for on-demand online learning, AirBnb & Oyo for hotel bookings, and Instacart for grocery shopping & delivery.
In today’s era, investors are way more interested in investing in startups with innovative on-demand business model. The on-demand economy involves the economic activities by companies which accumulate the niche service providers. Entrepreneurs or business owners have the advantage of analyzing the data and facts before stepping into the market, to identify the demand patters of the customer the nature of supply in the market. So, the present factual advantage lets the investor predict the future and helps them decided whether investing in a startup will be beneficial or not.
The increasing fashion for “is there an app for that?” attitude from the end-users and consumers have opened up a huge market potential for the on-demand services. To give you a little factual context on the on-demand market, more than 280 organizations provide services across 16 industries, the millennials make up about half of the on-demand service consumers, and more than 62% of the on-demand services providers are happier working with an on-demand economy partner.
7. Ecosystem Business Model (Customize)
The business ecosystem is nothing but a network of organizations (suppliers, competitors, consumers, vendors, government agencies, distributors) involved in the delivery process of a particular product or service from both cooperation and competition. So, the idea here is that each identity in the network affects and is affected by other identities (organizations in the network). This leads to a constant evolving relationship in which each identity should be flexible and adaptive to the changing environment in order to survive in the market.
To an in-depth understanding of an ecosystem business model, you must understand how an ecosystem works. To get started with this model, the business model of your ecosystem should make a map of enterprises and individuals and also map their relationships in your ecosystem. Once, you start to understand how this business model actually works, you’ll be able to make a profit out of those relationships in your ecosystem.
Every entrepreneur has a dream to bind their customers to the ecosystem for long-term via a ‘lock-in” process for their services. Google and Apple are the best examples of the ecosystem business model. For example, a consumer buys hardware or simply use the software that’s compatible with his current system (Android or Apple iOS). This makes changing the ecosystem (OS Platform) difficult to the consumer and even prevents other competitors from gaining a foothold.
The business ecosystem has a network of interlinked firms and companies that interact with each other dynamically through cooperation and competition, in order to grow sales. Therefore, when the participants (distributors, vendors, processes, government, suppliers, consumers & competitors) develop behavioral pattern streamlining the flow of ideas and capital throughout the system, then an ecosystem becomes a thriving business ecosystem.
For the Netflix ecosystem, the participants are investors, competitors of Netflix, studios, Netflix itself, platforms of Netflix and consumers. These participants take part in the ecosystem for their survival and well-being.
8. Sharing Economy Model
If there’s one economic phenomenal we’ve seen in the recent time, then it surely is the sharing economy. The economy sharing business model is considered to be one of the most powerful and vulnerable business models out there in the market. Let’s dig into this business model with a few examples.
People use Uber because it’s easy to call a ride on mobile app and knowing the exact location of your taxi, thanks to the live tracking. The sole job of an Uber driver is to get from point A to point B. Which means there’s no need to train the drivers, which would require them to be W2 employees. While the 1099 model enables drivers to have complete flexibility, which makes Uber great in demand.
The factors driving the growth of the sharing economy include convenience of online access to shared goods and services, and the flexibility offered by the business model. Since, there’s a low barrier of entry for participants with less regulations, the number of people opting to quit traditional work force and join the sharing economy as a sustainable way of making money, has increased drastically.
Since majorly all businesses work their way to provide solutions to the customers and simply their lives, the sharing economy business model is the most effective business model. Corporations like AirBnb, Turo, Hipcamp, JustPark, Lyft, Couchsurfing and Cohealo are a few examples of companies and organizations successfully within sharing economy business model.
In order to drive a majority of transactions, all sharing economy companies and firms generally use mobile apps, thereby making the marketplace cost-effective and convenient. The sharing economy has developed markets out of things that would not have been considered monetizable assets before. Also, the integral contribution of sharing economy is that it has overcome the market imperfections without getting back to traditional ways of regulation. No matter if regulating peer-to-peer services is a good idea or not, the disputes and issues need to be overcome if the sharing economy business model is to grow to the extreme extent to which it is predicted by some people. Because if it does, this business model will actually replace the whole traditional customers versus provider structure.
Now that you’ve learnt about all the major business models reflecting almost all sectors and fields, it’s easy to say that ‘business as usual is becoming unusual’. Many organizations after years of being launched still believe and think that the key to growth is to develop and build new technologies and unique products. But, usually it’s not the case. Honestly, in order to unlock and conquer the next wave of growth and success, the companies and startups should embed and implement these innovations in the form of a disruptive business model for their business. Those who are outside of this bubble, i.e., these disruptive business models, like us the consumers, our experience will be much better, cheaper and faster.
Technologies have changed the world we live in and the way we do business. And the evolving and changing technologies will continue to do so in future too. An entrepreneur or a business owner should identify and realize that the classic business models like buying and selling products or services at a premium level (rate) won’t work in the future after a certain period of time. Thus, it’s worthwhile to take a look at the on-going trends in the business world and understand the successful business models for your own use. So, you can either use the existing business models or develop your own business model and then combine it with other business models and implement them all together for your business. No matter what business model you choose as per your business niche and purpose, always remember every model has advantages and disadvantages, and that every business model is subject to change.
If at all you decide to implement a business model or develop your own new model, keep in mind these points:
- Your model should be better than other models when it comes to solving problems of people in real world.
- With the whole demonetization running rampant, your business model should be cheaper, because everyone expects more for less, including you.
- Finally, your business model should be faster than others. In today’s accelerated world, your model should be designed for agility and speed, in order to sustain and stay in this mad race!
A good number of firms and companies don’t function on any of these business models discussed above, but rather on the combination of a few models.
Every business model consists of three key parts, as follows:
- Everything on how the customer or buyer will pay and how the company will make money.
- Everything about designing and producing the product.
- Everything on selling the product and finding the right customers.
Your choice of choosing a business model must depend on your business needs and what value you wish to create for your stakeholders.
Just to make it clear, a business model is not a revenue-generation strategy for a business. The primary function of a business model is to create or build a sustainable chain to unlock value for enterprise and individuals in the industry or niche. So, sometimes a business model will be the result of more difficult method of creating value in the industry. While in other times, it may be just as simple as an off-sale of a product!
With the growing digital economy and technology, more and more people want to start a business and be their own boss. A right business idea is all you need to make it work and to make it big.
You may not realize it but even your hobbies can transform into small business ideas with the help of online marketing. All of my discussed small business ideas can help you earn a pretty decent income even though you start it small. Don’t ever opt for a business idea just because someone else is doing it. When you work hard and listen to your truecalling, that’s when you become a successful entrepreneur.
Why entrepreneurs prefer small business ideas? Because small business ideas don’t really require much capital and you can start right away if you have the skills and knowledge. It might be a little tough in the beginning getting all pieces put together in the right way, but with dedication and patience, you will be able to successfully launch your business and establish your empire from home!
Picking a specific business ideas is purely a personal choice. You can find numerous other possibilities and try your hand at them as well, but coming up originally with small business ideas that produce high income, is kind of tricky and time-consuming. So, I’d say choose your passion wisely from my list of ideas above, and turn your dream, your passion into a sensational reality.
Are there any online business ideas that I’ve not listed in this blog? Let me know in the comments below.
Recommended Reading on DixitaGaliyal.com: If you’re interested in how to start a business in just a week, check out my review on the same here – How to Start a Business in just a Week?
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