Business models have diversified and evolved in unpredictable ways over the past couple of decades. Those businesses that have thrived have been the ones who were best able to not only take advantage of the new possibilities offered by the world wide web, but to predict the ways that the internet would change the way that consumers think and behave – both online and offline.
Online business economics do not exist in a vacuum: they have grown out of and exploited previously proven ways of doing things. It is quite simple to get a basic understanding of the names for new and existing business models by analogizing them to one of the oldest trades of all: the milk market!
Let’s take a look at eight of today’s most common business models:
Direct Sales Model. If you have one cow and you sell the milk it produces directly from door to door, then congratulations – you have a direct sales model. The classic modern example of this is Avon, who until recently dispatched their salespeople with suitcases full of make-up supplies to knock on doors and try to make a deal. Today, online direct sales marketing is more likely to take the shape of a bit of online networking and organizing, followed by a ‘shopping party’ hosted by the salesperson in their home. Think Origami Owl, Mary Kay etc.
The Freemium Model. You have one cow, and you give away the milk for free – but customers have to pay for a carton to hold the milk. Emerging from the more utopian ideals of ‘shareware’ in the programming community of the 1980s, Freemium is a combination of free stuff (a service such as Dropbox) with added services for which you pay a premium (added storage, for example). LinkedIn and even The New York Times (with its soft paywall) are contemporary online examples.
The Subscription Model. You sell your cow’s milk for $3 per carton – and offer your customers 20 cartons per month for $40. The idea with the subscription model is to keep your customers in a long-term contract and thus ensure recurring revenue. Netflix and eHarmony are among the subscription websites that have made a success of this model.
The Franchise Model. You buy a license from a farm to use its equipment to package your cow’s milk. The farm’s brand name goes on the packaging. It works because you already have a ‘sure thing’ in the good reputation of the franchise’s brand. You don’t have so much freedom as you would with your own business, but you have a bit more security behind you. McDonalds do this in the meatspace; Digital Altitude do it online.
The Loss Leader Model. You sell your cow’s milk for 50 cents, making a slight loss on each carton – but the low price attracts customers to your dairy, where you also sell fancy yoghurts and cheeses. Supermarkets undercut each other all the time with the loss leader model. Just think of Google – they give away a ton of services for free, but turn the multitude of clicks into dollars by selling advertising space.
The On-demand Model. You have one cow. You build an app so that customers can order milk whenever they need it, and charge for quick delivery. It works very well if you offer some form of convenience that customers can turn to when they’re in a tricky position – whether you’re downloading a film to answer that craving, or ordering an Uber to get you to the airport on time.
The Ziferblat Model. People don’t pay for your milk. They pay for the time they spend sitting in your café, drinking your milk. Ziferblat is a Russian ‘pay as you go’ café service that is opening eyes across the business (and coffee-drinking) world.
The Crowdsourcing Model. You don’t yet have a cow. But you suggest to people that they contribute to your campaign to buy a cow – and in return, you offer them their first 10 homemade cartons of organic milk for free. Independent business people are starting this way on Kickstarter and Indiegogo every day.
So which model best fits your big business idea? For an at-a-glance reminder of what that prize cow has to say about each model, check out this new infographic from The Business Backer. It’s inspiring stuff!
G. John Cole is a digital nomad and freelance writer. Specialising in leadership, digital media and personal growth, his passions include world cinema and biscuits. A native Englishman, he is always on the move, but can most commonly be spotted in Norway, the UK and the Balkans.