From Box UK, a survey of business models used by the top Web apps, most of them variations of ad-supported Free and Freemium. In the chart below, the largest segment (ITA) is ad-supported, the second largest (ISV) is Freemium. After that is referral (ITR) and then the sale of virtual goods (IPV), such as the gifts in Facebook.
“We spent a few hours going through the Webware 100 Top Web Apps for 2008, analysing the business model(s) used by each. The chart below shows the results of this survey: 34% use Advertising, 12% a Variable Subscription model, and 8% each for Virtual Products (typically digital downloads), Related Products (typically a large software company offering a free product to attract you to their platform) and Pay-Per-Use.
Business Models
| Model | Variation | Notes |
---|---|---|---|
I | Immediate Revenue | Models for generating regular income, cash-flow (‘Self-Sufficient’ models) | |
I.S | Subscription | Charge the end-user a regular, recurring fee. Consider:
| |
I.S.F | Fixed | A single, fixed subscription cost (e.g. to access an online magazine or a specific service). | |
I.S.V | Variable | A number of fixed-price subscriptions are available to the end-user; fee dictates feature/usage limitations, etc. This includes the ‘Freemium’ model; a (usually limited) ‘free’ option alongside one or more paid options. | |
I.T | Third-Party Supported | The end-user receives the service for free; a third-party pays the fee for a returned service. | |
I.T.A | Advertising | One or more third-parties place clearly defined adverts within the website/application. Variations of adverts include graphical banners, text, inline, pop-over, interstitial, etc. Normally charged by cost per click, cost per action, or cost per thousand impressions. | |
I.T.S | Sponsorship | One or more third parties become the ‘official’ sponsor(s) of the website. This could include fixed (non-rotating, typically prominent) adverts, integration of third-party branding (colours, slogans) and/or licensing agreements. | |
I.T.C | Paid Content | Advertorials: third-parties pay to include marketing-led content on the website. | |
I.T.P | Paid Placement | Third-parties pay to be included in lists or in the application (e.g. comparisons, reviews, entertainment listings). | |
I.T.R | Referrer | End-users are directed to third-party sites, which pay a fee to the website owner for any referred transactions (e.g. comparison sites). | |
I.T.L | License Content | Third-Parties are given access to re-use the content from the web-site for their own purposes. | |
I.P | Payments | The end-user makes individual, ad-hoc transactional purchases. | |
I.P.U | Pay-per-use | Micropayments: the end-user is charged a fee to use an online service (one-off, or for a limited time). This includes the 'brokerage' model, where user(s) are charged a fixed-price or percentage per transaction (e.g. ebay). This also includes the purchase of ‘credits’ e.g. 10 uses of the service for a fixed cost. Discounts can be offered for bulk purchases. | |
I.P.P | Physical Products | The typical e-commerce model; includes books, CDs, holidays, tickets, etc. Typically each ‘physical product’ has a non-arbitrary cost associated with its production. | |
I.P.V | Virtual Products | The end-user purchases a ‘digital’ product that typically has a negligible cost of replication. This includes virtual gifts (e.g. Facebook), in-game items (e.g. World of Warcraft), and other virtual assets (e.g. land in Second Life). | |
I.P.R | Related Products | The end-user has free access to the main product/service. An additional, optional charge is made for related ‘added value’ products/services, e.g. documentation, support, commercial versions, related iPhone or Android application, etc. | |
I.P.D | Donations | The website relies on voluntary end-user donations (e.g. a ‘Tip Jar’). | |
L | Long-Term Revenue | Strategic, ‘Invest and Reward’ models where costs are incurred initially for a longer-term ‘pay off’. | |
L.E | Establish and Exploit | Attract a substantial audience before monetizing. | |
L.E.R | Re-use/Re-sell | Re-sell/re-use the data/content, usually from User Generated Content websites e.g. create books, posters or other purchasable products from data/content created on site. | |
L.E.P | Platform | Establish a platform, then charge for third parties to participate once an audience has been established e.g. iPhone. See also Facebook. | |
L.E.B | Branding | Build a ‘personal brand’ for yourself/your company. Once awareness is raised, go on Conference/Workshop/‘Expert’ circuit, or release a book, etc. | |
L.S | Sell/Exit | Create a popular application/website, then make it someone else’s problem to monetize e.g. YouTube |
Meta-Models
The following business models can be applied in addition to most of the basic revenue models described above.
| Model | Variation | Notes |
---|---|---|---|
M.R | Revenue Share | End-users are offered a cash incentive to make the website/application generate revenue, by sharing a percentage of revenue with them (usually based on their personal referrals or popularity of their content). | |
M.R | Re-Seller | The end-user can re-sell the online service. | |
M.R.A | Affiliate | The end-user is paid to direct customers to the website, typically by listing/selling the products/services elsewhere. | |
M.R.W | White Label | The end-user can brand/tailor the online service and re-sell it as their own (typically taking a percentage of the generated revenue, or paying a fixed subscription cost to the original service). |
Amazing post. Well researched and simplified.
Posted by: Rakesh | March 27, 2009 at 07:14 AM
It would be very interesting to follow this over time and also look at the financial results from the "Top Web apps". Also, comparing similar sites with similar content using different business models such as I.T.A vs I.S.V would be very interesting. Anyone knows any research?
Anders
The Business Model Database
Posted by: Anders | March 27, 2009 at 11:44 AM
Nice survey - thanks for this valuable info!
Very topical right now, obviously, with newspapers falling like flies and flailing around in search of a business model that works and doesn't involve dead trees.
Posted by: John Koetsier | March 27, 2009 at 03:39 PM
What a valuable post and great way to see the popular business models today. Thanks for sharing.
Posted by: Paul Marion | March 28, 2009 at 10:11 AM
It's not surprising that advertising has such a high percentage of models, given the ease the model can be set up and the low barrier that sets on getting 'customers.' I was surprised at how few IPP (physical product) models their actually were. I'm with Anders in wondering if the revenue numbers would significantly change the look of this chart.
Posted by: Fred H Schlegel | March 28, 2009 at 07:47 PM
Simplified?
I think, it's more complicated...
Posted by: watzabatza | March 30, 2009 at 04:06 AM
Thank you for sharing this. This is the first time that I see that kind of study on startups.
Posted by: Florian Komm | March 30, 2009 at 11:44 PM
Well, all this models are fine, but at the end of the day, are these business models sustainable and provide shareholder value.
Facebook is an interesting case study as it is the poster boy of social networking. I have described the business challenges that they face at: http://subbaiyer.wordpress.com/2009/03/31/facebooks-positive-and-unique-problem/
Posted by: Subbaraman Iyer | March 31, 2009 at 03:34 AM
Thanks for the details.
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Posted by: Rocky | April 01, 2009 at 02:40 AM
I've recently started exploring the world of e-books, and it is striking that even a switched on retailer like Amazon is pursuing a totally outdated business model. Charging $15 or more for an e-book? Ridiculous. The distribution and printing costs just dropped to zero - and the first publishing house to realise that can cut retailers (including Amazon) out of the loop entirely. For the first time direct sales from the publishers are a possibility - which they are ignoring.
The result of overpriced digital books? Irritation and piracy.
The intro on the Baen free books library makes a good point - people only turn to piracy when the legitimate option is overpriced. Now is the time to stop that market from being created in the first place - by dropping the prices to a reasonable level.
Posted by: M Walls | April 03, 2009 at 04:37 PM
This is a cool study. One interesting additional would be to show the increase or decrease in each different model. For example is I.S Subscription model actually gaining or losing ground compared to previous data?
Thanks,
Tom Troughton
http://www.StartaBlogWebSite.com?ck
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Posted by: cristiano | April 14, 2009 at 07:45 PM
I find these business models very interesting, in particular their creativity and variety. However, I have a problem with labeling them as "free."
See my small piece on this via the following link
Posted by: Fielt | April 17, 2009 at 01:21 AM
Thanks for the great compilation, it's very interesting to see where the new companies are going in terms of business models and the range of opportunities afforded to them.
Posted by: Kevin Ohashi | May 01, 2009 at 06:59 AM
Great way to see today's popular business models. Very interesting post.
Posted by: Ward Roberts | May 04, 2009 at 11:09 AM
Great article - our business model for adbasement.com was inspired by The Long Tail.
Posted by: Alan Noake | June 25, 2009 at 02:39 AM
Nice post.In those days business model is so important.People run their online campaigns according business model.
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Он разделяет свои рубаи на две группы:
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Маленькое писание (не очень важное):
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* если ты живешь в этом мире хорошо,я вознагражу тебя вином в раю,т.к. в раю бог дает мне вино и я раздаю его людям.
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Большое послание (очень важное):
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Posted by: saeed | July 13, 2009 at 11:46 PM
I find these business models very interesting, in particular their creativity and variety. However, I have a problem with labeling them as "free."
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Posted by: منتديات | September 30, 2009 at 11:24 AM
The intro on the Baen free books library makes a good point - people only turn to piracy when the legitimate option is overpriced. Now is the time to stop that market from being created in the first place - by dropping the prices to a reasonable level.
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Posted by: sma bugil | October 26, 2009 at 03:21 PM
This is a cool study. One interesting additional would be to show the increase or decrease in each different model. For example is I.S Subscription model actually gaining or losing ground compared to previous data?
Thanks,
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I've recently started exploring the world of e-books, and it is striking that even a switched on retailer like Amazon is pursuing a totally outdated business model. Charging $15 or more for an e-book? Ridiculous. The distribution and printing costs just dropped to zero - and the first publishing house to realise that can cut retailers (including Amazon) out of the loop entirely. For the first time direct sales from the publishers are a possibility - which they are ignoring.
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