Business Models

Digital Marketing - Study Notes:

Definition

Understanding a business model is a fundamental. Put simply, a business model is a definition of how your business expects to generate revenue. The Wikipedia definition is:

“A business model describes the rationale of how an organization creates, delivers, and captures value.”

The concept of value features heavily in any business model. We’ll look at this side of creating a value exchange with users and customers later in this section.

Examples

To illustrate business models, let’s look at three prevalent models that we encounter on the web every day.

These are:

• The subscription model, where a user makes a regular or single payment in return for a service
• The free model, where a service is offered for free in return for access to users by advertisers or access to users’ data
• The freemium model, where a part of the service is free with additional or premium services requiring a payment.

The significance of understanding the business model is that it tells us what a user’s expectations may be or it will inform what content we need to include on a website. In short, it affects what a website’s proposition is and will lead to research questions around how that information should be presented to users.

Subscription examples

Here are three examples of companies which operate under a subscription model. You’ll be familiar with at least one of them.

• Netflix charges a fee for access to its vast library of TV shows and movies.
• Dollar Shave Club charges a monthly fee in return for a regular delivery of razor blades.
• Salesforce has a stepped level of subscription for access to its cloud-based CRM software. There is a straightforward exchange taking place here, fee in return for a service.

Free examples

Here are three examples of companies which operate under a free model and, again, these will be familiar names. Facebook, Twitter, and YouTube are all social media channels of one sort or another. Billions of people around the world use these services without having to pay anything to the companies that provide them.

• Facebook is free only in the sense that we don’t pay any monetary value for the service. However, for advertisers and marketers, access to Facebook users comes at a premium.
• YouTube offers advertisers the opportunity to place ads in front of millions of users each day. The users’ understanding of the business model here is debatable, but there is no doubt that these are terrifically popular and successful services.
• Twitter has had its problems defining precisely where its value is generated, but that doesn’t stop hundreds of millions of people using its services.

Freemium examples

Finally, here are three examples of companies which operate under the freemium model. The name freemium, of course, comes from a combination of the words free and premium.

Dropbox, Evernote, and LinkedIn provide various types of services, but each offers a free version of their product, while asking users to pay for enhanced features.

• Dropbox offers an increase in storage capacity for a paid account.
• Evernote, similarly, offers greater storage and unlimited document transfer.
• LinkedIn provides greater insights to its data and heightened contact options for a premium product.

In these cases, the business hopes that users will develop a dependency on their product over time and build it into their work routines or lifestyle, such that they will eventually want to pay for the premium service.