Monetarising internet business models

Posted: May 24, 2017 by pauljayburns in Business ideas, business strategy, Entrepreneurship Articles, Home business, Practical Tips and Advice, Start-up

Some new business ideas, particularly those involving internet-based content (‘knowledge products’), require considerable ingenuity to develop business models that generate income rather than just users. There is the problem of pricing the product. Once developed, it is available for downloading again and again at virtually zero cost to the producer (a problem addressed in a previous blog-post). On the other hand, on-line content can often be easily accessed and copied by end-users, even if access is restricted. It can take time to ‘monetarise’ a new internet-based business idea – longer than it does to did the product or service itself. Novel internet business models can generate income quickly and some have led to market paradigm shifts, creating whole new markets. Nevertheless, it is often the case that users have to be found first in order to prove the concept and only afterwards can ways of monetarising it be found – hence the idea of the ‘lean start-up’ (again the topic of a previous blog-post). Here are just some of the better-known and more established ways of monetarising your internet business model:

  • Direct sales model – where products or services are sold directly on-line and delivered by post (e.g. Amazon).
  • Bricks-and-clicks-model – where traditional retail is combined with the direct internet sales model either with postal delivery or customer collection (e.g. most large retailers such as John Lewis).
  • Affiliate model – where you help sell a product or service, without necessarily taking ownership, in return for commission (e.g. Amazon).
  • Auction model – where on-line shoppers bid for products (e.g. eBay)
  • Flash sales model – where daily deals are offered to registered customers (e.g. Groupon).
  • Advertising model – where the internet firms are paid for ads being placed on their website (e.g. YouTube, owned by Google). To persuade advertisers you need to have high levels of focused website traffic. This therefore works particularly well for popular niche sites but it is becoming increasingly competitive with more and more websites but most of the revenue going through just two internet giants. It is estimated that some 90% of the growth in UK digital advertising expenditure in 2016 went through Google and Facebook. Examples such as YouTube illustrate how hard it can be to monetarise free content even when you have significant website traffic. Advertising can restrict screen content for your own product/service. What is more, increasingly internet content has to be tailored for mobile devices where the opportunity for advertising is more limited.
  • Pay-per-click model – where they are paid for clicks onto an advertiser’s link (e.g. Google). This is just a variant on the affiliate and advertising models.
  • Subscription model – where customers subscribe for the on-line product or service (e.g. newspapers such as The Times). This requires specialist content that is of real value to the on-line customer and is often coupled with some sort of free-trial usage to demonstrate its value. Because of the surge in ‘fake news’ in 2017, many newspapers saw a resurgence in their subscriptions levels.
  • Freemium model – where the business gives away something for free such as a ‘basic’ service but extras or premium services are charged for (e.g. Spotify). This is most common in service-based businesses where the marginal cost of an additional customer is very small.
  • Bait-and-hook model – where special deals are offered that lock customers into buying a particular product or service because the costs of switching are high (e.g. Smartphones).
  • Open business model – where value is created through collaboration between partners (e.g. price comparison websites).
  • Pay-as-you-go model – where you pay for what you use or consume (e.g. some Smartphone contracts).

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