So your baby has legs. It’s now a proven concept (in the opinion of your circle) and now development is underway. In the first post of the Start Series, I said that product is the most important. Let me restate that. Product that relieves pain is the most important. If your product is truly needed and it solves a problem, then a monetization framework (so corporate) is next most important item. Revenue solves a lot of problems in tech startups. The days of building a dream, getting users and then figuring out how to monetize it are gone. Yes there still will be a few who build then monetize (like Twitter and YouTube) but they are the few.
It’s important to mention that revenue models are not business models. Revenue models are ways to charge your customers and business models encompass several others factors such as:
• Targeting and pulling your market through your messaging
• Creating value for your customers and users
• Being disruptive, innovative and maintaining competitive advantage
• Growing your customer/user base
(and much more)
It’s also important to point out that you’re not limited to one of the following streams of revenue. In fact, many startups go to market with multiple streams. Depending on the offering, you could focus on a single stream, multiple streams, independent streams or even use a stream as a loss leader to drive traffic and business for other streams. So let’s visit the many ways tech startups can make money. (This list can but doesn’t comply with online gaming revenue models. Visit Adrian Cook’s post, Top 10 Revenue Models for Free To Play Games for a good list of gaming revenue models.)
Subscription/Membership Revenue Model
Provides a fixed amount of revenue at regular intervals based on the number of subscribers and is usually paid in advanced of receiving the product or service. These can be monthly, quarterly, annually or lifetime memberships. Some successful implementations of this revenue model are:
- Flickr Pro – Annual subscription for premium features
- Salesforce.com – Monthly, quarterly and yearly contracts for their SaaS offering
- Live Journal – one time lifetime subscription (very innovative)
Ad-Supported Revenue Model
Allows users to benefit from free products or services. The advertiser pays for clicks, impressions etc. The various ad-supported options are:
CPM - (Cost per impression) CPM stands for ‘cost per thousand’ where M denotes ‘Mille. These are your typical banner ads and skyscrapers.
CPC – (Cost per click) CPC stands for ‘Cost Per Click’. Advertisers are charged not simply for the number of times their ads are displayed, but according to the number of times they are clicked.
CPI – (Cost per Interaction) Advertisers are charged for an interaction with a banner or video. This seems to be the way of the future for ad supported video.
Branded Sponsored Pages – Branded pages are product placements or subtle branded elements on a page which is a one time fixed cost for a period of time on a particular page.
Some successful implementations of this revenue model are:
- YouTube
- Meebo
Transaction Fee Revenue Model
Customer pays the company that facilitates the transaction a fixed fee or a percentage of the total value of the total transaction. Some successful implementations of this revenue model are:
- Ebay
- Elance
Volume or Unit-Based Revenue Model
Customer, or the buyer, pay a fixed price per unit to the seller and received a product of service in return.
Licensing and Syndication Revenue Model
Customer pays a one-time licensing or syndication fee to use or resell the product. White and private labels fit in here as ell. Some successful implementations of this revenue model are:
- iStockphoto
- Coghead
- Oracle
Sponsorship/Co-Marketing Revenue Model aka Revenue Share
Sponsors pay for direct marketing and branding access to customers
Access to Users/Customers and Data Revenue Model
Customer’ pay for access to installed bases for resell and/or research opportunities?
Freemium Revenue Model
Coined by Fred Wilson and often debated as a marketing model not a revenue model (which I agree), but well worth covering. Customers use a free and functional version of the product and charges for more premium features and services. Some successful implementations of this revenue model are:
- Basecamp
Support-Supported Revenue Model
Taken from 37signals’ blog post on 3 Ways to Make Money with Software and it is the prominent revenue model for open-source companies. Some successful implementations of this revenue model are:
- SugarCRM
- Wordpress
API-Based Push/Pull Services Revenue Model
A brand monitoring API that allows third parties to collect raw data on web and social services for product, company, employee, investor, customer feedback. Money makers here tend to make one API and dashboard for free and basic use, and the paid version becomes more feature rich, with connectors to integration points.
Professional Services Revenue Model
Customers pay for services around their products. Often the product is a loss leader to drive substantial professional implementation services revenue. Some successful implementations of this revenue model are:
- Oracle
- SAP
Social Donation Revenue Model
Customers/users donate a non-determined amount to the company for its products. According to Wired, the donation revenue has allowed creator Zack Johnson to quit his day job and hire six employees to help improve and maintain the product.
Merchandise Revenue Model
This model integrated product and web activation/interaction to leverage a clicks/bricks experience. A good examples is Webkinz plush toys and their associated Webkinz World which have swelled through the pre-teen market. Users purchase a $15 Webkinz plush toy at retail and enter a secret code to activate the associated virtual character in Webkinz World. Beyond the retail plush toy purchase, there are no additional fees for playing in Webkinz World.
Pay-Per-Use Micro-Transactions Revenue Model
Micro-transaction revenues are based on a simple pay-as-you-go service and are essentially one-time pay-per-use transactions ranging from a few cents to several dollars. A typical example is pay-per-view television. A number of gaming, online information and entertainment portals are implementing micro-transaction revenue models in the mobile environment.
Affiliate Revenue Model
Often referred to as commission-based model, Affiliate revenue is commission-based. Such an arrangement is sometimes known as Cost Per Acquisition (CPA ). Increasingly this approach is replacing CPM or CPC approaches where the advertiser has more negotiating power. Commission-based revenue can be adapted to fit virtually all online models. The affiliate/commission-based revenue stream is massively under-used in the majority of retail and wholesale web sites. Very few of the millions of product-supply websites have thought to refer their customers to other companies that provide complimentary products and services on a commission basis for added income. Examples of companies executing this model are:
- Amazon
- Commission Junction
Now go make some money!
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