“Business Models plays an important part to transform and disrupt an industry..”
Business transformation is a strategic plan for transformation process and depending on what crucial part your business model to plays it is necessary to first understand – every business is different and there are numerous variables need to be taken into consideration when undertaking transformation. The real transformation – which has the ability to disrupt the industry.
Every business is willing to focus on the customer to be successful. We can imagine how Airbnb has put hotel industry under a lot of pressure, as they brought a platform and connected the hosts and visitor via a platform instead of visitors dialling and searching in each city for a place to rent.
Based on how companies and start-ups create their revenue, their approach to deal with stakeholders and value proposition offered, the business model can be classified in several ways. For some big businesses with multi-faced and multi-lateral operations, there isn’t any single business model. Let’s explore nine business models to understand our next move for business transformation and how it can be useful to disrupt the industry.
1. Marketplace
A marketplace business model is a platform where buyers and sellers interact and transact. The revenue is generated through the commission or fixed transaction costs sold on the platform. It can also bring another revenue stream from advertising once enough traffic is built. It could be for services and products, can break down into B2B, B2C, C2C. Based on interaction and transaction on the platform, maketplaces can be broken down into two-sided, three-sided, multi-sided.
Top players with marketplace business models are, Amazon, eBay, Etsy, Uber, DoorDash, Alibaba, Uber Eats.
Uber Eats connects driver, a restaurant owner, and a customer in one platform. Customers pay the small delivery charges, cancellation fee. Restaurant pay commission on the orders to Uber Eats. And driver earn through making reliable deliveries on time. Uber Eats revenue reached $8.3 billion in 2021, with 81 million users and $50 billion in gross booking in 2021, a 70% increase from the previous year.
2. Free
If you are not paying for the product, you are the product. This model considers letting their consumers to use the product or service free of charge. The revenue could be generated by allowing advertising played while using the services or products.
This is how people use free search engines like Google, YouTube, Emails, Facebook, Twitter etc.
Google is monetising its users attention in the search engine. Google relies on ads services to create income for the business. In 2021, google search engine made $149 billion in revenue and over 81% of the total revenue came from google advertising products which is $209 billion.
3. Freemium
It is a combination of free and premium. This is very frequent business model among online products, such as SAAS. What it does it creates customers base by allowing its users to use the light version of the product or service free of charge for certain basic functions. Gradually, the intension is to build a large number of user base by making their users as ravving fans and then offer the option of upgrading for extra features. It is well profitable if marginal cost for extra units and distribution is lower than advertising revenue or personal data sale.
Some very successful companies are Zoom, Spotify, LinkedIn, Dropbox, Skype, where they offer basic functions for free and premium services at different rates. Probably no one heard about Zoom until the beginning of 2020. Zoom seeks to transform free users into paying customers. The paid plan isn’t exorbitant, so it was really easy for users to move into paid version. Zoom’s revenue skyrocketed from $60m in first quarter of 2019 to $883m in the last quarter of 2021.
4. Subscription
It is a model where customers pay a recurring fee to access your services or use your product, a fee can be charged as a whole amount in advance or pay weekly, monthly or yearly for a specified period. In this model, your customers stay with you for a longer time and enjoy fresh contents, improvement and updates from the services regularly.
For examples, Netflix, Dollar Saver Club, Microsoft and fitness company Peloton are using this model and all of them are successful. Subscription model encourages customer success and improve customers retention, and can bring innovation.
In 2013, Peloton secured about $307k in crowdfunding platform. They innovated new concept in fitness and brought a combination of technology, fitness content and best-in-class instructors to build library of classes and live classes at home, on your own time. Peloton has its annual revenue increased by 120% in 2021 to about $4 billion although net loss was about $189 million. It has 2.76 million subscribers in the 2nd quarter of 2022, a 66% increase year-on-year.
5. Sharing Economy
Well known business of renting out your assets to other people is now taking the shape of sharing economy with the advent of the internet where it is convenient to connect owners and seekers with their assets. Sharing economy refers to a term ‘What is mine is yours, but for a fee. Owners let their assets available to seeking customers for a limited period. This model can be applied to properties, cars, transportation, tools, toys. Some examples are, Airbnb, Getaround, Zipcar, Blablacar, Dogvacay.
To make it successful:
- You need to develop a culture of trust, like commenting and rating, but also offer support in case of abuse.
- Allow smooth transaction process so people can reduce the transaction time.
- Maintain constant engagement of users with offers and promotions
Airbnb has over 7 million listings, run by 4 million hosts and is active in over 200 countries and 81,000 cities. In 2021, Airbnb generated $5.9 billion revenue, a 73% year-on-year increase, with 200 million active users in 2020. 300 million booking were made on Airbnb in 2021, a 55% increase on 2020.
6. On-Demand Model
This mode is very popular for start-ups and has gain momentum in the industries of healthcare, food, logistics, service, delivery, transportation due to advancements in technology, competitive advantage, increasing number of investors, better user experience. For examples, if you wish to have a doctor on demand, food on demand, taxi on demand, video on demand, or any other services on demand, this business model makes all these possible for you. It has market share of about $57 billion and will increase to $335 billion by 2025.
Some popular names are Amazon Prime, Uber, Upwork, DoorDash, TaskRabbit.
DoorDash enables restaurants to set up at no cost delivery operations, customers get their food at home and dashers (delivery people) earn some extra money. It has completed over 900 million orders since inception. It has a 56% market share in food delivery. DoorDash has 25 million users, and the revenue has increased by 69% to $4.88 billion in 2021.
7. User experience Premium
In this model, top brands can charge premium prices for creating extraordinary services and experiences for the customers. High quality services build high perceived value where services cannot be matched by other providers which qualify them to charge extra money against it, customers happily pay for it to get premium value.
Top brands, Tesla, Apple and other Premium- Brands run on this model. They have offered better experience and extremely user friendly.
Tesla created extremely easy and uncomplicated cars, customers thereby endorse the Tesla brand to the top premium brand. 9 out of 10 Tesla customers recommends their cars to their family and friends and Tesla at the same time keep investing in top notch premium services.
In 2020, Tesla generated $862 million with $5.6 billion in net income by 2021 and is becoming the world’s ninth most valuable company.
8. Ecosystem
This is very clever and modern business model which create consumers’ dependency through locking-in system. In this ecosystem, it brings extra values to the customer. If you buy a mobile from Android, or Apple, you automatically become part of ecosystem where users are bound to make purchase that is compatible with the existing system. That locks in the users, making it difficult for them to move to another brand. It creates barriers for the competitors to hijack the existing user base.
Apple, Amazon and Google are the biggest players in the market using this business model.
9. Donation-based Model
It is a model where users or other organisations donate money to the enterprise in order to sustain their operation. This donation based model has been growing in popularity where the consumers of the information, services or contents are willing to pay for valuable servce, information and contents.
This is much rely on how big community you can build. This model is not for all businesses, but would work for education and service based businesses, it may work for restaurants and sports businesses. We have seen some yoga businesses run it on this model, where users pay whatever they can afford.
Wikipedia is the most successful with this model, and is collaboratively edited, multilingual, free internet-based encyclopaedia. Mostly the Wikipedia is supported by donations and contributions.
In 2021, Wikipedia has more than 44 million users, from which 122,00 users are active. It earned total revenue of over $153 million in 2021 and is non-profit project with the most popular websites on the earth and on which twelve other projects have been developed.
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