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How do they make money?Ash Ravikumar
Entrepreneurship Development Officer
CERN Knowledge Transfer
EMU # 100
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Simplistic view
• Sell for more than what it costs
• Sell a lot of it
• Repeat
Source: https://www.reactiongifs.us/thank-you-captain-obvious/
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Business Model – What and Why?
• A business model is your company’s core strategy for profitability. It’s a blueprint.
(Compared to Business Plan – which could be the roadmap; Strategy document to explain the execution)
• Key levers – Pricing and Costs
• Key measures– Metrics and unit economics
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The canvas – Why is it so popular?
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Jargon busting time
• B2B – Business to Business - Sell to another business
• B2C – Business to Consumer – Direct to consumers
• B2B2C – This needs some explanation and a slide by itself
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B2B2C
• Your company sells a product/service to a business, gaining customers and/or data from that business that you get to keep and use.
• And where, most importantly, that group of customers becomes disconnected from the middle B — at some point, they recognize that YOU (the first B!) are the product they use.
• Google – AOL partnership
• Not to be mistaken with channel partnership or reselling(source – a16z)
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Quick Summary of some models
Freemium Low -touch Pay as you go Disintermediation Subscription 2 sided market
Offer basic free; Charge for premium service
Lower price by decreasing service costs
Charge for actual usage ( sometimes with subscription)
Sell direct; Remove the traditional middleman
Charge a fee to gain access to a service
Both sellers and buyers meet on a platform
LinkedinRevolut
IKEA Electricity AWS *
Dell Netflix Airbnb
Razor model – Sell the product at a loss and the consumable at premium – Gillette, Xbox, printers/ink...Reverse Razor model – Low margin item below cost and sell premium - Kindle
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Software Business models
• Software as a service (SaaS) { Xaas}
• API
• Ad revenue
• ….
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Software Business Models
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Software as a Service - Metrics
• Cost of Acquiring a customer (CAC) COST
• Life Time Value (LTV) or Customer Lifetime Value (CLV) REVENUE
• Churn COST/ Lost REVENUE
• Monthly Recurring Revenue (MRR) Annual - (ARR) REVENUE
• Monthly Active Users (MAU) REVENUE
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Application Programming Interface (API) models – Deep dive• API is a tool that allows 3rd party apps to communicate with your
service
• Rather than spending a lot of hours to develop a map and add routing functionality, you can implement Google Maps API and pay Google to use it
• 22,000 APIs available in the market
• But why? How do they make money
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API – Business Model
•API provider — the company that creates and offers an API
•API consumer, or simply developer — the developer who implements the API
•End user — the person who uses the application containing the API
Source: https://yalantis.com/blog/api-business-models-for-scalable-online-businesses/
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API – Business models
Source: https://yalantis.com/blog/api-business-models-for-scalable-online-businesses/
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API – Monetization
• Subscription model – Pay a monthly/yearly access fee
• Freemium, Tiered options
• Sandbox to test – Paypal provides this
• Pay-as-you-go – AWS
• Point based model – unit based. Pre-buy units to use. Google AdWords ( $ 0.25 per 1000 calls)
• Transaction based – mostly for payment gateways. Ex 2.9%+$ 0.30 for each transaction!
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API – Revenue share
• Make developers spread your product.
• Share the revenue –• Example - ad revenue – Trip Advisor’s API has been shared by 700 partners
and used in 50,000 3rd party applications
• Trip advisor makes money from click-based and display ads
• Raising awareness and more traffic generates revenue for Trip advisor and they share with the developers to drive more traffic
• Referral/Affiliate program• Travel websites include the API. If a purchase is made, then affiliate shares
50% of revenue.