Investigating successful Web services' business models
“Message from Jeremy: To all Tech IT Easy readers, who could obviously not necessarily remember the initial announcement, I have invited my friend Steve to help me try to provide you, dear readership, with everyday better technology insights. Steve’s mission statement is that there’s no mission statement: what matters most here is to raise the right issues on underlying market trends, bringing to light new software, Internet services and consumer electronic devices. Steve, the floor is yours…”
FYI, I am in the process of completing my working paper (its subject being “The different business models of individual user-connecting websites”). Basically I am exploring the business models of any services built upon connecting individual users, be it dating sites (Meetic, Match), auction systems (eBay), job boards (Monster, JobEtudiant), pure Web 2.0 services (Flickr, deli.cio.us) professional social networks (LinkedIn), or even “social life centers” (MySpace, Facebook) – the latter being a concept I have just invented in order to point out the extraordinary possibilities of what were previously personal homepages or advanced personak social networks.
Rigt now I am trying to understand the revenue stream of a few significant players, in order to infer a general picture for the revenue mix of each category of websites. So here’s my input: as you can see, some boxes are empty. Besides, the revenue mix here are just suggestions I propose thanks to the examples+general feeling (sorry, no serious material there).
So, can you help me fill in the box ? And do you agree with my understanding of each business model ?
NB: UGC stands for “user-generated content”. Billing could be either pay-per-view or paying a fixed fee for any service.
PS: While I am considering “eBay”’s revenues, I am not interested by eBay as a group (which includes PayPal, Skype, etc…) but rather by the actual revenues of the auction service www.eBay.com
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Business strategy, Economics, Entrepreneurship, Finance, Internet, Uncategorized, eBay, user-generated content
Steve, I understand what you mean by ‘web service’ but pay attention that it term that refers to a very specific technology amongst geeks: http://en.wikipedia.org/wiki/Web_service
A mash up, for instance, is a web service (application programming interfaces allow for service platforms to interact through SOAP messages; the communication protocol is XML, parsed in a pattern format named WSDL, which is defined by the W3C). If you can’t program and still feel like creating your own mash up, Microsoft has just launched PopFly: http://www.popfly.ms
It’s an amazing web app.
I am talking about “Web services”, not about “Web services” Jeremy.
Steve : sent you 2 emails. One from my personal email jeff at jeffkee dot come, and another one that may have ended up in your junk mail box.
Hi Steve, I sent you an email on your HEC mailbox; you may be interested in talking with me. Good luck with your working paper!
I would add Billing for Social Networks too… Like Viadeo, for ex.
Then, for job-boards, you should also consider that users might be job seekers, as well as recruiters. The later usually have Billing for their ads, and, sometimes, commissions (like head-hunting firms).
Good luck!
Julien is right: you’re forgetting the freemium access model (free until a certain point and then you need to pay to get extra services) websites like Flickr (premium account), Viadeo or LinkedIn use.
Actually I can’t see the difference between this freemium model and subscriptions: for LinkedIn (and quite a few others), it just feels as if you are offered a limited demo version (like for software) and then have to subscribe to access the real value-added features, right ?
Subscriptions: like a magazine, you need to make an upfront payment = software licenses in software.
Freemium: when you start, it’s free. Then you have to pay when you’re getting serious = shareware in software.
Yes but for LinkedIn you don’t pay just for a quantity of service (= billing) , right ?
Same for Viadeo or Flickr: it’s not about billing, it’s about paying a premium fee for premium service.
This freemium approach is used in couple of my favourite Mac software, like VoodooPad.
I wouldn’t call the basic Flickr, VoodooPad Lite, Basecamp, Office Live or LinkedIn as “limited demo versions”, because they are actually really useful for many people.
In my opinion it’s an excellent tactic in an environment where you have both free and paid alternatives in the marketplace.
I just remembered another good example, last.fm. The basic service is free, but then there’s the subscription which gives you access tailored radio stations. This is something they can except people to pay for, the rest of their services could be easily imitated by a rival. It is also a service that a portion of their users don’t need, but some are willing to pay.
@ Jay: What I meant is : does the site generate a recurring revenue from these premium users (=subscriptions) or a non-recurring revenue (=”biling”, or “pay-as you go”: you pay only fot the amount of service you consume).
@Kari: right, I see. The freemium model seems to be necessary when you do not fundamentally differ from competitors, right ? (or only by the size of your user base).
I am just thinking about the success of Meetic, which revenues are by far due to subscriptions, and which never bothered with this “freeemium” model.
On the web, Freemium model is good strategy when barriers to entry are low (for the competitors), switching costs are high (for the user) and your business’s value is based on your users and their content.
What I’ve seen time and again is how a succesful free program/site goes subscrption-based and the users abdandon it for the new free alternative. Here the basic sin is that the authors have come greedy and forgotten that their core audience (due to the heacker ethic, i believe) are really price sensitive and that their business evaporates when the users flee.