So, apparently it’s “Good times RIP” and every startup and VC firm seems to be competing for who can be the most prepared for the reputed nuclear winter. A whole lot of second guessing and obvious advice from the same people that were bubbling of enthusiast just a couple of weeks before the shit hit the fan (I met a whole lot of them when we presented at TC50)… better listening to people that actually gives good advice before the fact, for example Marc Andreesen’s with his epic “nuclear winter” prophecy.
Anyways. There’s a lot of opinion and discussion on the “let’s switch business model” theme… mostly “omg omg! advertising is dead! we need to get paid! soon! ahhh!”. But I’ll deal with advertising vs. freemium vs. paid service another time and instead direct my thought to the fundamental business model issue, which I’ve been meaning to discuss for quite some time now…
What annoys me is that when most people say “business model” they’re confusing it with “revenue model”.
The “business model” is the overall structure which the company employs make money. One more time. Not to get money (as in revenues) but to make money (as in profit). So business model includes all things related to the business, such as:
- Revenue model – how do we charge for the value we create?)
- Cost model – what costs do we have and how are they structured? (fixed vs. movable, investments vs. operating costs etc.)
- Sales model – how do we create demand?
- Etc.
There are many different kinds of business models and many ways to organize them. The common denominator being that it’s a system of different components, and how the company charges for the value they create is just one.
For example “we need to switch from an ad based business model (CPM, CPC or whatever) to a freemium business model (SaaS, licensing or whatever)”. What they mean is (naturally), that instead of people pay for the service thru non-monetary means (their time and attention), they will instead finance it with monetary means (their money)… and what they’re really doing is not switching business model, they’re simply changing one component of their business model, the revenue model, from advertisers paying for some kind of message placement or user action to good-ol’ direct payment from the user in exchange for premium product features. Now this might imply , but not necessitate, changes in other sub-parts business model… for example customer service might be required and thus change the cost structure, or a sales force might be needed, affecting the sales model etc. If the change affects all these components I guess you might say that people have “switched” business model, but changing revenue model is actually a slight tweak in comparison to many other parts.
Easy as pie.
Stay put another post on why switching from an ad based to a paid business model might not be the awesome way out everyone thinks!
(hint, if companies have no money, neither does consumers)
Tags: 101, business ideas, business model, Entrepreneurship, financial meltdown, howto, marketing
