Friday, March 22, 2013

9 Online business models

One of the most popular questions for startups online (and even major ones like Twitter and Facebook) is ‘what is your business model’. Sometimes the question is sincere but often it is voiced more like an accusation: what are you exactly trying to acomplish?

The interesting thing about business models is that there is not much magic involved. Business models are pretty much set and all you have to do really is apply one of them to your business. The hard part is choosing the right one for you. You can choose one or the combination of couple of them.

So here comes the list:

Brokers are market-makers: they bring buyers and sellers together and facilitate transactions.

The web advertising model is an extension of the traditional media broadcast model. The broadcaster, in this case, a web site, provides content (usually, but not necessarily, for free) and services (like email, IM, blogs) mixed with advertising messages in the form of banner ads.

Independently collected data about producers and their products are useful to consumers when considering a purchase. Some firms function as infomediaries (information intermediaries) assisting buyers and/or sellers understand a given market.

Wholesalers and retailers of goods and services. Sales may be made based on list prices or through auction.

Manufacturer (Direct)
The manufacturer or “direct model”, it is predicated on the power of the web to allow a manufacturer (i.e., a company that creates a product or service) to reach buyers directly and thereby compress the distribution channel.

In contrast to the generalized portal, which seeks to drive a high volume of traffic to one site, the affiliate model, provides purchase opportunities wherever people may be surfing. It does this by offering financial incentives (in the form of a percentage of revenue) to affiliated partner sites.

The viability of the community model is based on user loyalty. Users have a high investment in both time and emotion. Revenue can be based on the sale of ancillary products and services or voluntary contributions; or revenue may be tied to contextual advertising and subscriptions for premium services.

Users are charged a periodic – daily, monthly or annual – fee to subscribe to a service.

The utility or “on-demand” model is based on metering usage, or a “pay as you go” approach.

You can combine any of these models and vary slightly to make new models. But this is a nice list to get started with.

Monday, March 18, 2013

BCG Matrix

The BCG matrix (also known as B-Box, BCG analysis, BCG-matrix, Boston Box, Boston Matrix, Boston Consulting Group analysis, portfolio diagram) is a chart, or matrix, created by Bruce Henderson for the Boston Consulting Group in 1970 as a tool for corporations that will help them analyze their business units or products. By using the BCG matrix it will help companies to allocate their resources and is often used as an analytical tool in brands marketing, product management, strategic management and portfolio analysis. 

In order to use the chart the analyst creates a scatter graph so as to rank the business units or products based on their market share and growth rates. There are four main categories.
  1. Cash cows are units or products with high market share but slow growth. These are usually the products that generate a lot of revenue while not demanding much in terms of their maintenance for the company. They are regarded as boring, but every company would be happy to have a number of them. Their only purpose is to be "milked" with as little investment into them as possible. 
  2. Dogs, or sometimes called pets, are products with low market share in a mature, slow growing market. They usually only "break even", generating enough cash to keep the current market share. It is a good line of products in that it has a social benefit of providing a jobs and possible synergies with other products, but generally they are considered worthless since there is no extra revenue generated by them. Most of the companies would prefer selling them off.
  3. Question marks, or problem children, are rapid growers and in doing so consumer large amounts of cash. They have low market share and do not generate much in return. The end result is large net cash consumption. They have a potential to become a star, and eventually cash cow. If it doesn't suceed in becoming a market leader after some time (usually measured in years) it will slide down to a rank of dog. Question marks have to be analyzed carefully so as to determine are they worth the investement.
  4. Stars are products with high market shares in a fast growing industry. Everybody hopes that a star will be a cash cow. Sustaining the high market share may require further investments, but it just might be worth it in order to maintain the high market share. When the growth slows down, if they had been able to maintain the highest market share, they become cash cows, or they become dogs if they have a low market share. 

As a particular industry matures and its growth slows, all business units become either cash cows or dogs. The natural cycle for most business units is that they start as question marks, then turn into stars. Eventually the market stops growing thus the business unit becomes a cash cow. At the end of the cycle the cash cow turns into a dog.

The overall goal of this ranking was to help corporate analysts decide which of their business units to fund, and how much; and which units to sell.