5 Drivers for Future Business Models

Philippe De RidderInternet & media

This is a guest article by Kia Davis, Senior Strategy Manager at Visa Europe and future entrepreneur.

When new technology develops, the first business models seem to imitate the old technology experience within the new medium. As the new industry matures and the new medium is better understood, new business models emerge, often led by smaller startups.

For example, the online advertising models in the late 90’s and early 00’s replicated the existing passive advertising model of paying for ‘eyeballs’ or ad views. CPM (cost per thousand impressions, modelled after the print/TV advertising industry) eventually became CPC (cost per click, the model of Google and affiliate advertising) after the industry realised that ad performance could be tracked via clicks. This was a new tool that couldn’t be used in offline media, but revolutionised online advertising.

In the present and upcoming decades, similar shifts will happen with the rise of new devices, the omnipresence of the web, and the emphasis on social networks, providing new opportunities for startups. Below are five newly available tools that can drive future business models:

1. Consumers will pay for content – A decade ago media companies thought that consumers would never pay for online content, but the rise of app sales, in-app sales, ebook downloads, and crowdfunding models have proven them wrong. Today, 38% of iPhone owners say they would pay for magazines which you can read on a PC or portable device, compared to 29% of the general population. Consumer-paying models allow startups greater flexibility in pricing and business models, because revenue can come from the mix of advertisers, product providers, and consumers. In difficult times and as the business progresses, pricing to different parties can adjust.

2. People spend more when it’s not ‘real money’ – If startups can separate the payment and the transaction, for instance through upfront fees in exchange for credits that can be used for other items, people will likely spend more. Similarly, if a subscription model has inclusive benefits, people are more likely to view these as ‘freebies’. This also can allow the startup to reward its users through credits/currencies that are likely to stay within the system. For game developers, Facebook credits generate higher total revenues per user compared to games that use traditional currencies.

3. Startups can piggy-back off of existing business models – Some startups have found ways to create micro-models that utilise existing business models of established players, particularly in commodities that can be enhanced with additional services. The benefits of this include being able to brand and manage the network and interactions that occur inside of it. It also provides opportunities for startups to offer established players partnerships, sponsorships, and analytics in exchange for greater access to a model they are implicitly supporting. VOIP companies like Skype and iCall do this by using the existing WiFi and mobile infrastructure to lower the cost of long-distance calls for consumers.

4. White-labelled products can extend reach for established brands while driving user adoption for startups – Larger companies often struggle to identify how to participate in new technologies. For corporates, developing new business units and products in-house is expensive, time consuming, and risky. Startups can extend the reach of the brand into new technologies by designing products with the ‘look and feel’ of a brand, capitalising on the brand’s existing relationship with consumers to drive user adoption. This must go beyond commodity services like designing the social media page for a brand, to more unique products and services that the brand can use to compete effectively. An iPhone app by Remote Control Productions and RjDJ for the movie Inception reached 1m users in 1 week.

5. Network distribution effects can drive the ‘J-Curve’ – Winning in ‘stickiness’, ‘viral marketing’, or ‘2-sided markets’ creates the virtual cycle of the more you have the more you grow. This applies to social platforms, games, content, etc., and is the magic formula that creates the J-curve. GroupOn’s rapid success was a function of building several network distribution effects into its business model early on, including:

  • Capitalising on the ‘addictive’ elements of consumer behaviour, such as limited offers, exclusivity, group belonging, identity/ personal beliefs, personalisation, the free-gift syndrome, prior agreement to do something
  • Aggressively targeting adoption of one side of the 2-sided market, like exclusive relationships or deep discounts with category leaders
  • Making your product enhance existing social interactions (e.g. payments, organising events), or making existing social interactions improve your product (e.g. sharable photo albums)

Picture by {Flixelpix} David (flickr)