Comparing innovative business models like Groupon, Kickstarter and Quirky

YashBusiness Model Innovation

You might have looked at the 10 business models that rocked 2010 before. Yash Saxena, our Indian Ambassador, has dug a bit deeper and made an interesting comparative analysis of the business models in terms of transaction volume, margin per transaction, and the venture support they received.

Which business models are the stronger ones: those that rely on high volume, low margins; those that rely on a low number of transactions and high margins per transaction; or a mix of both? And in which do investors see the most value? The comparison criteria are based on a typical choice for growing businesses, either to initially focus on increasing their reach and hence the number of transactions, either to focus on monetizing their business to extract better margins. To find out the answer, let’s have a closer look at some of the most innovative, diverse and popular business models currently in vogue. The analysis is based on data we collected from a myriad of sources as well as reasonable estimations to fill in the gaps. (ps: if you have more precise or up-to-date information, get in touch!)

Below we charted the different businesses in four quadrants, indicating four different combinations of low / high margins, and low / high volume (number of transactions). The size of the bubbles indicates the volume of funding the companies received. We have found that all companies with a low transaction volume received comparable venture funding, irrespective of their profit margin differences.

On the other hand, the ventures with very high transaction volumes or reach received large funding, irrespective of their profit margins. For Spotify the profits may actually be null or negative. We assumed a very nominal profit value, based on news reports and internet discussions. Even though it may be a guesstimate, it doesn’t changes the overall conclusion: ventures with high transaction volumes receive investor attention!

It is needless to say that the best quadrant to be in is the upper-right one – high transaction volume and high margin. That’s where Groupon is. And that quite obviously shows in the massive funding they have received.

However, Kickstarter has received more funding than some of the business models that have both higher volumes and margins. This suggests that investors are betting on variables that are not captured in the simple transaction-margins equation (which is no real surprise). What stands out albeit in a very small sample is that for investors volume or reach is more important than margins.

Information, thoughts or insights that were missed? Get in touch!