7 Revenue Models of the Internet
Niko Waesche, the author of the Simply Seven book was in London recently and I had the chance to attend one of his workshops organised by General Assembly London. Niko presented his findings from his book on the 7 different ways to build a sustainable Internet business. I would have to say this is a pretty good workshop as Niko summarises the different ways of buildiing an Internet into 7 succinct categories.
Here’s a brief breakdown of the 7 revenue models:
1. Service Sales
This is a one-off purchase of a unique, individualised service from the Internet. The most famous example is Skype and Translated.com where users make a one-off purchase of a call or translation service.
2. Subscriptions
This is the purchase of a long-term service contract such as World of Warcraft, SecondLife, webhosting subscriptions, Software as a Service providers such as Dropbox, Google App, Yahoo Mail (all using freemium models).
3. Retail
This is the purchase of a physical product and is the most natural model for offline businesses transitioning to the online world. Examples include Amazon, Gilt Group and any other e-commerce websites.
4. Commission
Websites using this model will earn a cut from any completed sales transaction happening on the website. Examples include eBay, Groupon, lastminute.com, eLance (and any business models that makes use of affiliate links).
5. Advertising
This is a pretty straightforward concept and is very visible on the Internet. This is a referral fee paid for an opportunity to access the traffic on a website. This is not dependent on there being a final sale (the difference with the commission model). Examples of web businesses using this model are Google, Facebook, YouTube, Twitter.
6. License Sales
This is the purchase of a digital product like an e-Book, MP3, iPhone app or any virtual goods in a game. Apple iTunes Store and Zynga are examples of companies using this business model to generate revenue.
7. Financial Risk
Now this is the most sophisticated business model on the Internet and involves hedging against risk and is very closely related to the financial world. Examples include wonga.com (last-minute money lending), weatherbill.com (weather insurance) and gambling related websites.
That’s the 7 different business models summarised briefly. Of course web companies may not use an exclusive revenue model and choose to mix-and-match different revenue models as they see fit. The 7 categories here simply list the main ways which Internet companies monetise their business operations. Hope this short review here is useful in helping you form a better understanding of the Internet’s revenue model. If you like Niko’s work and would like to read further, you can go purchase his book here.
