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In Selecting a Business Model, Part 1 I listed the Basic Business Model Archetypes of a business based on the rights being sold, the type of asset, and if applicable, how the asset is transformed. This post highlights the various business models that can be employed for each Archetype.

Keep in mind that the models are not necessarily mutually exclusive and you can apply more than one model to a particular business. Also, some of the models may seem very similar but there are usually minor differences that change things considerably from a business process perspective.

I am sure the list below is not an exhaustive one but it includes models that I’ve come across and categorized over the last six months or so. Various sources have contributed to this list, some of which I’ve listed at the end of this post.

Remember, Part 1 is identifying the Basic Business Model Archetype of your business. In Part 2, take a look at the Business Models that are commonly used for your company’s archetype.

I’ve separated the business models into 2 categories:

• Models that intrinsically generate revenue
  • For these models it is clear how you generate revenue. For example, it is obvious that a manufacturer can make money by creating and selling an asset and as such this is the suggested model for a manufacturer.
• Models that do not intrinsically generate revenue
  • For these models, revenue generation is not as straightforward. Instead a variety of “monetization” techniques must be employed in order to generate revenue from the traffic or value they create.

Models that intrinsically generate revenue

• Creator
  • Manufacturer
    • Manufacturer
      • Revenue: Create and sell a physical asset
      • Comment: One of the oldest and most basic models. Design and manufacture something and then sell it at a profit.
  • Inventor
    • Internet Inventor
      • Revenue: Create and sell an intangible asset
      • Example: Creating patents, trademarks, brands, etc. and selling them is an obvious one but also consider the creation of a web properties for the purpose of selling them.
    • Virtual Manufacturer
      • Revenue: Create and sell a virtual asset
      • Example: Facebook Gift Shop allows friends to buy and send virtual gifts at a cost of $1 and up.
      • Comment: The difference between a Virtual Manufacturer and an Internet Inventor is that an Inventor does not sell the same intangible asset more than once, while a Virtual Manufacturer does.
• Distributor
  • Wholesaler/Retailer
    • Online Retailer
      • Revenue: Buy and sell physical assets using an online storefront
      • Example: Well.ca an online health and beauty retailer
    • Catalogue Retailer
      • Revenue: Buy and sell physical assets through the use of a physical and online catalog.
      • Example: SkyMall is a catalog retailer and also uses an online storefront where consumers can purchase items.
    • Clicks & Mortar Retailer
      • Revenue: Buy and sell physical assets through retail locations in combination with an online store.
      • Example: Chapters sells books and other items at its physical retail locations and online.
  • Intellectual Property (IP) Trader
    • IP Trader
      • Revenue: Buy and sell intangible assets
      • Example: Buying and selling a web domain, a web property, or any type of IP. Demand Media, among other things is a company that has a profitable domain portfolio which includes general domain names to typo domains.
      • Comment: This model is very similar to the description of a broker but the difference is that the vendor does at one time or another have “possession” of the intangible asset.
    • Bit Vendor
      • Revenue: Facilitates the transfer of intangible assets
      • Example: Steam provides a service to download and manage video game purchases. Apple iTunes facilitates the purchasing of media such as music, tv shows etc.
      • Comment: The distinction between the Bit Vendor and an IP Trader is that for a Trader, once the asset has been sold it cannot be sold again. A Bit Vendor on the other hand can sell the same intangible asset to satisfy an unlimited amount of demand since it can simply make a copy for each buyer.
• Landlord
  • Financial Landlord
    • Lender
      • Revenue: Lenders provide cash that their customers can use for a limited time in return for a fee
    • Insurer
      • Revenue: Customers pay a premium to insure against losses.
  • Intellectual Landlord (Publisher)
    • Online Publication
      • Revenue: Create unique content, publish it to the Internet and charge users for a copy of it.
      • Example: Some online newspapers continue to charge for access to articles.
      • Comment: This can be a challenging model since there is so much free content available online, making it difficult to consistently provide unique content that users will pay for. Many publications that fall into this category are usually related to independent research findings.
    • Online Archive
      • Revenue: Archive content that is no longer current but still valuable, make it easily searchable and retrievable, and charge for access
      • Example: The NYTimes has archives for the years 1851 - 1980 that are available to be purchased in single or 10-article packages
      • Comment: Online Archive Storage could also be offered as a service to Online Publishers who do not want to invest in the infrastructure needed in order to store and deliver content from over the years
    • Knowledge Merchant
      • Revenue: Leverage existing systems and infrastructure to capture data and sell it in the form of intelligible analytics
      • Example: Before being acquired by Google, FeedBurner charged a premium for providing detailed analytics to publishers.
      • Comment: A knowledge merchant leverages an existing system/technology that serves an unrelated purpose and uses that system to collect valuable information.
    • Software Publisher
      • Revenue: License software that you have published for limited use.
      • Example: Microsoft
      • Comment: The most common business model for software.
    • Audience Measurement
      • Revenue: A market research agency measuring online audiences and consumed content.
      • Example: HitWise provides detailed statistics on Internet user behaviour
      • Comment: Unlike a Knowledge Merchant, an Audience Measurement firm usually relies on 3rd party technology or external data sources to collect valuable information.
    • Piggyback
      • Revenue: Cross-sell premium services to an existing subscriber base
      • Example: Apple exploits the opportunity to cross-sell Apple iPhoto users premium services such as Photo Books & Calendars.
      • Comment: This is a classic approach used by retail outlets that applies well for niche sites and certain subscription based services. The broader the content or service the harder it is to make the connection for a cross-sell opportunity.
    • Subscription
      • Revenue: Sell various levels of service with sliding fees, making it simple to upgrade (or downgrade) a user account as desired
      • Example: The Dogster Plus service is a subscription model that gives users more services and ad-free pages.
    • Trialware
      • Revenue: Trial the application or service for a period of time and then require payment to continue using.
      • Example: Newsgator TopStyle
      • Comment: There is also a similar approach where the software is limited in functionality and a license key must be purchased to gain access to all functions (referred to as Crippleware).
    • Content Services
      • Revenue: Deliver text, audio, or video content and charge users a subscription fee to access to the service
      • Example: Netflix
      • Comment: In many cases this involves streaming services usually with limited use of the asset.
    • Freemium
      • Revenue: Provide some services for free and charge a fee to access premium services
      • Example: Flickr provides a free account that anybody can sign up for that gives you reasonable services. Users have a choice to pay a premium and upgrade to a Pro account which offers additional functionality, storage, and bandwidth usage.
      • Comment: This is a model that is commonly employed and can work quite well if the premium services provide enough value to justify the subscription fee.
    • Trust Services
      • Revenue: Membership associations that have created a public code of conduct that they have committed to follow and uphold. Members pay a fee to be certified and included
      • Example: BBB Online has a reliability program and for a fee will provide member sites with a “Reliability Seal” that identifies sites that have met BBB standards for the web
      • Comment: This model can be very challenging because (a) you have to build up enough goodwill that organizations and consumers place trust in your evaluation and (b) you need to convince organizations that your services are needed.
    • Metered Usage
      • Revenue: Measure a subscribers usage in terms of time, data, etc. and charge them for what they use
      • Example: Amazon Simple Storage Service (S3) can be used to store and retrieve any amount of data and you only pay for what you use.
      • Comment: In this model there is no recurring revenue since users are only charged for what they use. If people are not using your services you will not make any money.
    • Metered Subscriptions
      • Revenue: Users pay a subscription fee and are given access to a limited number of actions, pageviews, etc
      • Example: Slashdot allows users to subscribe to a 1000 page subscription for $5. In return you can view 1000 articles without ads (there are other small benefits).
      • Comment: This model is similar to metered usage but in this case you receive recurring revenue since the user pays a regular subscription fee.
    • White Label
      • Revenue: Take existing systems or software, augment the service and/or provide some sort of added value built on top, apply your brand and sell it.
      • Comment: Benefits of producing a white label app can be: quicker development time since you’re simply building on top of an existing platform, the possibility of leveraging the knowledge and assistance of the original publisher, a uniquely branded product with seamless integration (theoretically).
  • Intellectual Landlord (Attractor)
    • Freemium
      • Revenue: Provide some services for free and charge a fee to access premium services.
      • Comment: See above
  • Contractor
    • Professional Services & Education
      • Revenue: Take an existing product/subject and provide services around that product such as support, training, templates, etc.
      • Example: Red Hat’s linux OS is open source and freely available software so Red Hat makes money by tweaking the kernel, providing software support, training, and other services.
    • Contractor
      • Revenue: Allow people to contract you for service at an agreed price
      • Example: A website or Graphics design firm such as Netfirms.
      • Comment: Used by many as a way to augment their revenue stream but can easily become a distraction.
• Broker
  • Financial Broker
    • Transaction Broker
      • Revenue: Facilitates the transaction between a buyer and seller and charges a fee or takes a percentage commission of the transaction.
      • Example: PayPal provides the means for users to exchange money with each other in a secure manner.
      • Comment: A very simple and traditional method of making money online. Some of the added value for buyers and sellers is the ability to use credit services, to provide some layer of protection from being defrauded, keeping history of sales/purchases, etc.
    • Financial Broker
      • Revenue: Matches buyers and sellers of financial assets such as cash, stocks, bonds, etc and facilitates the transaction.
      • Example: Microcredit services such as Prosper allow groups of people to lend money to people looking to borrow money.
  • Physical Broker
    • Buy/Sell Fulfillment
      • Revenue: Similar to an affiliate/referral model but customer orders are taken by one vendor and are fulfilled by another.
      • Example: CarsDirect allows users to browse car inventory, make a purchase through CarsDirect.com by talking to an agent who will then find the car the buyer is looking for. In the end however, the car will be bought from a dealership being represented by CarsDirect.com who will then take a commission.
      • Comment: Takes it one step further than a Metamediary by participating in the transaction but one step short of an Online Agent since only the order is taken. The real value for a user of a service like this is the time and money saved by not having to shop around, and the benefit of having someone knowledgeable to discuss the purchase with.
    • Online Agent
      • Revenue: Provides service across an entire transaction such as the initial price negotiation, fulfillment, support, etc
      • Example: Expedia negotiates prices with hotels, airlines, etc and then offers these services to customers. They also will fulfill the booking and provide support where needed.
      • Comment: In this case the Online Agent helps match the buyer and seller but takes the transaction one step further by negotiating the price and fulfilling the transaction. Unlike Buy/Sell Fulfillment, the buyer never deals with the seller when using an Online Agent.
    • Online Agent (Priceline)
      • Revenue: The “Name Your Own Price” model matches buyers and sellers, but unlike regular agents who take a flat or percentage fee, in this model the fee is the difference between the sellers asking price and buyers bidding price.
      • Example: Priceline.com created this model.
      • Comment: The acceptable price for a particular asset, during a particular time is given by the sellers but is unknown to the buyers. Buyers are able to make a single bid for the asset or use of and if the bid is within a certain threshold of the sellers asking price the transaction is fulfilled in the same manner as an Online Agent.
    • Auction Broker
      • Revenue: Matches buyers and sellers of physical assets
      • Example: eBay.com
      • Comment: A simple model made famous online by eBay. Allow sellers to post items for sale, manage the auction and charge a flat fee for certain features and a commission once the item is sold.
    • Virtual Storefront
      • Revenue: A service to host online storefronts. The service provider can charge fees such as listing, hosting and/or transaction or commission fees
      • Example: Amazon offers seller accounts where users can list their own items for sale. It gives buyers the option of purchasing goods from another supplier. Amazon charges listing fees and takes a commission once the item is sold. eBay provides a storefront service for merchants the sell products in large volumes.
      • Comment: There aren’t many pure play virtual storefront providers that have the ability to compete with the likes of eBay and Amazon. What is most important with virtual stores (as with real stores) is the amount of traffic you receive.
    • Classifieds
      • Revenue: Provide a place where sellers can list items and buyers can browse listings. Generate revenue by charging a listing or membership fee.
      • Example: Craigslist is the largest classified site but does not charge listing fees except for job postings in specific geographic areas.
  • Intellectual Property Broker
    • Advertising Networks
      • Revenue: Build up a large pool of member sites, attract advertisers and feed ads to member sites.
      • Example: AdBrite has over 32,000 member sites delivering about 760 million impressions a day. Advertisers can choose which types of ads they want to run on which types of sites and then bid on how much they’re willing to pay for clicks.
      • Comment: The larger the member pool along with the quality and # of page views the more that can be charged to advertisers to display their ads.
    • Niche Advertising Network
      • Revenue: The same model as the Advertising Network but dedicated to a niche market. The aim is to provide a quality group of member sites for potential advertisers.
      • Example: DogTime Media is an ad network dedicated to pet-related sites
      • Comment: The benefit of the niche network is the possibility of having a concentrated network of quality member sites that have commonality between them. The network may provide for a better opportunity to target ads.
    • Search Agent
      • Revenue: An automated software agent (usually some proprietary algorithm) that searches on behalf of a ‘interested party’ for goods and/or services to find the price, availability, ratings, etc. If the buyer search is converted into a sale, the agent receives a commission.
      • Example: ePinions.com, Kayak.com all provide product information along with locations on where you can purchase the product.
      • Comment: This model closely resembles a Metamediary but is different in that it is more focused on the job of aggregating information about products and providing a single view for the end user to help them make a decisions. Since its focus is on retail products, it aims to make money by connecting the purchaser with a retailer and taking a commission.
  • Human Resources Broker
    • Human Resources
      • Revenue: Matches buyers and sellers of human services
      • Example: Elance brings together professionals looking to get a job done with those looking for work on a job-to-job basis.
      • Comment: Outsourcing
    • Classifieds
      • Revenue: Match employers with potential employees
      • Example: Monster, Workopolis

Models that do not intrinsically generate revenue

• Creator
  • Inventor
    • Brand Integrated Content
      • Description: This isn’t as much about direct revenue generation as it is about PR and generating buzz
      • Example: BMW Films - A highly successful film series “starring” different BMW models receiving over 100 million film views and numerous awards.
      • Comment: If successful, the buzz that is generated can be used to drive traffic to other web properties like the Buy/Sell Attention model or can be Monetized
• Landlord
  • Intellectual Landlord (Attractor)
    • Portal
      • Description: A web site that usually combines a variety of content and services and in most cases has a search engine.
      • Example: Yahoo!
      • Comment: In the case of Yahoo! they offer many portals such as Travel, Finance, Autos, etc. which all roll-up into their main portal page.
    • Free Registration
      • Description: A site that provides free content but collects usage and demographic data through required registration.
      • Example: NYTimes.com requires users to register in order to get access to their free content.
      • Comment: This information can be used to serve highly targeted ads to the each individual user when they visit the site and log in.
    • Buy/Sell Attention
      • Description: Not a revenue generator but a way to jump start or increase traffic to a related web property by using one property that is performing well to promote the other.
      • Example: Dogster.com launched in January 2004 and was able to use its popularity to help promote a new site it launched in August 2004 called Catster.com.
      • Comment: There are two ways this model tends to manifest itself. Case 1: A site is launched and becomes successful, the authors launch another site to promote the new one and drive traffic to it. Case 2: A site is launched with the sole intention of creating buzz in order to launch another site. The second site is the real target and the first site is only a means to drive traffic.
    • Open/Free Content
      • Description: A group of volunteers work collaboratively to support and create peer-reviewed publications. The content they produce is free and openly available to the world.
      • Example: Wikipedia
      • Comment: In many cases it can be difficult to monetize these sites for any purpose other than site maintenance. There is considerable debate once a site reaches the size of wikipedia on whether it can be monetized without somehow compensating contributors for their time. Wikipedia’s approach has been to collect private donations and hold fund raisers.
    • Social Networks
      • Description: A place where people can come together and share experiences under a common connection such as friendship, business, pets, etc. Some sites are broad in nature while others choose to be niche sites.
      • Example: Facebook is based on Friend connections, LinkedIn is based on Business connections, Dogster is based on Pet connections.
      • Comment: Most social networking sites monetize through contextual advertising or charge for premium services. For a broadly based social site like Facebook or Myspace there is a greater opportunity to grow the user base but it is a challenge to contextually target such a large and diverse group. On the other hand, niche sites like Dogster may have a smaller user base but advertising can be focused on the common interest all users have (in this case Dogs).
    • Loyalty Program
      • Description: Create a loyalty program by providing redeemable points or discounts to users who purchase merchandise from selected retailers.
      • Example: At Airmilesshops.ca you can collect airmiles by shopping at over 90 retailers.
      • Comment: The loyalty program provides users with an incentive to visit the loyalty site first before making purchases to ensure they receive extra benefits such as points and discounts. In return the loyalty program can display highly targeted ads based on the demographic data they collect on the member.
    • Metamediary
      • Description: Provide detailed information/reviews and possibly other services for products but do not actually sell anything.
      • Example: CNET Reviews provides comprehensive information on tech products including performance, value, pricing, etc. and publishes this information on their site. PowerReviews provides the “engine” for retailers to include review capabilities in their online stores.
      • Comment: The examples highlight two different approaches. In one case the products are chosen, reviewed, and the results are published on the respective site. In the second case, technology to facilitate user generated reviews is provided and implemented on a retailers online site.
• Broker
  • Intellectual Property Broker
    • Labour Exchange
      • Description: A service which indirectly provides human intensive labour which would otherwise require a company to pay wages in order to accomplish the same task. This model can be effective only if the cost to run the service is less than the combination of:
        1. The value of the information/data collected and/or the task being carried out and
        2. The savings in wages that are realized by implementing this model.
      • Example: 1-800-GOOG-411 Google provides free directory assistance via the 1-800-GOOG-411 service but in return they are able to train their speech-to-text engine and improve their voice recognition capabilities. Gwap Users play fun games for free but in reality what they are doing is teaching computers and hopefully improve such things as image search, audio search, object recognition, and information for artificial intelligence.

Methods to Monetize

For models that do not intrinsically generate revenue some of the common Monetization Methods employed are:

• Affiliates
  • Pay Per Click (PPC) and Pay Per Action (PPA)
    • Description: Get paid for each click through to an affiliate site or for users that perform an action on an affiliate site.
    • Example:
      • PPC: Shopping.com gets paid for each click through to a merchants site.
      • PPA: PartyPoker will pay on a scale per each user you refer that signs up.
    • Comment: In most cases affiliate programs will pay a set rate for a number of completed actions and/or click throughs and unless you drive a significant amount of traffic to their site this will be non-negotiable.
  • Revenue Share
    • Description: Receive a commission for each user click through and conversion that originates from your site. The commission is usually a percentage of the sale price.
    • Example: The Amazon.com Associate program offers up to 10% in referral fees on all qualifying revenue made through affiliate links links. There are many ways to be creative with this model. For example, Overlay.TV provides an online video platform which allows users to overlay “clickable” information directly onto video, which then ties into a large affiliate network.
• Advertising
  • Search Paid Placement (Keywords/Categories)
    • Description: On a high traffic site offer to sell link space based on keywords and/or categories.
    • Example: Google Adwords will place paid links along with search results based on keywords.
  • Contextual Advertising
    • Description: Advertising related to and placed alongside page content.
    • Example: Google Adsense ads are related to the content on the page. Websiter operators get paid per thousand impressions (CPM) and per click (CPC).
    • Comment: This is the most popular choice to monetize web properties and is often the only source of income. If a site has a large amount of traffic, the simplicity of generating revenue through the placement of contextual ads is what makes this a popular choice.
      • It is worth commenting specifically on the traffic problem. If you are using Contextual Advertising as the only means of generating revenue, then you need to have a very large amount of traffic to drive the number impressions. If this is not the case then hopefully you have a high click through rate (CTR) to compensate. Obviously one would prefer to have a huge amount of traffic and a high CTR but this is not an easy task, and many companies fail to generate any significant revenue this way.
  • Behavioral Targeting
    • Description: Takes contextual advertising one step further by identifying the person viewing the page (usually in a non-personal manner), their preferences, behavior, etc and presenting Ads targeted directly at the unique characteristics of the individual.
    • Example: Blue Lithium, Tacoda
  • Intromercials
    • Description: Users are directed to a landing page where they must watch a Video/Animated Ad before proceeding to the desired content. In most cases users are able to skip the ad and go directly to the content.
    • Example: Forbes employs this method
  • Traditional Ads
    • Description: Traditional Ads such as banner ads that are not contextually targeted, but just served “blindly” from an ad network.
    • Example: Banner ads such as those found on sites like BusinessWeek, eWeek, etc.
  • Watch an Ad (Ultramercials)
    • Description: Require a user to watch a video Ad before providing access to premium content.
    • Example: Salon DayPass gives access to all of Salon.com premium content from 1-8 hours after viewing and clicking through an Ad.
  • Sponsors
    • Description: Set aside “visual real estate” on a site and then sell a portion of that space.
    • Example: TechCrunch charges per month for a 125×125 pixel area
    • Comment: This model works well if (a) you have a site with a high number of unique visitors and a large number of page views and (b) the site is dedicated or limited to a few topics and has a fairly consistent user profile.
• Data Collection
  • Intelligence Vendor
    • Description: Collect demographic information on a user base, create actionable intelligence about users and sell this information.
    • Comment: This type of information is valuable to market research firms, analysts, advertisers, academics and in most cases the information is unique and cannot be copied by competitors.
• Donations
  • Donations, Fundraiser, Grants
    • Description: Provide a valued service (often based on crowdsourcing) that appeals to a large audience and then accept voluntary donations in return for the value created.
    • Example: Wikipedia is funded through donations, fund raisers, grants, etc. and managed to generate over $1.4m in revenue for 2006
    • Comment: This is a model most often employed with the intention of simply maintaining a site. Even a highly trafficked site like Wikipedia (which receives over 40 million unique visitors a month) is only able to generate an ARPU of about $0.003 per month

What Did I Miss? If you know of any other models that aren’t listed above, please share them in the comments section. Can you identify which archetype you think the model belongs to?

Sources
There are a lot of great articles, posts on the web about business models. One site in particular, Business Models on the Web by Michael Rappa was a great resource. Quite a few of the models listed above are from Michael Rappa’s site. Other Notables: The Long Tail Of Business Models and Alternative Online Business Models.

One final note….yes, I do realize that this may be the longest 2 part blog post ever!

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