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Tuesday, December 06, 2011

Revenue Models Of The Consumer Web

11:24 PM Posted by Deepak Nayal , , No comments
Thanks to the Internet, we are all use to free stuff now. It is not our fault. Sites such as Yahoo, Google, Facebook, Twitter, Tumblr and Wikipedia have got us into this habit. I am not sure how it started, but now it is hard to think of a successful web based application that does not offer its services for free - unless its business is about selling (e.g. Amazon). On the enterprise side, web based businesses charge their customers for usage, and these customers have got use to it - in fact, they might not trust something if it is offered for free. However, it is a totally different story on the consumer side. Asking consumers to pay for a service might cause the death of that business. 

While this free movement has helped the adoption of internet and is good for customers, many businesses are struggling in getting the consumers to pay. Publishing industry is one of the worst casualties of this free movement. Not many users are willing to pay online to read news and articles, while they can access the information for free on some other site. Collusion might be the only solution to publishing industry's problem but, sadly for the participating companies, that will be illegal.

Scarcity and restrictions lead people to innovate, and revenue models used by web based companies are a good example of that. They will have to struggle making consumers pay for using their service, so they have come up with different ways of doing so. Internet based businesses use various revenue models to make money. While some of these models are more common than the others and some are older, some of these models have evolved in only last few years, thanks to the phenomenal growth of new and emerging platforms. 
  1. Plain Old Selling - You cannot beat this. No matter how much technology advances, there cannot be any substitute for plain old selling. The old knights of e-commerce, Amazon and eBay, still rule the roost. Though, these are being joined by new players, such as Etsy. 
  2. Helping Businesses Sell Their Products - Some of the internet based players also make money by helping other businesses sell their stuff to consumers and getting a commission out of it. Deals and discounts services, such as Groupon and LivingSocial, leverage this model for generating revenue. 
  3. Advertisements - This is one of the most common ways that internet-based consumer applications use to make money, and has been in use pretty much since the initial web portals. This revenue stream is a carry over from the world of media - television and radio - where advertising is the primary source of income. Within online advertisement, search ad market is bigger than the display ad. Some of the best examples of this revenue model are Google and Yahoo. 
  4. Freemium - No matter how good your product is, it is hard to get consumers to pay for it. But if you trust your product and believe that consumers will like it once they use it, you can go the freemium way. In this model, you give the consumers a taste of your product for free and give them access to basic services. Then you charge them for any extra features or usage they want. Dropbox and Evernote are good examples of this revenue model. 
  5. Marketplace For Bells and Whistles - Another way the consumer applications are making money is by helping others make it. While you might not be in the business of selling stuff, you can allow others to leverage your product and do so. Tumblr, the famous blogging platform, allows designers to create and sell premium themes that can be used on its blogs. This model is like a cross between 'freemium' and 'helping others sell their products' models mentioned previously. 
  6. Leveraging Data - Companies have been trying to understand consumers for a long time. The whole marketing function is established in companies pretty much for that purpose only. Any insight on consumer behavior is worth gold nuggets, and anybody or any service that can help get that insight is a godsend. Social networking based tools and services have been most successful in leveraging this revenue model as they are well placed for tracking user behavior on the net (by tapping social and interest graph). Twitter and Klout are some of the services that leverage this revenue model. 
  7. In-app purchases and advertisements - Another revenue model that has become very famous and successful in the recent times is the in-app model. In this model, applications allow users to purchase gifts, tools, etc while using the app. Probably the most successful implementation of this model has been done by Zynga, the social gaming leader. In a different aspect of this model, small advertisements get displayed on the user screen, while the user is using the app. These can be seen in Youtube videos and many smartphone games. The key aspect of this in-app model is that the purchases and advertisements do not come in the way of the user experience, and in fact might add to it.
While new trends and platforms have led to some new revenue models, the old ones are still pretty common on the internet. The ones I have mentioned here are the most common ones, but this by no means should be considered a definite list. I am certain that new models can be added to this list in the future. As technologies and business evolve, so will the ways of making money out of them. In case you feel that I have missed any other prominent revenue models of the consumer web, please do share those through the comments.

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