Ten years ago, Internet and mobile technologies were seriously out of touch with the reality of business. Websites to the likes of Twitter, Facebook, and Foursquare existed for the sole purpose of existing. The phrase “revenue model” became a catch phrase synonymous with afterthought. Fast forward to today… Welcome to THE FUTURE!
Today, you can’t even think of delivering an app idea without at least considering some form of revenue model. Lucky for you, there’s a post right here to cover every possible aspect of generating revenue, and hopefully profits, to form your startup business idea… and a few pointers about stuff that simply sucks or doesn’t work (for starting up):
The up-and-comer in the race to revenue for applications and websites alike are micro-transactions. Often used (and abused) in Free-to-Play mobile gaming models, micro-transactions have become a mainstay for all sorts of application types over the years. Find a way to give something away for free, then simply charge for the value-added elements of said item. Simple enough, right? The tricks are that price point and consistency have to supply perceived value to the user at a ratio just enough to keep them interested and buying.
Mobile games, and unfortunately some PC games, have adopted this model aggressively, capping playability to a depressing rate of advancement without coughing up the cash to continue. Few games get the ratio of “bottlenecking to fun-factor” right (looking at you Pokemon Go), but a slew of others have created a stigma around games that are “Free to Play” with the dreaded “in-app purchases”. It still works for a vast majority of game developers, and it can work for non-gaming businesses too.
With a little creative ingenuity, and some clever planning, any digital content business can be a micro-transaction revenue model. Hell, with some gumption, even a commerce platform could do it, but an App-Fee based model should be reserved for those…
App Fee Model
If there was ever a model that was ripe for the picking, it’s the App-Fee model. Company X provides a platform and simply processes transactions directly to product or service providers on a direct split of a single transaction. The App Fee revenue model is really just the Revenue Share model (see below) with a modern twist. The barrier of entry into the mini-rev-share space has been dropped to sea level thanks to platforms specifically designed to handle App Fees (Braintree, Stripe, etc). Braintree Payments is the platform of choice, personally, as they’re a PayPal product. I’ll take the granddaddy of online payment gateways over some neo-hip platform anyway of the week when it comes to trusting the handling of money.
The concept is simple enough, and there really is no better model to craft a chart for an investor with a projected growth at scale in a short timeline.
Free business model idea:
Imagine a platform built for service or product providers. The service or product providers market to their customers. The platform reaps the benefits of exponential reach, while taking a modest piece of the pie to sustain and grow business. How modest? Consider app fees never breaching that 10% line. 90 cents of each dollar goes to the producer of the product or service. That’s how it’s done right. It’s a great model.
In the wake of recent events, subscription business models are about to become more prevalent than ever. Why? Dollar Shave Club. Recently acquired for a whopping BILLION George Washingtons, Dollar Shave Club is the result of a one-hit-wonder viral marketing video boosting the little Santa Monica startup into oblivion and beyond gobbling up a sizable chunk of the razor blade market share.
Touted as a quasi-viable business model as recent as June 2016, Subscription models for consumer goods delivered right to your doorstep are a quintessential driver for the coveted “frictionless consumer spending” habit. Are you a dude that needs to dress to impress (Trunkclub)? Want a fresh supply of nerd collectibles and comic stuff (Lootcrate)? How would you like to never do laundry again (Washio)? Give up eating solid foods, perhaps (Soylent). If you want it, you can subscribe to it, and it can be delivered.
If you prefer not to get into having boxes and people logistics as part of your business model, perhaps you set up a subscription to premium educational content a’la a Vimeo Pro account and a custom CMS platform that roadblocks people with a paywall after they sign-up… Digital downloads, drip campaigns, and curriculum-based content strategies are easily top of the charts (Lynda) when it comes to subscription models online.
This one is pretty self-explanatory, but there are a few things to consider when going into eCommerce as a business. Keep in mind that this comes from the bowels of a long running history of working with numerous eCommerce businesses, some in business today, most six-feet under and forgotten about.
First, if you’re just starting out, try Shopify. End of story. Read no further. It’s a great entry-level commerce platform that can grow quite a bit as you do. (Alternatively, Etsy is a powerhouse for commerce as well).
Now, for those of you who want to own your content and platform… Do not use Magento. Ever. If you currently use Magento, just stop it. Cough up the cash, and get with WooCommerce. Yeah, I said it. WordPress acquired WooCommerce. You may have heard of WordPress. It’s that little platform that runs nearly 20% of all websites today. “But, omg! It’s like, insecure and full of holes, and it’s sluggish” – no, those are your developers, fire them and hire new ones. Sorry, not sorry. Proper deployment of WordPress WooCommerce by actual developers (yes, there are actual developers out there for WordPress) will result in an experience that has a community backing that can not be paralleled.
Second, if you need to do fulfillment, you need to use Amazon Fulfillment. If for some reason their logistical genius somehow feels too off-putting to you, or you feel that your product is too good to show up in an Amazon box, at least use ShipStation.
Last, if you’re not integrating your eCommerce with your back-end financials (Quickbooks Online, Freshbooks, etc), you’re doing it wrong. Fix that.
You’ll notice I didn’t mention eBay or Amazon marketplace. That’s because that’s not technically eCommerce, they’re down there in the Revenue Share model, oddly enough.
Have a new idea you want to market test? Perhaps a video game you want to create… Take some time, make some drafts, create a video, and publish a campaign on Kickstarter, Indiegogo, or the hundreds of other clones out there. The options and blends for campaigning for funds seems endless, but with a little research you can find the platform that fits your fancy. The considerations with a good raising campaign relies on persistent user engagement, solid social outreach, and above all – something useful to pitch.
Want to start your own Crowdfunding site? It’s stupid easy. Just keep in mind that you’ll be going up against the likes of the elephant Kickstarter, and their little brother, Indieogogo. That hill can be climbed for niche markets, but if there isn’t a consideration for alternate revenue streams associated to that platform, you’re more than likely sprinting a death march to start-up grave.
Online Gratuity Platforms are in their infancy, in comparison to the other stuff above. I believe it has huge implications for content creators as quality requirements are pushing costs and effort through the roof for publishers. Consumers strive for access to two things, and frequently they want it simultaneously.
One: Genuine, human, organic publishers. Humans. Real people. Just like you and me.
Second: Professional production quality, content depth, value, value, and value. So, they want independent content producers that feel like “Joe Blogger”, but with the equipment and time to dedicate to their craft to produce grade-A goods.
Being transparent with this can generate serious revenue for a newcomer to any content medium. Video, podcast, music, and blogging can all benefit from a big push from a key player in the Tipping Revenue space: Patreon.
Although Patreon is mainly the only player currently worth mentioning in the Tipping space, I think there is plenty of room for growth here for other startups to tackle the subscription tipping model for niche businesses. Again, a little creative ingenuity and a decent marketing budget can go along way here. After all, let’s face it, a majority of you readers probably haven’t heard of Patreon before a few seconds ago. Competing with a relatively unknown brand is better than going up against any of these guys…
Uber. Kickstarter. eBay. Amazon. iTunes. Those names ring any bells? Every single one of these content delivery platforms are the big brother to App Fee models… and they’re genius. Just like App Fee businesses, Rev Share models consist of technology, plus marketing, plus nearly zero assets, to equal profits. Being in the rev-share model game these days typically means “I’m the Uber for Dog Walking”; wherein you connect consumer (A) with service provide (B) for a percentage (C). Some of these platforms do this in an exceptionally fair manner, wherein the split is really tipped toward the service provider, and the platform owner takes a sub-10% stake of what’s been transacted… wait, actually none of these take that little.
iTunes, my personal favorite, isn’t a music label, historically has no business in the music business outside of stemming from a popular MP3 device – remember those? Yes, iPods. Apple has the brass to process a 30% transaction fee for purchases of music in iTunes. But with as much marketing and thus market share iTunes has to offer; it really is a case of “bigger pie, even with a bigger cut, means bigger payout anyway”. Now, you don’t have to be a monstrous brand to focus on an app-fee model. Envato’s Themeforest Marketplace is a great example of a company kicking ass and taking names with the rev-share model. Again, it just takes the right kind of business model and approach. If you pair a marketplace with micro-transactions and app-fees, you got yourself a winner these days.
When it comes to Digital Downloads like eBooks, PDF papers, fonts, utility software, etc (not talking movies, video games, or music here, Digital Downloads obviously work really, really well for entertainment) you better have a big game plan or die trying. Digital Downloads are loaded with juggernauts, Adobe, Google, Microsoft… it’s a crazy space to kick the door down into, but it’s possible. On one side of the spectrum, competition is fierce in Digital Downloads, you don’t have any inventory to worry about, fulfillment is easy. It scales as much as the market is willing to seek out the download, and therefore the more people that can be made aware of the download the better it will perform… if it doesn’t suck.
Content marketing strategists lean on premium content downloads offered up through email marketing drip campaigns. “Buy my eBook now to learn how SEO can make you rich in three short months!”. That kind of rhetoric is so over commoditized it’s almost insulting. But real creatives, real utilities, real value is available out there in the form of Digital Downloads, and if you bring value with your content, and thing it’s worth a few dollars in exchange, there’s no harm in trying to sell it.
The only reason Digital Downloads actually works as a viable business model is because the Big Boys play in this space frequently. This elevates the status quo in consumer’s minds. A quality precedent is set, the delivery mechanism has already been defined, and businesses newly entering the space don’t typically have to invent anything to get it going.
The big downside to Digital Downloads… for everyone, is Piracy. Just be comfortable knowing it will happen, more likely than not, and do what you can to avoid being pirated easily, otherwise, that’s just par for the course.
What Absolutely Sucks
Yep, the age old “commission-based digital sales” pyramid scheme absolutely, without a doubt, sucks as a primary business model. Don’t try it, it won’t work, it’s useless, you might as well set your website ablaze and just give up while you’re ahead.
On the flip side, Commission Junction, Amazon Affiliate links, and a slurry of others offer a nice way for content publishers and social media junkies to make a few extra pennies from their content. As a secondary, actually tertiary, revenue appendage to an already existing, thriving platform, affiliate marketing can work; but in most cases it’s just a terrible “chasing pennies” business model that doesn’t scale well, and quite simply isn’t worth the amount of punctuation marks I’ve already thrown at it.
The magical multi-billion dollar industry of online advertising is a terrible way to make money online. Not only are Ad-Blockers becoming more prevalent, but the user experiences required to force advertising to be effective forms of revenue at scale is just terrible. Road blocks, cover-cards, ad-injections midway through an article, redirects, popunders, and popovers, terrible.
As a content publisher, you’d have to be shoveling tens of thousands of site visitors to your site to make a living off of “just ads”. Even then, ads have to be a huge part of your platform. Think of it this way, Display Advertising will garner anywhere between $0.20 and $4.60 per thousand pageviews, and the $4.60 is typically reserved for top tier publishers wherein ad-slots are directly sold to high-end advertisers like Mercedes or Marvel.
The caveat is, if you don’t run ads on your site, you’ll be missing out on that sweet, sweet free money. $1.50 here, $3.50 there. Don’t rely on it as your chief source of revenue, pair it with something… not Affiliate Links.
“Pay $0.99 to continue reading this article or Subscribe for just $7.99 per month”, totally reasonable proposition, right? Wrong. 99% of all stories that hit the Internet are never published to just one location. There are no special snowflakes online. There are more websites in existence than there are people. The New York Times has been experimenting with a Paywall Revenue System (while still running ads) for some time now, and it works for THEM, it won’t work for a nobody, like say, Techcrunch.
Now, Paywalls can work… but only at volume, meaning, a majority of sites that distribute content would have to offer up a Freemium style model, putting a price tag on high value, high volume content, and it would have be done in unison. It’s mildly possible that can happen in the future, but as it stands right now, “Regular Joe Blog” doesn’t stand a chance behind a Paywall. It’s not viable. Not now, maybe later.