Lecture 26: Introduction to Business Models

Key Concepts

• Business Model Definition: A business model answers the question of how a company makes money by generating value and solving problems for customers.

Common Business Models

1. Physical Product Sales

   • One-time upfront charge with optional maintenance (e.g., iPhone with AppleCare).

2. Subscription Model

   • Regular payments for continuous access to a product/service (e.g., Netflix).

3. Consumable Model

   • Initial product sale with profit from consumable items (e.g., Gillette razors and blades).

4. Upsell Strategy

   • Selling low-margin products to promote high-margin complementary goods (e.g., Kindle with ebooks).

5. Advertising Model

   • Revenue generated from advertisements (e.g., Instagram).

6. Transaction Fee Model

   • Earning through fees on transactions between parties (e.g., Airbnb).

7. Usage-Based Model

   • Charging based on the amount of use beyond a free tier (e.g., Dropbox).

Industry Variability

• Different business models can coexist within the same industry (e.g., personal finance tools).

Examples in Personal Finance

1. Mint

   • Provides financial dashboards and earns from affiliate sales by suggesting cost-saving alternatives.

2. Tiller

   • Offers budgeting and planning tools through a Google spreadsheet, charging a subscription.

3. Personal Capital

   • Connects users with financial advisors, charging fees for this service.

Innovative Business Models

• Away Luggage
  • Direct-to-consumer sales model to offer quality products at reduced prices.
  • Enhances customer experience with supplementary content.

Conclusion

• Importance of considering both traditional and innovative business models.
• Opportunities may arise from thinking creatively about business models.