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Web Service Business Models

Quick notes on how a web service (that does not engender peer transactions, a la eBay) might make money:

Charging a third party (advertising)

  1. CPM: Sell impressions on the service. This is the “old world” advertising scheme, non-direct-response, generally non-measurable, “it’s about building brand.” Examples: The vast majority of advertising.
  2. CPC/PI/PO: Gainsharing, in which the advertiser only only pays money when the customer performs a transaction. Weak example: Adwords (CPC). Strong example: Amazon affiliate program (PO)

Charging the consumer

  1. Subscription: Charge the customer a periodic fee for all-you-can eat use of the software (within contractual limits)
  2. Transaction: Charge the customer for each use of the service (often rolled up into block pricing, which can be as close to subscription as to make no difference).

Charging an end-service (for services that are not accessed directly by the consumer

  1. Subscription: Charge the end-service a periodic fee for all-you-can eat use of the software (within contractual limits)
  2. Transaction: Charge the end-service for each use of the service (often rolled up into block pricing, which can be as close to subscription as to make no difference).
  3. Royalty: Charge the end-service a piece of their action from using your service.

And finally, there is the classic dual model (”razor blade”) approach, of giving away one piece to drive value/demand for another. Often imitated, rarely successful.

Those that drive peer transactions have a lot more value opportunities: a one-to-many web service can offer value proportional to number of users (n), but a peer transaction service (like eBay) can offer value proportional to the number of peer relationships  (n^2-n). And group-forming networks could conceivably go higher, though I have yet to see that.

More models possible? Maybe finer delineation inside these models?

This entry was posted on Monday, February 13th, 2006 at 3:27 pm and is filed under Technology Business. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed. Reddit This

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