
List of Web Business Models - pessimism
https://gist.github.com/ndarville/4295324
======
jabelk
I was hoping for more fleshed-out examples of why the business models were
good, but the list was interesting nonetheless.

My two personal-favorite business models are (in no particular order): Tesla
and Miley Cyrus.

Tesla: evident if you're familiar with it
([http://www.teslamotors.com/blog/secret-tesla-motors-
master-p...](http://www.teslamotors.com/blog/secret-tesla-motors-master-plan-
just-between-you-and-me))

My interest in the Miley Cyrus model might need a little more explanation.
Back a few months ago, when she was releasing over-the-top videos (wrecking
ball?), _everyone_ was saying some variant of "wow why is Miley famous she
obviously has no talent and this is just lewd." But this is the crux of her
brilliance.[0] She has tricked a very large number of people into advertising
for her, regardless of whether she does anything requiring talent. But then
there's the obvious tradeoff: she has to deliver all of these ridiculous
things, likely to the detriment of her ability to contribute anything actually
meaningful to the industry. Maybe other people have made that deal but none
seem to have been as successful, at least based on the data from my facebook
feed. And this is a rare case in which facebook feed data _is_ a useful
measure of the success of the business, because it fuels the clicks and the
conversations and the weird interest.

Anyway. Every time I see something about her, even overwhelmingly negative, I
shake my head and think "another person tricked into feeding her success". Her
willingness to decouple her success from anything "worthwhile"[1] about her
(talent/skill/beauty/benefit to fans), at the cost of irrecoverably changing
her career in what most would view as a very negative way, is sort of
fascinating.

[0] I say "her brilliance" but in reality I am sure she is just the face for a
manager type orchestrating the money-and-fame-for-girl's-reputation-and-soul
deal.

[1] "Worthwhile" in quotes because is anything in the pop music industry
really worthwhile?

~~~
ssharp
Are you purporting that Miley is currently popular because she's doing over
the top things, despite her music not being good?

If so, I don't think it's a correct assessment. Her music is ultimately
popular because people like it. I don't think people think Wrecking Ball is a
better song because the video was over-the-top, nor would a wild video make me
like a song I would otherwise hate. Miley was also popular before she got more
extreme. On the flip-side, Britney Spears was far more popular before she got
extreme. I'm sure there are other cases where an artist receives more press
attention that does not correlate to increased music sales.

Chris Brown has had nothing but bad press since he hit Rhianna a few years ago
and he's still placing songs on the charts and radio. People seem to mostly
dislike him, but will still listen to his music. I don't think they're
listening to him because he hit a woman and is in and out of jail. I think
they just like the songs he makes.

In the end, people still need to have some connection to the music. In pop
music, that connection may not be entirely rational, and it certainly isn't
lasting, but it's still there for some period of time.

~~~
jabelk
It seems like some baseline talent is necessary to make the strategy work. I
don't claim to have any ability to judge musical ability, plus it seems many
artists aren't writing their own songs anyway, so I'm not trying to comment on
her merits. Just noting that she's chosen to shift attention from her actual
music to these antics, which is a strange choice from my perspective.

~~~
freyr
Correct. A pop star needs a few ingredients:

* Have at least some baseline modicum of talent * Have access to talented songwriters * Have access to talented producers * Be attractive, or at least interesting to look at * Have a stage presence

Bonus points for: * Ability to dance * A salacious or intriguing "private"
life

Many pop stars have singing talent in spades (Beyonce, Adele, Whitney
Houston), but many others have proven that extraordinary singing talent is not
a pre-requisite for enormous success (Britney Spears, Jennifer Lopez, Miley
Cyrus, perhaps Madonna).

I would say talent is less important now than ever. But this could be an
illusion, as history is likely to forget pop stars who leave behind nothing
memorable.

~~~
Goladus
The bonus points for "salacious private life" are short-term, often borrowed
against the long term.

Britney Spears and Lindsay Lohan are not exactly long-term success stories,
even though they continue to be in the news and their popularity is still
worth money.

------
babarock
One thing worth mentioning for games is what Valve is doing with Dota 2.

The game is truly free to play, and giving them all the money in the world
will not give the player any in-game advantage. On the surface, the game sells
various hero skins and other cosmetic items that are little more than vanity
items. Looking closer, it seems that Valve is making (or at least trying to
make) money by developing a scene of professional gamers around this game.
Just last weekend they held an international competition (conveniently named
[The
International]([http://www.dota2.com/international/overview/](http://www.dota2.com/international/overview/))
) where the prize pool exceeded 10 million USD. This pool was partly funded by
the community of viewers paying to watch the pros play their games. I paid my
ticket 7.5€ (10$) a third of which went directly to the prize pool.

I don't know if this model is viable or profitable. Maybe someone has more
info. But it's worth looking at. I've always been interested by products that
are free to use by the public and make money from the pros using it.

~~~
gregpilling
This competition model has been common at racetracks (motorsports) around the
country for a hundred years. The promoter takes some of the "gate" to pay
prize money. Sometimes the pros even get money just to show up, so that there
are big names at the event.

The model is viable, but a little risky sometimes if you don't know how many
spectators will pay. Usually the prize money is set before the cash flow is
known.

~~~
runevault
With The International the final prize pool was set fairly close to the actual
event, based primarily on 25% of sales related to this last Compendium. That
was where the vast majority of the 10.8 million came from (I want to say Valve
seeded the first million but I'm not positive).

------
digitalengineer
I came here thinking I would see detailed Busines models. I might be biased as
I'm working with the Business Model Canvas right now. If you're looking for a
way to build your own here's a link:
[http://www.businessmodelgeneration.com/canvas](http://www.businessmodelgeneration.com/canvas)

Edit: UX optimized BMC: [http://grasshopperherder.com/business-model-canvas-
for-user-...](http://grasshopperherder.com/business-model-canvas-for-user-
experience/)

~~~
abuteau
Do you know some online open source version of BMC like
[https://strategyzer.com/](https://strategyzer.com/). Wish to have one, but
can't find. Might build it myself if there is none.

~~~
davidjgraph
I created my own editable version of the canvas [0] then used a Google
Spreadsheet for recording the testing part.

[0]
[https://www.draw.io/?url=https://googledrive.com/host/0B8WNm...](https://www.draw.io/?url=https://googledrive.com/host/0B8WNmkSxRc5EemVtSnNCY1VsMDg/busmodcanvas)

------
fidotron
I'm very happy to see this at the top this morning.

HN has tended to prioritise product development at the expense of business
development, when the reality is you need both. Many of us seem to come from
that product dev background and like to stick to the "if you build it they
will come" mentality, which isn't so hot in practice. A lot of modern business
models (especially those like ARM's licensing or Google's sublimely evil
auctions) deserve respect from the hacker community for being almost as
innovative as the products being sold in them.

Finally, I kind of wonder if the promotion by 37 signals has introduced a sort
of conservatism that doesn't really work. Their true success came from the
then radical idea of software as a service, and while I admire the way they
cut through a lot of start up bullshit their approach seems to destroy
ambition in a way that, for example, YC doesn't seem to.

~~~
beat
Well, it depends on your ambition. As Jason Cohen put it, "Do you want to be
rich, or do you want to be king?" They require (or at least benefit from)
different approaches. If you want to be rich, maximize growth. This means
accepting funding whenever it can increase your growth rate. If you want to be
king, avoid investment if you possibly can, and focus on profitability.

"Rich" isn't just about making money, or maximizing money. You can get rich as
king, too. Rich is about creating the largest, most powerful, most influential
business you can, taking the idea to its max. But if you go this route, with
lots of investment, you _must_ pay off for your investors. You must have an
exit strategy.

"King" is about control. It's about building the company you've always wanted
to work at, and just working there forever. That's what 37signals did. They
created an ideal company with a unique culture, and incidentally got rich in
the process, but it's not nearly as big as it could be if they pushed. But
that's okay... they love their product.

------
jonnathanson
This is a fantastic list, and it is extremely helpful to have everything in
one place. The next step, IMO, is for folks like us in the HN community to put
a little more meat on the bone. Annotate or link to this list with specifics
for each model.

I might quibble, on a very minor level, with calling these "business models."
More accurately, they are revenue sources. One could argue that this is a
small distinction, but there is a real difference. A revenue source is
necessary, but not sufficient, for the operation of a healthy business. Plenty
of other things go into the mix, even leaving aside the obvious (product):
COGS, logistics, competitive differentiators, etc. There is so much more to
the success of Uber, for example, than just the "excess-capacity market"
revenue model. All of what Uber does with its drivers on the back end, for
instance, is quite sophisticated -- and equally responsible for the company's
success as its top-line, nominal model.

Further annotation -- and I'm happy to get my hands dirty and contribute --
will also help us flesh out the pros and cons of some of these models. "Pay-
what-you-want," for instance, lists Radiohead as the example. That's fine. But
what a lot of folks don't realize is that Radiohead made approximately 80% of
its money from the "In Rainbows" album release by selling collector's edition
box sets for $81 a pop. In that case, pay-what-you-want served as a loss
leader and demand driver, and the collector's sets earned the real money.
Either of these tactics, without the other, would not have worked as well. The
combination of the two was a stroke of genius -- allowing the band's customers
to segment themselves, and in effect, adding an ultra-premium tier to the top
of the "pay what you want" curve. The operative lesson of Radiohead's
experiment was that pay-what-you-want _can_ be effective, but you need to
structure the pay scale to account for your customer segments' different
willingness to pay for different versions of the same product. Give them
suggestions, at both the low end and the high end of the product/price
spectrum. If you don't, you're anchoring everyone towards the low end. And
that leaves a lot of money on the table. This lesson has carried over to sites
like Kickstarter, to great effect. (I have no idea if Kickstarter took any
inspiration from Radiohead's experiment; this is just a thematic observation.)

~~~
walterbell
F2P games took market segmentation and price elasticity testing to somewhat
questionable places, with large financial returns,
[http://www.gamasutra.com/blogs/RaminShokrizade/20130626/1949...](http://www.gamasutra.com/blogs/RaminShokrizade/20130626/194933/The_Top_F2P_Monetization_Tricks.php)

Ben Thompson wrote an analysis of "Digital Whales",
[http://stratechery.com/2014/dependent-digital-
whales/](http://stratechery.com/2014/dependent-digital-whales/)

\---

"So to recount, Facebook is going gangbusters because of ads for free-to-play
games, developers are excited about the chance to cash in via Facebook ads,
Google and Twitter are trying to mimic Facebook’s success, and Google and
especially Apple are hanging their app store hats on the amount of revenue
generated by in-app purchases.

In other words, billions of dollars in cold hard cash, and 20x that in
valuations are ultimately dependent on a relatively small number of people who
just can’t stop playing Candy Crush Saga.

... Answered my own question: Re/code reports that a new study from app-
testing firm Swrve claims that half of all in-app purchases are made by just
0.15% of mobile gamers, which is pretty stunning considering how lucrative in-
app purchases have become for mobile game developers."

\---

~~~
jonnathanson
All of which is to be expected, to a certain extent. Certain categories of
goods -- especially games and entertainment -- have always had broad userbases
or fanbases with very small, but fanatical "hardcore" segments. Only in recent
years have companies have been able to _address_ the segments so effectively.
In the old days, you had low-tech segmentation strategies, like Collector's
Edition DVDs, or value-added merchandise, or mailing lists, or fan clubs.
These days, you can offer in-app purchases, expansions, or slightly different
price points based on different release windows and platforms. On the surface,
these tactics seem exploitative. In practice, not all of it has to be. Certain
value-added stuff is not for everybody. Clearly. It's for the tiny percentage
(anywhere from a fractional percentage to roughly 8%, in most cases) who is
willing to pay for a _lot_ more. The thing is, there's an ethical way and a
less-ethical way to a) figure out who those people are, and b) offer them
more. The ethical way involves giving people the _choice_ to be hardcore or
not to be. It involves offering a hardcore value-add that in no way detracts
from the experience the casual fans enjoy. That's what Radiohead did. It's
what some mobile gaming companies do, and what other mobile gaming companies
do not.

IAP in gaming has been a fraught subject, and rightfully so. That's largely
because certain gaming companies have realized the potential for IAP vis-a-vis
the natural segments of hardcore gamers, and have attempted to IAP-gate the
basic gameplay. Rather than offer a standard product to everyone, and a
hardcore product to the hardcore, they try to hook everyone into playing at a
"hardcore" level -- and sell IAP accordingly. This stinks, frankly. A lot of
companies have picked a lot of low-hanging fruit with this model, but the
model is already creating backlash. Unfortunately, it's not going away anytime
soon. It's so damned lucrative.

I would almost call that strategy a pay-ladder, rather than a true
segmentation. You get everyone onto the ladder, and you make people pay to
climb it. It's exploitative. It's also very effective. (For now.)

We should distinguish this strategy from a less exploitative segmentation,
like what Radiohead did with "In Rainbows," and what a lot of artists and
performers are attempting to do with their own albums, books, or shows.
Radiohead didn't force anyone onto a pay-ladder. Radiohead gave people
legitimate choice, and the $81 box set was a choice that people who really
wanted it could opt into. Both strategies arrive at a segmentation of the
userbase; Radiohead's strategy arrives at that segmentation through a more
positive and consumer-friendly method.

Segmentation, in and of itself, is not evil. It's just smart business
strategy. How you _set up_ the segmentation, and how you enforce it, delineate
the boundaries between ethical and unethical.

~~~
walterbell
Thanks for the detailed response, just noticed you are co-host on the
Stratechery Podcast :)

There is so much to explore in this topic. A recent article on Pinterest said
that Buzzfeed made a change on their social sharing buttons to increase the
size of Pin button, only for traffic which originated on Pinterest. It
resulted in a large increase in re-pins of the article.

Star Citizen seems to have done a reasonable job of providing people with a
choice of in-game enhancements. Apparently, some have willingly spent
thousands.

Could pay-what-you-like museums and/or libraries make use of these techniques?

Another topic is non-DRM online content which have "Donate" buttons. Are there
techniques like the Buzzfeed/Pinterest one, where the Donation Pitch is
customized based on data about the traffic origin of previous donations?

------
1337biz
I feel a bit like being on hn for too long - but are these actual business
models or just forms of revenue streams? I would argue for the second because
business seem quite often to have not just one of those revenue streams in
place.

~~~
nileshtrivedi
Startups usually begin with a single revenue stream so there's no effective
difference among the two.

------
applecore
Here's another list of software business models, comprised mostly of smaller
companies, e.g., SaaS.

[https://github.com/cjbarber/ToolsOfTheTrade#hn-tools-of-
the-...](https://github.com/cjbarber/ToolsOfTheTrade#hn-tools-of-the-
trade-2014-edition)

~~~
duncanawoods
No need to repost that from a few days ago. Its a list of tools, not business
models.

~~~
qeorge
Disagree! This is a great list, and I hadn't seen it. Thanks for posting it,
applecore.

------
kristofferdk
Great link! Thanks for sharing :)

Related, I really enjoy St. Gallen's 55 business model patterns
[http://www.im.ethz.ch/education/HS13/MIS13/Business_Model_Na...](http://www.im.ethz.ch/education/HS13/MIS13/Business_Model_Navigator.pdf)
(starting from page 8). Might be inspiration for further development.

------
GBond
Maybe too unique to include but one of my favorites is
FreeConferenceCall.com's "provide a free service and get paid by exploiting a
loophole" model:

Through this service, we generate long distance fees for interexchange
carriers who pay a portion of their fees to local networks to compensate for
use of their networks. We receive a relatively modest fee from local networks
for generating traffic.

[http://www.freeconference.com/blockingfaq_press.aspx](http://www.freeconference.com/blockingfaq_press.aspx)

~~~
Smudge
No this is not unique. Tons of services exploit this loophole (free conference
calls, adult chat lines, phone-to-ip services, to name a few).

It is enabled by "common carrier" laws, meaning a phone carrier is legally
obligated to connect these calls (to typically rural locations) even if it is
at a loss. The connecting local service can charge absurd rates at a high
profit margin. To further increase profits, the local services typically offer
kickbacks as incentive for internet/VOIP services to connect through their
phone numbers. So a rural county with only a small population can have an
absurdly high volume of expensive calls flowing through them, all on the
carrier's dime.

This is why Google Voice refuses to connect calls through to certain rural
areas, something that US carriers complain about, since they feel Google
should be subject to these same laws. (Google disagrees, claiming they act as
a web service instead of as a traditional phone carrier).

Edit: As to the question of whether the "exploit a loophole and profit"
business model itself is too narrow, I'd argue that, no, it isn't. I can't
think of any other concrete loopholes off the top of my head, but I'm sure
this can't be the only loophole (legally-enforced or otherwise) that
businesses profit from, and looking at the sheer number of businesses doing so
it seems like it would deserve a place in the list.

~~~
eli
I think the parent comment's question was whether the idea of "exploting a
loophole" is too narrow to be considered a business model, not whether others
exploited this particular flaw.

------
swombat
Missing: all the service-based models?

Success fee based, Time & Materials, Fixed Cost, etc...

~~~
larrys
Also missing:

Anything related to domain names ie \- registration \- aftermarket sales etc.

And also: \- Web hosting \- Blogging

I guess it also comes down to what you call a "business model".

------
pessimism
It’s an old list by now, but I keep updating it; you can also contribute to
the original list
([http://news.ycombinator.com/item?id=4924647](http://news.ycombinator.com/item?id=4924647))
on which this was based.

I’m sure you have more great suggestions for what can go on the list; new
models keep popping up with companies like Patreon.

Feel free to—also—post your suggestions on the Gist. GitHub currently does not
support notifications for gists, so don’t get mad if I don’t get back to you.
:)

~~~
phillc73
You could add some other exchanges to the P2P Gambling section. e.g. Betdaq
[http://www.betdaq.com](http://www.betdaq.com)

~~~
pessimism
Can you describe the service? It’s blocked in my country, apparently.

~~~
dublinben
They're a sports betting exchange, i.e. they connect users who want to make
bets against eachother. They're headquartered in Dublin, and registered in
Gibraltar. Their target audience appears to be the UK and Europe.

~~~
phillc73
Yes, they're pretty much a direct competitor to Betfair.

------
zt
This isn't meant to be a comprehensive list, but it does have some holes I'd
point to primarily in (1) Consulting / services, (2) Enterprise, (3) Hardware
/ manufacturing. On the first you have time and materials, fixed fee, etc. On
the second you have on-premise solutions, enterprise licenses, etc (Think
Oracle, tons of security companies), and the third is, well, I'm not sure
anyone needs examples: you make physical stuff that does something and you
sell it.

------
mrfusion
This has me hoping HN will do another ideas post soon. I got a lot of value
from the last one, and I've got five new ideas to share.

------
johnbenwoo
Worth adding Swagbucks (www.swagbucks.com) to the list - they give out rewards
points to members for consuming ad-supported content

------
Kiro
It's well-known that adding yourself to link directories are bad for SEO. How
is this different?

------
icebraining
No crowdfunding? I suppose it could fit in Commission, but it doesn't sound
quite right.

~~~
ebspelman
Agreed - Kickstarter, Indiegogo, GoFundMe deserve their own category.

------
lifebeyondfife
IaaS - Amazon Web Services, Microsoft Azure

I thought that would be a fairly obvious one.

~~~
hyperliner
Yes, or we could call it "by the hour."

------
snorkel
I especially like the recursive "Service As A Service"

------
Goladus
How is "site take-over" a business model? (Pandora)

~~~
eli
In this context "site take-over" is a type of web advertising where the
customer essentially gets to reskin the entire site. Usually means buying all
the ads on the site, plus a background image and sometimes also a matching
popup or expanding banner or some other in-your-face ad unit.

So it's just an advertising model, but one that focuses on high-dollar
(probably direct) ad sales. If you find the right client, you can charge a lot
more for a site takeover than for a couple of regular banners.

------
flibble
I think they missed rake based games - eg. online poker.

------
source99
Where is Amazon?

