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6 Great Business Models to Consider for a Startup

https://www.entrepreneur.com/article/233451
PETER S. COHAN
CONTRIBUTOR
President of Peter S. Cohan & Associates
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Hold a reverse auction

Orchestrate demand aggregation
Cut prices to gain an industry share and profit later
Set up a modern franchise business
Offer a product at the highest price
Set up person-to-person exchanges

Related: The Business Model for Disruption

1. Hold a reverse auction. In a reverse auction, extremely price-sensitive
buyers name their price for a service. If the seller accepts the price, the
buyers must commit to the sellers terms.
Thats the service that Priceline offers to desperate, price-sensitive
travelers who give up convenience for the lowest price on
accommodations, rental cars and airline tickets.
Priceline profits because plenty of consumers feel they are winning with
their bid thats just a tad higher than a price that would be too low for
Priceline's suppliers to accept.
And Pricelines financial statistics reveal the greatness of this business
model: 22 percent revenue growth, 50 percent profit growth and a 46
percent increase in stock price on average over the last decade. Priceline's
revenue per employee (it has 9,500) has been about $716,000, roughly six
times the leisure industry's average.
Related: How to Filter Conflicting Advice From Multiple Mentors
2. Orchestrate demand aggregation. Assemble all the sellers and buyers
for some stuff in the same virtual location. This will give sellers the
deepest pool of buyers and vice versa. Thats the idea behind eBay, of
course, and it keeps working because buyers and sellers give each other
very tough ratings and the use of PayPal provides a level of security in
case things dont work out.
The financial results for eBay indicate that this model works but its hardly
a booming one. On average over the last decade, the company's revenue
grew 17 percent, profit climbed 14 percent, and the stock price rose a
mere 5 percent. The company's revenue per employee (with 33,500 in
total) was about $479,000, roughly 40 percent more than the retail
industry's average.
3. Cut prices to gain an industry share and profit later. Target a huge
market and sell a product at the lowest price with fast delivery and great
service. As the company grows, expand the product line, negotiate volume

discounts with suppliers, invest in technology to speed up customerresponse time and cut waste from the operations. Then deliver the lower
costs to customers in the form of lower prices.
Thats Amazons business model and it has let the company grow at a 27
percent annual rate over the last decade to $74 billion and its stock has
risen on average 22 percent a year. While Amazon's revenue is about
$634,000 for each of its 117,300 employees, its net profit margin is a
minuscule 0.37 percent.
Related: Midlife Crisis? Ronald McDonald Gets a Makeover, Joins Twitter
4. Set up a modern franchise business. Figure out how to run a local
retailer and turn this business wisdom into a system that can be sold to
entrepreneurs around the world. Find hungry entrepreneurs who share this
vision, sell them a business handbook, train them and let them handle the
burden of finding new locations and leasing land.
That simple idea is what Ray Kroc turned into a gold mine of golden
arches. Operating in 100 countries, McDonald's has experienced just a 4
percent revenue growth over the last decade but its stock price has
climbed 13 percent annually. Of the company's $26 billion in sales, a
considerable chunk, 20 percent, goes to the bottom line. The company is
people intensive: Revenue per employee (with 440,000 in total) averages
slightly less than $64,000.
5. Offer a product at the highest price. Find customers whose survival
depends on a product that nobody else can provide. Then charge them
half a million dollars a year to use it.
Thats what Alexion Pharmaceuticals does. In the U.S., 8,000 people have
a disease that causes their immune systems to wipe out their red blood
cells every night. Some of these people arrange for insurance companies
or the U.S. government to pay $569,000 a year so they can take Alexions
Soliris to stay alive.
Its a great business model. In the last decade, Alexions stock has soared
2,250 percent a year and its revenues have spiked 106 percent annually to
$1.6 billion, with 16 percent of that going to the bottom line. Its revenue
per employee (with 1,774 employees in total) is on average more than
$874,000.
Related: Airbnb Could Be Joining the $10 Billion Valuation Club
6. Set up person-to-person exchanges. A company has a couple of cars
that sit in the garage for all but three days a month. Some young
professionals living in the city need a car seven days a week to commute
and do errands. Find trustworthy people who will pay to drive those cars,
and both sides will be better off.
Thats the idea behind person-to-person business models. It seems to be
working for Airbnb. With 600,000 listings in 34,000 cities, Airbnb has
people pay 3 percent to list their accommodations and the renters fork

over 6 percent to 12 percent. With a quarter billion in revenue, Airbnb was

recently valued at $10 billion.
Would one or a combination of these six ideas work for your startup?
Editor's note: This piece has been updated to reflect the fact that Airbnb
has listings in 34,000 cities not in 33,000 countries.
2. 8 Online revenue model options for Internet businesses
http://www.smartinsights.com/digital-marketing-strategy/online-businessrevenue-models/online-revenue-model-options-internet-business/
Dave Chafey
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Revenue from subscription access to content

Revenue from Pay Per View access to document
Revenue from CPM display advertising on site
Revenue from CPC advertising on site
Revenue from Sponsorship of site sections or content types
Affiliate revenue (CPA, but could be CPC)
Subscriber data access for e-mail marketing
Access to customers for online research

The 8 Internet revenue model options

For a publisher or other media site owner, I would identify eight types of
revenue model which are possible online. Let me know of any I'm missing
Of course, transactional sites have the option of these also in addition to
sales - online, everyone is a media owner.
1. Revenue from subscription access to content
A range of documents can be accessed for a period of a month or typically
a year.
For example, I subscribed to FT.com for access to the digital technology
section for around 80 GBP per year a few years ago. Smart Insights
Expert members have an annual subscription in this form.
2. Revenue from Pay Per View access to document
Here payment occurs for single access to a document, video or music clip
which can be downloaded. It may or may not be protected with a
password or Digital Rights Management.
For example, I've paid to access detailed best practice guides on Internet
marketing from Marketing Sherpa.
Digital rights management (DRM) The use of different technologies to
protect the distribution of digital services or content such as software,
music, movies, or other digital data.
3. Revenue from CPM display advertising on site
(e.g. banners ads and skyscrapers).
CPM stands for "cost per thousand" where M denotes "Mille". The site
owner such as FT.com charges advertisers a rate card price (for example
50 GBP CPM) according to the number of its ads shown to site visitors. Ads
may be served by the site owners own ad server or more commonly

through a third-party ad network service such as Google AdSense as is the

case with my site.
4. Revenue from CPC advertising on site (pay per click text ads)
CPC stands for "Cost Per Click". Advertisers are charged not simply for the
number of times their ads are displayed, but according to the number of
times they are clicked. These are typically text ads similar to sponsored
links within a search engine but delivered over a network of third-party
sitesby on a search engine such as the Google Adsense Network.
Typical costs per click can be surprisingly high, i.e. they are in the range
GBP 0.10 to " GBP 4, but sometimes up to GBP 40 for some categories
such as "life insurance" that have a high value to the advertiser.
The revenue for search engines or publishers from these sources can also
be a fair proportion of this.
Google Network Revenues through Ads generate around one third of
Google's revenue. For me, the Google's content networks are one of the
biggest secrets in online marketing with search engines such as Google
generating over a third of their revenue from the network, but some
advertisers not realising their ads are being displayed beyond search
engines and so not served for this purpose.
Google is the innovator and offers options for different formats of ad units
including text ads, display ads, streamed videos and now even cost per
action as part of its pay per action scheme.
5. Revenue from Sponsorship of site sections or content types (typically
fixed fee for a period)
A company can pay to advertise a site channel or section. For example,
bank HSBC could sponsors the Money section on a media site. This type of
deal is often struck for a fixed amount per year. It may also be part of a
reciprocal arrangement, sometimes known as a "contra-deal" where
neither party pays.
A fixed-fee sponsorship approach was famously used by Alex Tew in 2005,
a 21-year-old considering going to University in the UK who was concerned
about paying off his university debts. This is no longer a concern since he
earned $1,000,000 in 4 months when he set up his Million Dollar
Homepage.
His page is divided into 100-pixel blocks (each measuring 10x10 pixels) of
which there are 10,000 giving 1,000,000 pixels in total. Alex spent 50 on
buying the domain name (www.milliondollarhomepage.com) and a basic
web-hosting package. He designed the site himself but it began as a blank
page.
6. Affiliate revenue (CPA, but could be CPC)
Affiliate revenue is commission based, for example I display Amazon books
on my personal blog site DaveChaffey.com and receive around 5% of the
cover price as a fee from Amazon. Such an arrangement is sometimes
known as Cost Per Acquisition (CPA ).
Increasingly this approach is replacing CPM or CPC approaches where the
advertiser has more negotiating power. For example, in 2005
manufacturing company Unilever negotiated CPA deals with online
publishers where it paid for every e-mail address captured by a campaign
rather than a traditional CPM deal.
However, it depends on the power of the publisher who will often receive
more revenue overall for CPM deals. After all, the publisher cannot

influence the quality of the ad creative or the incentivisation to click which

will affect the Clickthrough rate on the ad and so the CPM.
7. Subscriber data access for e-mail marketing
The data a site owner has about its customers is also potentially valuable
since it can said different forms of e-mail to its customers if they have
given their permission that they are happy to receive e-mail either from
the publisher or third parties. The site owner can charge for adverts placed
in its newletter or can deliver a separate message on behalf of the
advertiser (sometimes known as list rental). A related approach is to
conduct market research with the site customers.
8. Access to customers for online research
An example of a company that uses this approach to attract revenue from
surveys is the teen site Dubit.
Considering all of these approaches to revenue generation together, the
site owner will seek to use the best combination of these techniques to
maximize the revenue. To assess how effective different pages or sites in
their portfolio are at generating revenue, they will use two approaches.
The first is eCPM, or effective Cost Per Thousand.
This looks at the total they can charge (or cost to advertisers) for each
page or site. Through increasing the number of ad units on each page this
value will increase. This is why you will see some sites which are cluttered
with ads. The other alternative to assess page or site revenue generating
effectiveness is Revenue per click (RPC), which is also known as Earnings
Per Click (EPC).
This is particularly important for affiliate marketers who make money
through commission when their visitors click through to third party retail
sites such as Amazon, and then purchase there.

3. THE 10 BUSINESS MODELS OF DIGITAL DISRUPTION (AND HOW TO

RESPOND TO THEM)
http://digitalintelligencetoday.com/the-10-business-models-ofdigital-disruption-and-how-to-respond-to-them/
DR PAUL MARSDEN
10 HYPER-DISRUPTIVE BUSINESS MODELS

The Subscription Model (Netflix, Dollar Shave Club, Apple Music)

Disrupts through lock-in by taking a product or service that is
traditionally purchased on an ad hoc basis, and locking-in repeat
custom by charging a subscription fee for continued access to the
product/service
The Freemium Model (Spotify, LinkedIn, Dropbox) Disrupts through
digital sampling, where users pay for a basic service or product with
their data or eyeballs, rather than money, and then charging to

upgrade to the full offer. Works where marginal cost for extra units
and distribution are lower than advertising revenue or the sale of
personal data
The Free Model (Google, Facebook) Disrupts with an if-youre-notpaying-for-the-product-you-are-the-product model that involves selling
personal data or advertising eyeballs harvested by offering
consumers a free product or service that captures their
data/attention
The Marketplace Model (eBay, iTunes, App Store, Uber, AirBnB)
Disrupts with the provision of a digital marketplace that brings
together buyers and sellers directly, in return for a transaction or
placement fee or commission
The Access-over-Ownership Model (Zipcar, Peerbuy, AirBnB) Disrupts
by providing temporary access to goods and services traditionally only
available through purchase. Includes Sharing Economy disruptors,
which takes a commission from people monetising their assets (home,
car, capital) by lending them to borrowers
The Hypermarket Model (Amazon, Apple) Disrupts by brand bombing
using sheer market power and scale to crush competition, often by
selling below cost price
The Experience Model (Tesla, Apple) Disrupts by providing a superior
experience, for which people are prepared to pay
The Pyramid Model (Amazon, Microsoft, Dropbox) Disrupts by
recruiting an army of resellers and affiliates who are often paid on a
commission-only model
The On-Demand Model (Uber, Operator, Taskrabbit) Disrupts by
monetising time and selling instant-access at a premium. Includes
taking a commission from people with money but no time who pay for
goods and services delivered or fulfilled by people with time but no
money
The Ecosystem Model (Apple, Google) Disrupts by selling an
interlocking and interdependent suite of products and services that
increase in value as more are purchased. Creates consumer
dependency.

7 STRATEGIES TO RESPOND TO DIGITAL DISRUPTION

The Block Strategy. Using all means available to inhibit the disruptor.
These means can include claiming patent or copyright infringement,
erecting regulatory hurdles, and using other legal barriers.
The Milk Strategy. Extracting the most value possible from vulnerable
businesses while preparing for the inevitable disruption
The Invest in Disruption Model. Actively investing in the disruptive
threat, including disruptive technologies, human capabilities, digitized
processes, or perhaps acquiring companies with these attributes
The Disrupt the Current Business Strategy. Launching a new product or
service that competes directly with the disruptor, and leveraging
inherent strengths such as size, market knowledge, brand, access to
capital, and relationships to build the new business
The Retreat into a Strategic Niche Strategy. Focusing on a profitable
niche segment of the core market where disruption is less likely to

occur (e.g. travel agents focusing on corporate travel, and complex

itineraries, book sellers and publishers focusing on academia niche)
The Redefine the Core Strategy. Building an entirely new business
model, often in an adjacent industry where it is possible to leverage
existing knowledge and capabilities (e.g. IBM to consulting, Fujifilm to
cosmetics)
The Exit Strategy. Exiting the business entirely and returning capital to
investors, ideally through a sale of the business while value still exists
(e.g. MySpace selling itself to Newscorp)

4. 9 Proven Business Models to Consider for Your Startup

http://www.huffingtonpost.com/nina-tomaro/9-provenbusiness-models-_b_7949932.html
Nina Tomaro
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Become The Middleman (AKA The Warby Parker Model)

Become A Marketplace
The Subscription Model
Customized Everything
On-Demand Model
The Modernized Direct Sales Model
Freemium Model
Reverse Auction
Virtual Good Model

The business model is at the core of any successful startup, because

no matter how cool an idea is or how unique something may seem, a
startup must have a viable way of making money that is worthy
enough for future investment and to sustain itself. Many new startup
founders throw around the term business model when discussing
and planning strategies for their venture. Questions like What
business model works best with my idea? or How do I know if my
startup is using the right model? are a few questions founders need
to consider which will ultimately impact the overall success of their
venture in the long run.
The business model you choose needs to tie to the consumer pain
point your startup is relieving, and work better than the competitions.
There are many different types of models out there, and its important
to choose one that is best suited to your business. One of the worst
mistakes a founder can make is trying to reinvent a business model, or
create a new way of generating cash flow that has never been done
before. To an investor, that sounds like I am going to use an
unproven way of making money for my venture, and most likely not
give you a return on your investment.
There are many options to generate revenue that have already been
proven, and as a founder it is your job to figure out which one works
best with your business. If you dont know where to start, here are 9
business models to consider for your startup that have proven to be
successful for many startup and business ventures across the globe.

1. Become The Middleman (AKA The Warby Parker Model)

Warby Parker had the simple idea back in 2010 we all wish we would
have thought of first. They decided to enter the eyewear market,
noticing that the market was monopolized by Luxottica, who basically
control the price of designer eyewear. With the price bar set high,
Warby Parker saw huge opportunity in the market, and realized that
because most brands sold the rights to huge companies like Luxottica
that drastically increased their manufacturing and design costs. So
what was the logical solution to this problem? Become the middleman
of course! With the ability to significantly reduce the price of its
product, along with the cool factor and social good elements weaved
into the companys brand, they were able to capitalize by providing
their consumers with large savings. Now thats what I call a win-win!
Why It Works: Becoming the middleman gives startups a serious
pricing advantage, and saves consumers money. Who doesnt love
that? This model also gives a startup much more control over the
quality of the product or service, and gives them immediate feedback
from users to continuously develop a better product. This model also
allows for better control over contracts and negotiations with
distributors, as well as building stronger relationships with suppliers.
Others Who Have Followed: NYC based startup Casper is using this
model to change the way mattresses are bought. Scarosso is using this
model in the shoe market. Brideside has successfully grown using this
model for bridal party retail, and Audicus is changing the market with
this model for hearing aids.
2. Become A Marketplace
One of the ever growing business models that continues to prove
highly effective is becoming a marketplace. This means you are simply
bringing supply and demand together. AirBNB reigns as one of the top
success stories to implement this business model well. Im guessing
you thought renting rooms from random peoples homes via the
internet was pretty creepy when you first heard the idea. We did too,
but the AirBNB founders believed in the new sharing economy. They
were convinced that the supply and demand was there, and since
have convinced over 20 million+ strangers to provide and rent rooms
from one another. Uber has also seen explosive growth using the same
mentality to create a marketplace where strangers rent rides from
strangers. Providing a service is out, and becoming the marketplace is
in the ever growing e-commerce sector.
Why It Works: There are several advantages to using this type of
business model. First, one of the greatest benefits is having zero to
little overhead, and no inventory. You can get a swanky office space if
you want, or you can run the company virtually. When you
manufacture a product, you take on a lot more risk and pressure to
make sure that inventory is sold. When you are the marketplace,
instead of worrying about manufacturing costs, you are simply
bringing the sellers to the buyers (and vice versa) and facilitating a
transaction, taking a small slice of the pie from each transaction. You

give sellers a place to make a profit and reach consumers, while

customers are happy to find exactly what they want, usually at a
discounted price.
Others Who Have Followed: Amazon is one of the leaders of this
business model, creating a marketplace for those who wish to sell
items, and those who wish to buy them at a better price. Raise is a a
C2C gift card market, that a supply of discounted gift cards from
sellers who would rather have the cash to spend as they please. Beast
is another example of a marketplace that connects high level
consultants for the millennial era with clients looking to outsource
unmet needs in their business.
3. The Subscription Model
Mobile payments continue to rise in popularity, and consumers are
trending towards a more simple, hassle-free kind of shopping
experience. These trends are leading towards explosive growth in
subscription based services that consumers can easily set up, and
then not worry about, knowing they will receive their product or
service every month. Dollar Shave Club is one of those simple
subscription services that made it much easier for men (and now
women) to not worry about running out of razors, and save money.
Add in some crazy, well messaged commercials with a hilarious
spokesperson, and you have a brand who continues to double and
even triple revenues annually.
Why It Works: This business model provides an optimal balance of
value to both the startup and the customer. Its simple and convenient
for customers, and take a lot of thinking out of the purchasing process.
Customers know they will receive their product every month around
the same time, dont have to worry about reorders, and know they will
get a set, flat rate that will stay within a budget. On the startup end,
the value lies in being able to predict revenues through recurring
sales, which is incredibly advantageous for a companys valuation.
This enhances the sellability of the company, increases the
attractiveness to potential VCs and buyers, and often leads to
valuations up to 8 times that of similar businesses with little recurring
revenue.
Others Who Have Followed: We all know Netflix revolutionized the way
we consume TV shows and movies with its very affordable monthly
subscription service. Spotify did the same thing for the way we
consume music, by providing consumers the means to listen to
virtually any song theyd like for a small monthly subscription.
SkillShare, an edtech startup, initially started where consumers would
buy educational content a la carte, but has pivoted to a monthly
subscription model to access their content which has proved to work
better for them. Of course there is also the subscription box trend that
has reigned the past few years, like BirchBox, which provides samples
of high end beauty products to consumers for a low monthly
subscription.
4. Customized Everything

The fashion industry is dominating the customization trend that aligns

with a consumer shift towards more personalized goods that reflects
their specific tastes. This is the reason Coke added names to their
bottle packaging, automotive manufacturers make cars in any color
you want, and massive retailers like Nike allow you to design your own
custom sneakers. Custom-tailoring in the clothing sector has been on
the rise, and services like Indochino and Black Lapel have taken the
market by solving this problem for mens suits. The services make it
simple to choose the sizes, colors, styles, and budget you want, that
take out the hassle of going to a tailor, and delivers right to your
doorstep. The rise of 3D printers has also created a surge of mass
customization startups by providing a technology that previously was
much more expensive.
Why It Works: A rising percentage of the population is interested in
build-to-order products and are willing to spend 25% more according
to a study by Mashable.com for products built specifically to their
needs. Production time and lowering costs of customization
configurators also bring much more potential to the market, compared
to previous years.
Others Who Have Followed: AppyCouple is a startup that helps
consumers build a custom wedding app with all the information they
would need on their wedding website. Normal produces customized
earbuds through 3D printing technology, and Lumosity adopted the
concept by providing customized brain games tailored to your
strengths and weaknesses. Mass customization retailers dominating
the market like CafePress and Zazzle have also seen massive growth in
recent years.
5. On-Demand Model
As the world speeds up, consumers have a adopted a preference for
instant gratification. The on-demand economy has a growing appetite
for greater convenience, speed, and simplicity. Smartphones have
driven transformational shifts in how we consume goods and services,
and many consumers have become acclimated to purchasing at the
press of a button. On-demand startups like Uber are shaking up their
industries, and also provide stead contracted work for consumers who
want to become solo-preneurs. Startup, Handy, has also seen
explosive growth by providing handymen at a moments notice,
servicing a need for consumers that was not previously available for
situations where a consumer can not wait a few days to fix a problem
in their home.
Why It Works: The on-demand market leaders today know that this
successful model is much more cost-effective, scalable, and more
efficient that its ever been. The model allows a startup to leverage
new technology, while utilizing existing infrastructures. Another
benefit lies in the use of freelance labor with its obvious advantages in
cost cutting. There has also been an influx of VC belief and capital in
this revenue model.

Others Who Have Followed: Spothero is a startup that provides parking

on-demand when you are on your way to an event or into the city.
Another growing startup in the space is Postmates who provide a local,
on-demand delivery of goods. Glamsquad is providing on-demand
services for the beauty industry, and Washio provides the same
service for the dry cleaning and laundry sector.
6. The Modernized Direct Sales Model
Direct sales companies like Avon and Amway understand there is a big
business opportunity in the model. In 2009, direct selling accounted
for $117B in sales worldwide. Chloe + Isabel, a fashion jewelry startup,
is reinventing the direct sales model by appealing to fashion forward
students who have tuition to pay and others who are unable to secure
full-time employment. The startup designs, produces, and markets
fashion jewelry, and interested sellers or merchandisers can sign up
and create their own online store to sell their jewelry and earn a 30%
commission utilizing the startups technology infrastructure. The
startup has seen incredible success using this model, and increased
loyalty of its sellers (who are also its customers).
Why It Works: This model is perfect for todays economy where people
are more willing than ever to supplement their income, and seek new
career paths. With unemployment still high, and more companies
offering supplemental income opportunities, this model continues to
rise in popularity. Another reason is that social media allows sellers to
reach more people than ever, increasing their success as
merchandisers, and bringing in higher revenues for the company.
Finally, software available now has dramatically improved productivity
and flow for direct sales reps.
Others Who Have Followed: Sequoia-funded newcomer, and another
jewelry and accessories startup Stella & Dot has found massive
success in using this type of business model. Trumaker, is also finding
success with this model in the mobile mens apparel space and call
their direct sellers Outfitters.
7. Freemium Model
This combination of free and premium has become a widely used
approach amongst startups over the last decade. Broken down, the
model offers a basic service to consumers for free, while charging for
premium services (advanced features and perks) to paying members.
Linkedin is one of the best examples of a successful freemium model,
with the free version letting users share professional profiles, while the
premium offerings are talent solutions and premium subscriptions with
added features. One of the most interesting reasons Linkedins model
works is because each new member that signs up for free or premium
increases the value for other members. Make sure if you choose this
model that you find a balance between what you give away so that
users will still need or want to upgrade to a paid plan.
Why It Works: One of the greatest advantages to a freemium strategy
lies in its ability to be a marketing tool for your service, which helps

early stage startups scale by attracting a user base without costly ad

campaigns. Freemium models also tend to be more successful that 30day free trials and other offers like that. Customers are much more
comfortable with accessing a service for free, and the no strings
attached feeling that comes with before deciding to make a purchase.
Others Who Have Followed: Dropbox, Hulu, and Match.com are all very
popular services that have adopted a successful freemium model.
Dating app Tinder has also adopted a freemium model, offering
exclusive features to users who pay a low monthly fee. Survey service
PollDaddy, video sharing service Vimeo, and photo sharing service
Flickr are all members of the freemium model group as well.
8. Reverse Auction
This type of model is the reverse of Ebay where the buyers switch
roles with the sellers. Buyers who care about price offer bids for a
service to the seller,s and if the seller accepts the bid, the buyer must
agree to all of the sellers terms and conditions. Sellers benefit from
access to a marketplace, while the buyers feel like they are getting a
great bargain. One of the most successful implementations of this
model is Priceline, where travelers give up convenience for low prices
on airline tickets, rentals, and other travel accommodations. Priceline
provides a win-win marketplace for its B2C marketplace, and because
of that has seen significant revenue growth.
Why It Works: Price sensitive buyers feel great, because they feel good
about the deal they won, while the company also wins by facilitating
the deal with its sellers who get access to a marketplace and are still
making a profit on inventory that might not have sold otherwise.
Others Who Have Followed: FedBid allows government agencies to use
the reverse auction model to award contracts to businesses. Stayful
uses the model to help boutique hotels fill unsold inventory which
would otherwise go to waste. Squeezify uses this model for freelance
work, and MyHammer has found success with the business model
helping consumers receive quotes from service experts.
9. Virtual Good Model
We all know the game Candy Crush and its addictive qualities that
have wasted more hours than most of us are willing to share. Candy
Crush understands the power of the virtual good model, and made a
ton of its revenues for digital products like extra lives or features like a
color bomb. Virtual goods are online only products users pay for
normally in games or apps such as upgrades, points, gifts, or weapons.
The app Hot or Not used this model well by allowing its users to send
virtual roses to other users costing between $2 to $10, and the game
Clash of Clans has users that spend thousands of dollars each month
on their in-app purchases.
Why It Works: One of the greatest advantages of virtual goods are the
high margins, since they cost only what the bandwidth required to
serve them does. The objects sold create real value for consumers, for

example, in a game, buying a sword adds to the real fun people are
having playing a game. Market liquidity continues to increase as more
gamers live in virtual worlds. Virtual goods are also more increasingly
becoming a way for people to show affection and meaning as we
continue moving more into an app obsessed world.
Others Who Have Followed: Facebook added this revenue model to its
social aspect by allowing users to give virtual gifts to one another.
Other startups like Acclaim Games, Meez, and Weeworld have also
implemented virtual goods from the gaming aspect.