Exploring Different Types of Business Models: Pt 2
In our last article, we opened a discussion for the different types of business models you could work with to start your company, going over Direct Sales, "Freemium" and the subscription model. Just in case you don't remember, a business model is essentially how you plan to make your money and establish a reputation among your direct audience, everything from how you price your products and advertise your business and everything in between. This time, we'll go over four more, talking about the Marketplace, On-demand, Marketing, and Licensing model.
(p.s. If you need a refresher, here's the link to part 1: Exploring Different Types of Business Models)
1. Marketplace Model
A marketplace model connects buyers and sellers, acting as a middleman for the two(like the one avoided in the Direct Sales model). The platform usually makes money by taking a transaction fee and/or a subscription fee from the sellers, in exchange for giving them a platform to work with. These are usually online, so you won't see it much in person unless someone is renting a space for a shop.
Pros:
- No Inventory Hassles: You don't have to worry about keeping products in stock, or the warehouse that comes with it. You simply give people a platform to work on and a few guidelines here and there to follow.
- Grows Over Time: The more people use your platform, the more valuable it becomes for everyone involved. Your website will market itself if it does well enough, and if you can get enough people to depend on it, you're set for life.
Real-World Examples: eBay, Airbnb, and Etsy are all marketplaces that connect salesmen and their customers. They simply create a safe platform to connect those willing to buy(or rent) to those willing to sell, although you would have to worry about customer service. With companies like these, your reputation is everything and can make or break you.
2. On-Demand Model
In the on-demand model, customers receive their desired products or services right after placing an order or making a request, typically through an app. This approach prioritizes convenience and speed and has revolutionized the operations of numerous industries. It caters to the customer completely, instead of having to leave them waiting.
Why It Works:
- Instant Gratification: Customers enjoy getting what they want as soon as they ask for it. It saves time, money, and gas, and is incredibly efficient. Sometimes, it's even safer.
- Easy to Scale: Once the tech is in place, it's relatively simple to expand to new locations and people. You don't need to bring anything with you.
Real-world examples: Uber for a car ride, DoorDash for a snack, and TaskRabbit to hire people to do odd jobs.
3. Marketing Model
With this model, you provide certain content or services without a charge and make money by selling ad space to other businesses. This framework works best when you have a large audience and advertisers wanting to reach it.
Why It Works:
- Free for Users: People love free content, so it's almost guaranteed customers.
- Scalable: If more people start using your website, you can start charging more for your ad spaces.
Real-World Examples: Google, Facebook, and YouTube make billions through this model by displaying ads to their massive user bases. Sometimes, you'll see ads in the margins of certain websites you use.
4. Licensing Model
The Licensing model is essentially where you let other people borrow your "credit"(like patents or trademarks) in exchange for fees or royalties. It's a way to make money from something you've created, but you don't have to produce or sell it yourself.
Why It Works:
- Passive Income: Once a licensing deal is in place, you can start getting stable paychecks without much more effort.
- Expand Your Reach: Licensing lets your brand or technology enter new markets without the hassle of doing it yourself. Free marketing!
Real-World Examples: Microsoft licenses its software to PC manufacturers, and Disney licenses its characters for all sorts of merchandise.
Choosing the right business model is like picking the foundation for your house—it needs to be strong, stable and well-suited to the needs of your start-up. Of course, these aren't all of them or your only option, but it's a good start in the right direction. If you'd like a few more, a little bit of your own research on each of these might be helpful. Each of these models has its strengths and weaknesses, and the best one for you depends on your product, market, and business goals. Now that you have an overall understanding of what you're dealing with, we have no doubt that you'll know exactly what you need to do. Good luck entrepreneurs!
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Sources:
Houston, Melissa. "8 Lucrative Business Models for Entrepreneurs." Forbes, 25 Mar. 2024, www.forbes.com/sites/melissahouston/2024/03/25/8-lucrative-business-models-for-entrepreneurs/
"7 Types of Business Models (and How to Choose the Right One)." I Will Teach You to Be Rich, 12 Apr. 2024, www.iwillteachyoutoberich.com/types-of-business-models/.