Web Services Monetization: Business Models

Original author: Dan Zambonini
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We spent several hours researching online services from the list of Webware 100 Top Web Apps 2008 and studying their business models. The following diagram shows the results of the study - 34% of services use an advertising model, 12% have different subscription schemes, 8% sell virtual goods (most often in the form of download data), the same share of services offers related products (usually large development companies offer a free option product to attract them to their platform) and another 8% of the services use the “pay per use” scheme.

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Business models

 ModelOptionDescription
IImmediate incomeModels for deriving fixed income (self-sufficiency models)
ISSubscription The end user is charged a regular, recurring fee. Please note:
• The minimum contract period
• When paying for access to X (days, months, weeks) Y (days, months, weeks) gets free
• The first X (days, months, weeks) free ('evaluation period')
• Periods discounts
• Fee for disabling advertising
• Fee for additional (premium) content
• Fee for access to API / advanced features
• Fee for support
ISF FixedA fixed subscription price (for example, access to an online magazine or service).
ISV VariableA set of different options for subscriptions with a fixed price available to the end user; The price is determined by the features of the subscription, restrictions on use, etc. This option includes the “Freemium” model; (usually limited) free option along with one or more paid options.
ITThird Party Support The end user receives the service for free. Third parties pay for the provided service.
ITA AdvertisingOne or more third parties place explicit advertising on the site or inside the web application. Advertising options include image banners, text ads, line ads, inter-section ads, etc. Typically, the cost of advertising is determined per click, per action or per thousand impressions.
ITS SponsorshipOne or more third parties (companies) become official sponsors of the site. This may include the sponsor’s ongoing (noticeable, non-rotating) advertising, sponsor-style website branding (colors, slogans) and / or sponsor license agreements.
ITC Paid contentAdvertising and editorial materials (Advertorials): companies pay for the placement of their marketing materials on the site.
ITP Paid AccommodationCompanies pay to be included in the list of participants (e.g. comparisons, reviews).
ITR Referral systemEnd users are directed to sites of other companies that pay the site for the transactions of users who have passed on (for example, comparative sites).
ITL Content LicensingOther individuals and companies are given access to reuse the site information for their own purposes.
IPPayments The user personally makes transactional acquisitions.
IPU Pay-per-useMicropayments: the end user pays for using the online service (for one-time access or access for a limited time). This includes a brokerage model where a user pays a fixed rate or percentage for each transaction (e.g. ebay). This also includes the purchase of “loans”, for example, 10 uses of the service for a fixed price. Wholesale discounts may be offered.
IPP Real goodsThe usual e-commerce model is selling books, CDs, tickets, etc. Typically, each “physical product” has a fixed cost associated with its production method.
IPV Virtual goodsThe user buys a "digital" product, with a negligible cost of replication. This includes virtual gifts (such as Facebook), in-game items (such as World of Warcraft), and other virtual assets (such as land in Second Life).
IPR Related productsThe user has free access to the main product / service. A separate, optional fee is taken for related products / services with added value, such as documentation, support, commercial versions of the application for iPhone or Android, etc.
IPD DonationsThe site relies on voluntary donations from end users.
LLong term income Strategic models “invest and get reward”, where initial investments are unprofitable against the background of a longer return on investment.
LEBuild and Operate Create an established audience before monetizing.
Ler Reuse / ResaleResell / reuse data and content, usually from sites with User Generated Content, for example, create books, posters and other goods that can be purchased from data / content created on the site.
Lep PlatformCreate a platform, then charge a fee for its use from third parties, after you have created an audience of users, such as the iPhone, as well as Facebook.
LEB BrandingCreate a personal brand for yourself / your company. When the high awareness of users about your brand is reached, go to the cycle “Conferences - Desktops - Expert”, publish a book, etc.
LS Sale / Market LeaveCreate a popular app / website and then monetize it with another person’s problem, like YouTube.


Meta-models

The following business models can be applied in addition to most of the basic models described above.

 ModelOptionsDescription
MrRevenue sharing Users are offered monetary incentives to increase the income brought by the site / application by sharing a certain percentage of the income with it (the popularity of the user's content or his personal referrals is usually assessed).
MrReseller The user can resell the online service.
Mra Affiliate systemThe user receives a fee for referring consumers to the site, usually through the sale / placement of goods / services on other resources.
Mrw Private labelThe user can brand the online service and resell it as his own (usually receiving a percentage of the income, or paying a fixed fee to the original service and independently determining the sale prices).

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