How do they make money?Ash Ravikumar

Entrepreneurship Development Officer

CERN Knowledge Transfer

EMU # 100

Simplistic view

• Sell for more than what it costs

• Sell a lot of it

• Repeat

Source: https://www.reactiongifs.us/thank-you-captain-obvious/

Business Model – What and Why?

• A business model is your company’s core strategy for profitability. It’s a blueprint.

(Compared to Business Plan – which could be the roadmap; Strategy document to explain the execution)

• Key levers – Pricing and Costs

• Key measures– Metrics and unit economics

The canvas – Why is it so popular?

Jargon busting time

• B2B – Business to Business - Sell to another business

• B2C – Business to Consumer – Direct to consumers

• B2B2C – This needs some explanation and a slide by itself

B2B2C

• Your company sells a product/service to a business, gaining customers and/or data from that business that you get to keep and use.

• And where, most importantly, that group of customers becomes disconnected from the middle B — at some point, they recognize that YOU (the first B!) are the product they use.

• Google – AOL partnership

• Not to be mistaken with channel partnership or reselling(source – a16z)

Quick Summary of some models

Freemium Low -touch Pay as you go Disintermediation Subscription 2 sided market

Offer basic free; Charge for premium service

Lower price by decreasing service costs

Charge for actual usage ( sometimes with subscription)

Sell direct; Remove the traditional middleman

Charge a fee to gain access to a service

Both sellers and buyers meet on a platform

LinkedinRevolut

IKEA Electricity AWS *

Dell Netflix Airbnb

Razor model – Sell the product at a loss and the consumable at premium – Gillette, Xbox, printers/ink...Reverse Razor model – Low margin item below cost and sell premium - Kindle

Software Business models

• Software as a service (SaaS) { Xaas}

• API

• Ad revenue

• ….

Software Business Models

Software as a Service - Metrics

• Cost of Acquiring a customer (CAC) COST

• Life Time Value (LTV) or Customer Lifetime Value (CLV) REVENUE

• Churn COST/ Lost REVENUE

• Monthly Recurring Revenue (MRR) Annual - (ARR) REVENUE

• Monthly Active Users (MAU) REVENUE

Application Programming Interface (API) models – Deep dive• API is a tool that allows 3rd party apps to communicate with your

service

• Rather than spending a lot of hours to develop a map and add routing functionality, you can implement Google Maps API and pay Google to use it

• 22,000 APIs available in the market

• But why? How do they make money

API – Business Model

•API provider — the company that creates and offers an API

•API consumer, or simply developer — the developer who implements the API

•End user — the person who uses the application containing the API

Source: https://yalantis.com/blog/api-business-models-for-scalable-online-businesses/

API – Business models

Source: https://yalantis.com/blog/api-business-models-for-scalable-online-businesses/

API – Monetization

• Subscription model – Pay a monthly/yearly access fee

• Freemium, Tiered options

• Sandbox to test – Paypal provides this

• Pay-as-you-go – AWS

• Point based model – unit based. Pre-buy units to use. Google AdWords ( $ 0.25 per 1000 calls)

• Transaction based – mostly for payment gateways. Ex 2.9%+$ 0.30 for each transaction!

API – Revenue share

• Make developers spread your product.

• Share the revenue –• Example - ad revenue – Trip Advisor’s API has been shared by 700 partners

and used in 50,000 3rd party applications

• Trip advisor makes money from click-based and display ads

• Raising awareness and more traffic generates revenue for Trip advisor and they share with the developers to drive more traffic

• Referral/Affiliate program• Travel websites include the API. If a purchase is made, then affiliate shares

50% of revenue.