Business Model: 70+ Business Models Patterns In 2024. Part 3

 (Part 2 - cutt.ly/lw9hq6sQ )

Fintech: digitalizing the financial system

Fintech business models leverage tech and digital to enhance the financial service industry. Fintech business models, therefore, apply tech to various financial service use cases. Fintech business model examples comprise Affirm, Chime, Coinbase, Klarna, Paypal, Stripe, Robinhood, and many others whose mission is to digitize the financial services industry.

Fintech business models have been tackling one of the hardest of all problems. How to transform the financial system through digitalization and technology. This is among the hardest problems because the financial industry is highly regulated, and very hard to transform.

Players like PayPal have been trying since the beginning of the digital era. Later on, other players like Stripe also tackled the problem. The wave of fintech is very strong. And with blockchain tech developing on the way, this might also help fintech take a leap forward in the coming decade.

Instant news business model

Twitter makes money in two ways: advertising and data licensing. In 2021, Twitter generated $4.5 billion from advertising and $570 million from data licensing. While Twitter generated $5 billion in total revenues, it lost 221 million.

Twitter has based its fortune on short messages (until 2017 140 characters, then extended to 280) which allows anyone to share the news but also updates that become news.

One of the most powerful aspects of Twitter is its immediateness, which although it might have also caused troubles in the media industry, also allowed news to be disintermediated.

Twitter is an attention merchant, which primarily makes money via advertising, like Facebook and Google.

Last-mile delivery, on-demand business models

Last-mile delivery consists of the set of activities in a supply chain that will bring the service and product to the final customer. The name “last mile” derives from the fact that indeed this usually refers to the final part of the supply chain journey, and yet this is extremely important, as it’s the most exposed, consumer-facing part.

Last-mile delivery is one of the hardest problems to tackle, as it sits outside what we call network effects. In short, it doesn’t matter much the network effects a company has accumulated over the years. Last-mile is the last leg of the supply chain, and yet extremely important (it’s consumer-facing, thus the overall customer experience will depend on it).

Various companies are tackling “the last-mile problems.” And as the pandemic hit, their business models quickly evolved. Last-mile is also intertwined with on-demand. In fact, the more a product can be ordered and quickly delivered, the more the divide between retail/physical stores and digital stores will narrow down.

Beyond Amazon, a few other platforms are tackling the last-mile problem by starting with food, and transportation. Yet once those two use cases have been figured out. This can be extended to many other industries. This is why the last-mile problem is worth trillions.

In the food delivery business model companies leverage technology to build platforms that enable users to have the food delivered at home. This business model usually is set up as a platform and multi-sided marketplace, where the food delivery company makes money by charging commissions to the restaurant and to the customer.

Lock-in business model

Apple is a product-based company fueled by platform business models (like Apple Store), in which sales still primarily come from the iPhone. However, the company has also transitioned toward a service company (with Apple Store, iTunes now called Apple Music) and as a wearable product company, which is the fastest-growing segment.

Apple is famous in the business world (beyond launching beautifully crafted tech products) for its philosophy of keeping its ecosystem as enclosed as possible. Apple devices will talk to each other in a seamless way, to create a great experience.

While the smooth experience for users through Apple’s devices makes its products compelling for millions of people, the lack of integration with products outside its ecosystem can also be frustrating.

A locked-in experience can be great to have as much control over users’ experience and incentivize customers to purchase more products from the company. It can also be a disadvantage in the long run as those competitors leveraging on an open approach can grow more quickly.

As long as the company can keep investing back in developing great products, integrating them with each other to create a seamless experience, and maintaining a strong distribution pipeline, that model might work.

Long-tail business model

The long tail business model was popularised by former Wired Magazine editor Chris Anderson, who coined the phrase “long tail” and wrote a book on the subject called The Long Tail: Why the Future of Business Is Selling Less of More. The long tail business model suggests companies can profit from selling low-volume niche products. In theory, selling a significant number of these products is more profitable than selling fewer, more popular products.

A long-tail business model can be a very powerful way to break into an existing market dominated by incumbents. The long-tail player will be able to offer a compelling value proposition to users and customers as it will focus its effort on finding the most niche products of any category. This is how once startups, then turned into tech giants, reorganized entire industries. Amazon did it first with books, then with everything else. Netflix did it with movies and series. Google did it with information. And Facebook did it with networking.

Loss leader business model

A loss leader consciously loses money on a product item, in order to either enter a market or to attract customers to another segment of the business (ancillary business). Therefore, if well executed, the losses are offset by the gains in selling ancillary products, or in gaining market shares. Thus, it might translate into a long-term advantage.

The loss leader usually leverages on a hook product or service or set of products and services which are sold at cost, or a loss, but they serve as a way to enhance the customer base and channel it toward other products and services.

Management consulting business model

As one of the most successful consulting companies in the world, Accenture makes money by selling consulting services in several industries (from financial services to communication and technology). A consulting business model is often based on hiring talented people with hiring people and having them work on multiple client projects. The client pays a fee that can be assessed per hour or per day, according to the requirements of the service. Accenture was able to build a multi-billion dollar based on consulting services across the globe.

Market-maker model

Some platforms create liquidity by removing hundreds of intermediaries that are used to lock in the market. When that happens the market gets bigger and more liquid over time. That enables the platform to work as the market maker, or the maker of the price, by making it liquid.

Dynamic pricing is the practice of having multiple price points based on several factors, such as customer segments, peak times of service, and time-based consumption that allow the company is applying dynamic pricing to expand its revenue generation.

One of the major values of a platform like Uber is the fact that it is able to create liquidity on the platform by batching by time to time divers and riders, also with dynamic pricing.

Marketplaces business models

Marketplaces and platforms have become the most dominant business models of the digital era. And they have morphed into various types of platforms. From those offering products, services (or both). To those dealing only B2B, B2C, or C2B. And these marketplaces and platforms who primarily developed on a peer-to-peer basis, vs three or multi-sided ones.

A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C levels. And those marketplaces connect two core players or more.

Multi-brand business model

Back in the late 1990s, a war started in the fashion luxury industry to take over Gucci. That war saw an arm wrestling between Kering Group – a company founded as a lumber trading organization back in the 1960s – and LVMH Group – a company, started a few decades before primarily as a construction company just to become one of the most known luxury brands in the world.

The war was about who would become the largest luxury group – fought by the two wealthiest men in France – but also about who would be the most diversified luxury empire.  Eventually, Gucci ended up within Kering Group, sold by LVMH at a high price.

At the same time, LVMH took over Fendi. Today, both Kering Group and LVMH have a massive portfolio of brands.

Kering Group’s portfolio of brands made over €15 billion in 2017 

LVMH built a portfolio of brands and houses that made over €42 billion in sales in 2017

Both groups today follow a multi-brand strategy based on creating economies of scale at a central level; while keeping the Maison and Houses part of the portfolio operated and run independently.

This multi-brand approach leverages both centralization for certain aspects of the business (collaboration among the brands, economies of scale, better supply chain, shared branding initiatives) and decentralization for others (allow agile decision making, preserve the unicity of each brand to keep its creativity output high).

That approach to business modeling can be quite effective if you’re trying to build up an empire! It requires though massive resources to develop an acquisition campaign over the years. Indeed, both of those groups came from different industries and used the liquidity generated by their core activities to enter the luxury market.

Multi-business model

Amazon runs a platform business model as a core model with several business units within. Some units, like Prime and the Advertising business, are highly tied to the e-commerce platform. For instance, Prime helps Amazon reward repeat customers, thus enhancing its platform business. Other units, like AWS, helped improve Amazon’s tech infrastructure.

When you look at Amazon it’s tempting to talk about its “business model.” Yet Amazon is a set of combined business models that span across:

• Consumer e-commerce platform.
• First-party seller platform (Amazon owns a set of brands like AmazonBasics).
• Third-party seller platform and services (Amazon hosts third-party sellers).
• Amazon Prime.
• Amazon Advertising.
• Amazon AWC B2B/Enterprise Cloud platform.

The core of Amazon has always been the e-commerce platform, however over the years, as a side effect of developing adjacent parts of the business, to sustain its core. Amazon built successful programs (Prime and AWS are examples) that turned into self-standing businesses.

This is the fruit of a continuous mode of aggressive growth and business innovation that made Amazon expand, and reinvent its business model (AWS has a whole new logic than the core e-commerce business and could potentially be a spin-off of Amazon).

Multi-sided platform business model

If I saw, a professional social network, at least at the time of this writing, for sure you’ll think about LinkedIn. In fact, with over five hundred million users worldwide LinkedIn is a platform that offers value for several stakeholders.

LinkedIn is a source of value for a B2B that is trying to grow; it is a powerhouse for any business developer and a source of value for HR managers and candidates looking to grow their skills.

In short, in a peer-to-peer marketplace, a company acts as an “invisible” middleman that makes transactions and interactions among sellers and buyers as smooth as possible.

On a multi-sided platform, the company offers services to both sides.

For instance, LinkedIn sells subscription services to HR managers to find candidates to fill vacancies. At the same time, LinkedIn provides another subscription service to people looking for job opportunities.

As the value of the platform depends upon the ability of LinkedIn to offer skilled candidates to the HR manager, that is why LinkedIn also has an online teaching platform that offers together with a subscription, professional courses to people looking for a job.

Multimodal business model

Lyft is a transportation-as-a-service marketplace allowing riders to find a driver for a ride. Lyft has also expanded with a multimodal platform that gives more options like bike-sharing or electric scooters. Lyft primarily makes money by collecting fees from drivers who complete rides on the platform.

Lyft is a transportation-as-a-service on-demand marketplace that allows riders to quickly find a driver and get from one place to another. However, Lyft has also expanded with a multimodal platform that gives more options like bike-sharing or electric scooters. 

Lyft leverages three key problems related to the cost of ownership:

• Underutilization: vehicles are not used most of the time.
• Inefficiency: the large ownership of vehicles also made cities build large parking spaces that occupy a good chunk of cities’ urban landscapes.
• Inequality: car ownership while distributed is still a large issue for many people that can’t afford to buy a car.

From there it offers different options to customers that can switch from car to bike-sharing, or electric scooters, depending on their short-term transportation needs.

Multi-product (Octopus) business model

OYO’s business model is a mixture of platform and brand, where the company started primarily as an aggregator of homes across India, and it quickly moved to other verticals, from leisure to co-working and corporate travel. In a sort of octopus business strategy of expansion to cover the whole spectrum of short-term real estate.

In its expansion strategy, OYO started in India, yet it quickly moved to different verticals. From there it built up a portfolio of products, each launched in parallel to its expansion strategy, to cover larger geographical areas, but also different segments of the market.

From the low-end of the travel market to the higher-end with its Townhouse, a sort of modern boutique hotel. To further expand in co-working and corporate traveling.

This sort of business model is skewed toward a quick go-to-market strategy that moves in all the directions to expand and cover as much as possible of the end-to-end experience for travelers.

On-demand subscription-based business model

Netflix is a subscription-based business model making money with three simple plans: basic, standard, and premium, giving access to stream series, movies, and shows. Leveraging on a streaming platform, Netflix generated over $29.6 billion in 2021, with an operating income of over $6 billion and a net income of over $5 billion. 

We now give for granted that we must watch our favorite shows and series on-demand. Yet, for decades the traditional media business model has relied on fixed schedules. You either watched the Late Show at the time it was going on air, or you were supposed to wait for the next replica of that episode.

At times a business model only becomes possible when technology evolves. In some cases, it also requires some creativity when technology doesn’t help. For instance, in 1997 Reed Hastings, CEO, and founder of Netflix started a business based on the rental of DVDs.

This business today contributes to a small pie of Netflix revenues, yet at the time it was the core of the business, and it has been so for years. “On-demand” at the time was possible with the pay-per-rental business model. 

Until Netflix transitioned to the on-demand subscription-based business model; an old business model used by magazines for decades was successful and “innovative” in the TV industry, where the content was mainly distributed at fixed schedules.

Binge-watching is the practice of watching TV series all at once. In a speech at the Edinburgh Television Festival in 2013, Kevin Spacey said: “If they want to binge then we should let them binge.” This new content format would be popularized by Netflix, launching its TV series all at once.

One-for-one business model

Have you ever heard of TOMS Shoes? As you can understand from the name, this is a company making shoes. What’s new about it? The founder of TOMS Shoes founder has come up with a model, in which, for a pair of shoes sold, another pair is given to kids around the world that cannot afford them.

This kind of model might be seen as a sort of hybrid that combines profit with non-for-profit models. In reality, TOMS Shoes has proved to be profitable and sustainable over time.

Indeed, the non-profit side of the business model works as an excellent propeller for the business. Anyone wants to take part in the growth of a company that not only sells shoes but takes care of kids around the world.

Thus, it isn’t anymore just a pair of shoes; it is a story you want to be part of.

Open-Source Business Model

Fastly follows an enterprise business model, which offers an edge cloud platform. Fastly business model leverages an active community of developers. A good chunk of its revenues got spent on sales and marketing processes as an enterprise business. The company has dozens of field sales representatives and sales managers. For a monthly fee, enterprise customers get access to the platform, account management, and enhanced customer support. In 2021 the company generated over $354 million in revenues, of which over $313 came from 445 enterprise customers.

In terms of customer acquisition strategy, the open-source model is not that different from the freemium/freeterprise. There is the base service/product offered for free, and a business/enterprise version that is paid.

There is a key difference, though.

Whereas in a freemium and freeterprise, the free product is built, developed, and maintained by the company centrally.

On an open-source model, the free product is built, developed, and in part, maintained by an open community of developers.

Those developers are not employees of the company, but rather part of an independent community. This implies the company selling the premium version of the open-source software will need to be careful in how it monetizes it to prevent disappointing the community of developers that made the project possible in the first place.

Open Core Business Model

While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

As Nick Heudecker explained:

The central value proposition of open source core vendors has been freedom from vendor lock-in. After all, the core elements of the product are open source, developed by a global community. The core product isn’t owned by a single company, but, in almost every meaningful instance, by the Apache Software Foundation (ASF). If the worst happens and we go out of business, the code will live on in the ASF. You’re safe. If you don’t like us, it’s open-source. You’re protected. I don’t know what happens next but hey open source.

A key business model to understand open core is GitLab:

GitLab was created in 2013 by Ukrainian developers Dmitriy Zaporozhets, Valery Sizov, and Sytse Sijbrandij as a source code management solution for collaborative software teams. GitLab is a web-based, open-source DevOps tool providing issue-tracking and continuous integration and deployment pipeline features. It makes money via its main two paid plans (Premium & Ultimate) and via its subscription add-ons.

Peer-to-peer business model

Airbnb is a platform business model making money by charging guests a service fee between 5% and 15% of the reservation, while the commission from hosts is generally 3%. Due to the pandemic, Airbnb is stretching its business model and experimenting with new formats like online experiences to transition toward fully digital experiences.

A peer-to-peer business model is built on the premise of creating value for both the demand and offer sides, while the company that acts as a middleman monetizes through commissions.

Companies like Airbnb have implemented the modern version of the peer-to-peer business model. As technology has quickly advanced, in Airbnb’s case, it won just because it allowed the transactions between hosts and the hostee smooth.

The platform works seamlessly, and Airbnb only intervenes to create trust and mitigate risk for the party involved.

Platform-agnostic model

Grammarly leverages on a freemium service, where free users are prompted to switch to a paid subscription. Grammarly makes money by selling premium plans starting at $11.66 to $29.95 per month. The company also makes money by selling human proofreading services to its paid users.

Grammarly’s CEO explained to TechCrunch as one of the key advantages of Grammarly is its “platform-agnostic approach.” In short, Grammarly focuses on being anywhere the user needs to be.

This approach makes Grammarly’s value proposition compelling in a tech world, dominated by the tech giants that are trying to cover the end-to-end experience of users, thus locking them in their walled gardens.

Grammarly instead is trying to be anywhere, independently from the platform, thus making the user free to choose the platform.

Platform business model

A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model’s success.

While any business today with a minimum of a technological set-up wants to call itself a platform business model, the platform business model has specific features. It enjoys network effects; it enables interactions among its key participants. And to kick things off, it has to solve the so-called chicken and egg strategy problem, where the platform has to figure on which side to kick off the platform.

Definition Network Effects: The value of a service/platform increases for each additional user, as more users, join in.	Sub-type	Description – Example
Direct, Same Side, or One-Sided		As more users join, the platform’s value increases for each additional user. Take the case of a social media platform, like Facebook, Instagram, TikTok, LinkedIn, and Twitter. The more users join, the more the platform will be valuable for each additional user, as the new user might find exponentially richer and broader content (provided the platform can prevent congestion or pollution).
Indirect or Cross-Side		In this case, a user type joining the platform makes it more valuable for other user types. Take the case of LinkedIn. While LinkedIn enjoys the same-side network effects, the platform becomes more valuable to users looking to enhance their careers as more users join in. At the same time, LinkedIn enjoys indirect or cross-side network effects. More users who join the platform to grow their career make it more valuable for recruiters (so a different user type) as they can find more qualified candidates on top of the platform.
	Two-Sided	Take the case of LinkedIn. While LinkedIn enjoys the same-side network effects, the platform becomes more valuable to users looking to enhance their careers as more users join in. At the same time, LinkedIn enjoys indirect or cross-side network effects. In this case, a user type joining the platform makes it more valuable for other user types. More users who join the platform to grow their career make it more valuable for recruiters (so a different user type) as they can find more qualified candidates on top of the platform.
	Multi-Sided	In this case, more than two user types are driven by the network dynamics. Take the case of Uber Eats; the more restaurants join the platform, the more the platform becomes valuable for eaters. While at the same time, by leveraging on its existing platform, Uber drivers have additional riding options. So they can earn extra income by delivering food instead of giving rides. That makes the overall platform much more valuable for the three main user types: eaters, restaurants, and riders.

How Network Effects Work.

A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

In a negative network effect as the network grows in usage or scale, the value of the platform might shrink. In platform business models network effects help the platform become more valuable for the next user joining. Negative network effects (congestion or pollution) reduce the value of the platform for the next user joining. 

Indeed, as the platform – usually – has two or more key players, its value proposition is also tuned for those several players. For instance, on a platform like Uber, drivers were the key to making the service value in the first place. On a platform, like Airbnb, hosts and the availability of a wide variety of homes were critical to kick the platform off.

Therefore, a platform business model has to figure out how to kick off the side of the platform that automatically will trigger network effects on the other side (for instance, the more drivers on Uber, the more the platform is valuable to riders).

Beware though, even when platform business models scale, they can get out of hand, very quickly, due to negative network effects.

Definition Negative Network Effects: The Value of the service/platform decreases for each additional user, as more users join in. This might be due to congestion (when increased usage can’t be handled by the platform) or pollution (when the increased size of the network makes it hard to incrementally add value, and instead its value shrinks).	Description – Example
Congestion (Increased Usage)	In this case, there is a reduced quality of the service when certain parts of the networks carry way more data than they can handle. That usually happens because of scale limitations and noise due to curation limitations. Since this is a technological issue, it manifests as service slowdown or perhaps the platform crashing. Take the case of services like YouTube crashing for too much traffic. Or, if you’re a professional, a service like Slack crashes as it cannot handle the traffic spikes. That becomes a disservice with potential negative network effects because you suddenly prevent a whole team from functioning properly. Therefore, a negative network effect can have exponential negative consequences. For instance, users would switch to alternatives en masse if this was repeatedly happening, thus creating structural damage to the network.
Network Pollution (Increased Size)	The case of pollution is more tied to the ability of the platform to keep its service relevant at scale. Thus, imagine the case of a platform like Twitter, in which the principal asset is the feed. As Twitter becomes more and more popular, it needs to make sure that the user-generated content is qualitatively on target. Otherwise, the risk is for the user’s Twitter feed to become less relevant and lose value. Or imagine the case that many user-generated platforms face today, where spambots take over. Here, suppose the platform cannot handle this automatically generated content. In that case, it can quickly lose value, as the service becomes worthless for users (take the case of a user who has to spend an hour a day cleaning up the feed because of spamming).

Platform business models can leverage network effects, to scale. At the same time, at a certain scale, also negative network effects can kick off. This makes it hard to handle platform business models at scale.

Play-to-earn business model

The play-to-earn model is a business model allowing gamers to farm or collect cryptocurrency and NFTs that can be sold on the market. This model has become a standard already in the “crypto gaming industry,” where the blockchain-based games enable token economics to kick in as an incentives mechanism at scale for users to play and be engaged.

The play-to-earn model is an evolution toward enabling community-based gaming, on top of the blockchain, through NFTs.

Privacy as an innovative business model

DuckDuckGo makes money in two simple ways: Advertising and Affiliate Marketing. Advertising is shown based on the keywords typed into the search box. Affiliate revenues come from Amazon and eBay affiliate programs. When users buy after getting on those sites through DuckDuckGo the company collects a small commission.

While humans have always looked for private moments in their lives, Privacy has gained a new and renewed meaning in modern times:

With the rise of the web and the rise of companies that make money by harvesting users’ data, privacy has become a concern. As many businesses start from people’s concerns, privacy has become an industry.

Part of it has been fueled by Google’s practice to gather users’ data. As more people become aware of the Google business model, they look for alternatives that respect privacy.

If you type “privacy” on the Google search box, among the most frequent related searches, you’ll find “privacy Google:”

If you click on “privacy google” you will get on the right-hand side a knowledge panel that highlights “privacy concerns regarding Google:”

In short, Google itself is revealing the existence of an industry that revolves around privacy online.

In this scenario, a search engine like DuckDuckGo, which has built its success on throwing the users’ data on the fly to allow private navigation, is growing quite fast.

DuckDuckGo Hockey Stick Growth

That’s because DuckDuckGo makes money primarily via affiliations and by selling local keywords. Thus, privacy becomes a propeller for DuckDuckGo’s business growth.  

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