(Part 3 - bit.ly/4arlM7l )
Proptech, or real estate on steroids (through digital and tech)
Zillow is an online real estate marketplace, matching buyers and sellers and renters and landlords through a massive platform with personalized search and discovery experiences and simple UI for both buying/renting and selling/listing. The company makes money by charging a fee on the sales and additional services like premium agents and mortgage services for buyers.
Razor and blade model
Companies like Apple, for instance, use an inverse razor and blade, business model. Apple has created platforms like the App Store and iTunes, which sell apps and songs, movies, or tv series at a convenient price. While Apple charges premium prices on its devices (iPhone, iPad, and Mac).
The logic is the same, but inverted. As consumers are locked in the Apple ecosystem, they feel compelled to buy Apple products at a premium price and with very low price elasticity.
Apple’s made over $365.8 billion in revenues in 2021, of which over $191.9 billion or over 52% of its total revenues came from the iPhone. Yet, the iPhone isn’t just a hardware product; it’s a business platform that combines hardware (iPhone), operating system (iOS), and a marketplace (the App Store). Thus, the company still makes most of its money around a single product which powers up an entrepreneurial ecosystem.
Retail business model
In contraposition, with wholesale business models, retail business models operate directly to consumers, thus selling a product at higher margins to customers.
As a classic example of a retail business model, think of the local coffee shop or restaurant. The coffee shop owner buys a set of products in bulk from wholesalers (coffee beans, foods, drinks, etc.) thus paying these products at a low price and it sells them back in its store with a high markup.
Real-time insurance business model
When you produce an expensive device, how do you make it scale? Either you lower the price for consumers, or you have someone else pay for it!
When Steve Jobs was about to launch the iPhone, he knew that marketing without distribution would not work.
He convinced mobile carriers to subsidize the iPhone through their plans.
Indeed, in 2021, the iPhone still made over 50% of Apple’s revenues, and guess what? Most iPhones (64%) got sold through indirect/third-party distribution.
Elon Musk is a huge fan of Steve Jobs (so much so that he engaged Walter Isaacson to write his biography, just like Steve Jobs’ iconic book) and borrowed a good chunk of Apple’s playbook.
And now, he’s building two critical segments of Tesla’s business model, which will be vital in enabling a wide distribution of his cars: leasing and insurance.
In the last ten years, Tesla had to solve the supply side.
What Musk labeled “mass production hell” brought Tesla very near to bankruptcy on several occasions (in 2018, Tesla was a few days away from running out of cash!).
However, now that the company has figured that out, through the openings of the Shangai, Berlin, and Texas Gigafactories.
The coming decade will be all about enhancing the demand side.
In short, by enabling an expensive car, like a Tesla, to be potentially bought by hundreds of millions of drivers.
How is Tesla solving this?
Through the real-time insurance business model. In short, Tesla enables riders to have their safety score updated, on a monthly basis, through real-time driving behavior.
While traditional insurance has a fixed score, often based on factors that go way beyond the ability of the driver, Tesla is trying to hook again the insurance premiums based on the actual capability of the driver.
This is a key element of Tesla’s business model, because a better driving score, helps Tesla lower the insurance costs for drivers, and enables the company to also provide leases at a lower rate, thus making the Tesla affordable, for a much larger number of people!
This is the magic of a distribution strategy, built-into your business model!
Self-serving model
A self-serving model is a freemium-based model able to convert quickly and with low-cost free users in paid accounts. Dropbox’s business model is a great example of acquiring new users efficiently and at relatively low costs through three tactics:
- Word-of-mouth referrals.
- Direct in-product referrals.
- And sharing of content.
By following the freemium model when users create a free account those same users often share and collaborate with other non-registered users. This mechanism for which free users invite other non-users creates an automatic referral mechanism.
Built-in prompts in the products instead make it possible to convert, with a low-touch and automated funnel to users in premium accounts.
Slow, fast, ultrafast fashion and real-time retail
The fashion industry has evolved very quickly since the 1980s leading to various fashion movements and enabling the development of companies that would define our times. Among these, we can break them down into slow, fast, and ultrafast fashion players.
Zara epitomized that movement. From there, other forms of fast fashion developed. They moved both upward and downward the supply chain. Thus, by cutting manufacturing time on the one hand, and by also leveraging digital distribution, in place of physical stores.
This led to the development of ultra-fast fashion, led by players like Asos:
Space-as-a-service model
While the main carrier of this model (WeWork) had massive backlashes due to its unsustainable business model. The question of whether this model will be possible in the future still holds.
True, that part of the problem is that of taking long-term leases to transform them into short-term opportunities by building services on top of them, to arbitrage on the difference.
Subscription-based business model
This means you either find more students or you produce new courses. Imagine the second scenario. You have a few courses, and you make them available for a monthly subscription at $75. If you have 100 subscribers, this means that each month you’ll have $7,500 without having to find new students.
Given this example, you can understand why the subscription business model is so powerful. Today companies like Netflix, Amazon (with Prime), LinkedIn, and many others use subscription-based models to monetize part of their business. However, a subscription-based business model also needs a lot of resources.
Take Netflix. I’ll keep paying my subscription only if they will give me fresh content on a regular basis. That is why Netflix also produces series that are quite successful. Yet those series have massive production costs.
In other words, to sustain a subscription-based business model you also need a lot of the resources necessary to create new content, have awesome support or service that motivates subscribers to keep paying. The curse of the subscription business model is churn!
Surfer model: reverse-engineering the gatekeeper
In the gatekeeper model, we saw how the market got consolidated under a single middleman that, with its algorithms, could change the logic of the whole distribution pipelines for an entire industry.
Small businesses then will need to master how the gatekeeper works and aligns with its business model to reach potential customers. This is at the core of the surfer model, where the small or medium business builds a strong brand by complementing the gatekeeper’s value proposition.
For instance, for years, companies like Booking, TripAdvisor, and other vertical travel search engines have been able to build valuable companies on top of Google. Where Google couldn’t cover vertical areas, those companies complement that, by building multi-billion businesses indeed.
The same applies when you launch e-commerce on Amazon, a blog by leveraging Google, or a channel on YouTube. In all these circumstances you’re aligning your distribution model with that of the gatekeeper to reach potential customers.
Three-sided marketplace model
While each of those interactions could happen independently. Uber Eats platform makes them smooth, as it provides a unique place for those players to connect and do business.
User-generated content business model
There are a few interesting aspects of Quora. First, it uses a mixture of AI combined with human intelligence. Quora allows users to write content while using advanced algorithms to make the platform scale up. Second, people writing on Quora do not get paid.
In fact, by introducing a social mechanism of ranking, Quora writers feel recognized for their work. Besides, earning the prize as Quora’s top writer might also mean the mention of popular publications.
Thus, if I had to describe the Quora business model in a couple of sentences, that would be “the social that taps into users – that aspire to become writers – to produce content, and it scales up thanks to a smart platform built on AI systems.“
In terms of monetization, Quora has received several rounds of investment and started to test text-based advertising.
User-generated AI-amplified model
Yet, what makes TikTok powerful is the curation performed by its AI. Whereas in Web 1.0 social media was all about the network. In AI-driven social apps, it’s all about engagement.
Users can find a continuous stream of hooking content in their feeds independently from their network, the AI replaces it. Yet, the AI + the network becomes an atomic weapon for growth. If the previous advertising machine is built on top of information retrieval (Google) and network (Facebook).
Those are the largest digital advertising machines as they managed to make advertising mostly invisible or at least relevant to users. What if that could be brought to the next level?
Where scaled user-generated platforms built powerful business models (Facebook, Twitter, Instagram). The web 2.0 version is the user-generated, AI amplified content that will take over with new video formats.
Unbundler model
Unbundling is the process of breaking the value chain to take over the most valuable part of it, without owning or bearing the total cost of ownership of maintaining it. In phenomena like showrooming the customer browses the physical shop, yet it buys from the online retailer, which has more competitive pricing.
Therefore, the online retailer takes all the upside, without having the downside of maintaining a physical store. A classic example is when people browse in a local store, to then buy on online e-commerce like Amazon, where they can find more competitive pricing.
The unbundler, initially, is a sort of freeloader that takes the upside of a value chain without bearing the downside. Yet the overall value chain improves as customers get the most by combining the experience from the incumbent and the unbundler (ex. the consumer browse several physical stores, then buys online as it saves money).
Vertically integrated business model
With all the major brands from the eyewear industry licensed by Luxottica (Armani, Bulgari, Chan, l, Prada, and many others) it is the largest and most vertically integrated business in the world.
Leonardo Del Vecchio, one of the wealthiest people in Italy and among the wealthiest businessmen in the world, has built Luxottica piece by piece.
Started as a small shop producing semi-finished products for the optical industry it eventually acquired the whole supply chain, up to own retail stores across the globe. It took Leonardo Del Vecchio a few decades to build its vertically integrated business.
Yet now that is the most successful company in the optical industry. Instead of being acquired by a large American company, the Italian-based Luxottica was the one acquiring brands like Oakey (the California-based eyewear company).
Players like Warby Parker try to break down Luxottica’s vertical integrated supply chain, by initially owning only a part of the supply chain, thus having a more agile approach.
Wholesaler business model
Reverse engineer any business model
Key takeaways
- Many believe business modeling is about copying and pasting. Instead, that is about experimentation.
- Business models can offer valid templates that we can test, yet only when those ingredients are combined, we get a unique model, hard to replicate, that is when a competitive advantage is created.
- Business models are not business plans. While many startups consult business modeling right when it’s the time to build their pitch for investors. In reality, the business model strategy serves entrepreneurs to test their hypotheses, quickly and cheaply. So that when you have enough built-in mechanisms for sustainability within your business model, you will have enough cash at the bank to keep growing. Or perhaps the market will have proved your model to be successful, so ready to be taken to the next level.
- In an era, where technology becomes commoditized over time, business model experimentation can prove more sustainable, as harder to reverse engineer (as it comprises many building blocks that sometimes are hard to understand also to the same company rolling out the successful business model).
- Business modeling is a continuous journey of discovery. It never ends. As a company scales or it creates options to scale, the whole business model will transform and the question of whether it will be sustainable for the next stage of growth and scalability stays open.
- There isn’t a right or wrong business model, but rather a model that will work in a certain context, and that will suddenly stop working in others. Business modeling is also a matter of life’s philosophy. The vision of founders or those who took the business from one stage to the next affects the long-term vision of the business, thus its direction in the long-run.
Business Models Types Database
| Business Model Types Database | Description | Example |
| Ad-Supported | In the ad-supported model the basic, entry service is offered for free and subsidized by advertising served to free accounts. An example is Spotify, which is a mixture of ad-supported and premium. The ad-supported model is used as a self-sustaining model. At the same time, free accounts are also prompted to convert to premium accounts. Therefore, in this specific case, the ad-supported model works both as a self-sustaining and freemium model. | Spotify |
| Affiliate | In the affiliate model, the company can generate revenues by referring to other services and products, thus gaining a commission on each sale. At the same time, the affiliation program can be used as a growth engine for the company that enables affiliates to send referral traffic to the platform. Amazon has been among the tech companies that most have enjoyed initial traction thanks to affiliations. | Amazon |
| Aggregator | In this business model, the aggregator becomes the middleman by removing all the other middlemen from the market. To understand more about this model and how it differentiates from platform business models, read the guide on the aggregator business model. | |
| Agency-based | In short, Neil Patel Digital is the SEO and digital marketing agency that allows Neil Patel to monetize its traffic primarily by offering free content and free marketing tools. This is a mixture of a freemium business model, combined with an agency-based business model. | neilpatel.com |
| Asymmetric | In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. | Google, Facebook |
| Attention-Merchant | The attention-merchant main product is represented by the eyeballs of millions if not billions of users. Usually, the attention-merchant makes its core product free, and as open as possible, then it monetizes it through targeted advertising. | Google, Facebook |
| Barbell | In this model, a company uses a barbell approach to product and distribution. You have a core product and business where most resources are spent and the whole organization structured around. On the other end, you place bets on new products that might renew your business model and make the old irrelevant. | Alphabet Other Bets |
| Bidding Multi-Brand | A perfect example is a company like Grubhub, an online and mobile platform for restaurant pick-up and delivery orders. The company charges restaurants a pre-order commission and it generates revenues when diners place an order on its platform. | GrubHub |
| Blitzsacler | Amazon e-commerce consumer platform (here we’re not referring to Amazon AWS). Amazon’s continuous, massive, investment in growth to dominate multiple markets is a perfect example of a business model with built-in growth. This is the combination of several elements (platform’s network effects + branding power + scalable financial model). | Amazon e-commerce |
| Bundler | In bundling, a strong distribution power combines several products in a single offer to extract more from the market. For decades Microsoft has been able to bundle several products under the same umbrella (Office has been coupled from time to time to several other products) so the company extracts more from the market if it were selling a single product. | Microsoft |
| Blockchain-Based | A blockchain is a distributed ledger that relies on cryptography to handle transactions, interactions, or anything that implies an exchange between people, which is decentralized and anonymous. Companies like Steemit have built a business model around enabling user-generated content by using a blockchain protocol. | Steemit |
| Chain-Mixed To Franchise | This model is used to scale restaurants or food businesses while keeping a tighter grasp on the brand. The company keeps a higher percentage of chain restaurants primarily to control the customer experience, to research new products, and also develop operational efficiencies that can be passed along to franchised restaurants as best practices. Starbucks is a mix of operated vs. licensed stores. If we look at the revenue generation, company-operated stores make up 79% of the company’s revenues in 2017. | Starbucks |
| Cash Conversion (Financial Model) | Have ever wondered how some businesses survive, nonetheless the thin margin they have? One great example is Amazon. A company that has made low-profit margins for most of its history and yet it has been very disruptive. In reality, Amazon can get its partners to finance the business by playing on the short-term liquidity of the business, what is called a cash conversion cycle. This unlocks short-term liquidity that coupled with massive investment back in the business made of Amazon an ever-expanding company (see also Blizscaler-Mode) | Amazon |
| Discount-High-Quality | Leveraging on the price to gain a competitive advantage isn’t new. However, price wars are not the best way to create a sustainable business model. Instead, the supermarket chain – ALDI – has done just the opposite. One of the critical ingredients of the ALDI business model is to keep its prices low while maintaining its quality as high as possible. | ALDI |
| Distribution-Based | A distribution-based business model is one in which a company’s survival depends on its ability to have one or a few key distribution channels to connect to its final user or customer. Most successful companies tie their business models with a core distribution channel, which becomes the so-called cash cow, for years if not decades. | Amazon, Apple, Google, Facebook, Microsoft and counting |
| Direct-To-Consumer | A direct-to-consumer business model is primarily based on direct access from a brand or company to its final customers. Indeed, the more a company is able to tap into its customers without the need of an intermediary, the more this model will work in favor of the brand, which is able to control the perception of its customers via massive marketing campaigns. While this is similar to the distribution-based model. The direct-to-consumer is mostly B2C (targeting mass markets). Where instead the distribution-based can be also B2B or enterprise. | Unilever |
| Direct Sales | In a direct sales model, the whole company is organized around a complex salesforce able to understand the motivations that drive customers to buy. This salesforce is also able to manage complex relationships which can involve entire departments of an organization, thus generating from simple to more complex deals. Thus, direct sales can be a powerful way to develop a business if done correctly. One of the secrets to a successful direct sales strategy is the qualification of your target audience. | Apple (in part), Tesla |
| E-Commerce | As building up a website and e-commerce has become inexpensive, and it buries no particular cost for the traditional brick-and-mortar business, more and more small businesses join in and make the marketplace their primary source of revenues following Amazon leadership at a global scale. In fact, in many cases, brick-and-mortar stores opt to become Amazon sellers. The e-commerce industry now has other key players that go from Shopify to Etsy. And many other tech players are entering the space. Also, Google has its Google Shopping and Facebook has Facebook Shops (a branded integration with Shopify). | Amazon, Shopify, Etsy, Google Shopping, Facebook Shops |
| Educational-Based | Built by one of the smartest persons on earth (Stephen Wolfram), Wolfram Alpha is a computational engine, able to provide complex mathematical questions and way more advanced (at least until a few years ago) compared to any other search engine. | WolframAlpha |
| Family-Owned | The family-owned integrated model starts from the assumption that even if you’ve built a multi-billion dollar company you can control it in its entirety, while you also keep an agile decision-making process based on an ownership structure that keeps the control of the organization in the hands of the family. | Prada, LVMH |
| Feeding | As platforms arise, they create ecosystems, becoming unexplored markets. Those markets can be surfed by feeding your business model on top of that. A good example is how HyreCar feeds its business model on top of Lyft and Uber networks of drivers. | HyreCar |
| Freemium | Free can be a powerful weapon for growth. Many in the tech industry and more specifically in the SaaS business model use Freemium to grow their business. The freemium is a mix of free and paid services. | |
| Feeterprise | As consumer brands showed the freemium model could be both a great go-to-market strategy and generate a continuous flow of qualified leads (however, only after the whole organization would be organized around identifying those opportunities), other B2B/Enterprise companies (those primarily selling to other companies or larger corporations) also mastered the freemium model but on a B2B/enterprise scale. | Zoom, Slack |
| Gatekeeper | In the gatekeeper model, the dominant company has become the main middleman between the market and millions if not billions of potential customers. In the previous era, many middlemen captured value and retained distribution power, by fragmenting the market. The gatekeeper then becomes the provider, enabler, and also the pipe for millions of small businesses. | Amazon, Google, Facebook, Spotify |
| Heavy-Franchised | McDonald’s follows what could be defined as a “heavy franchised business model.” 92% of its restaurants are franchised. With a long-term objective to reach 95% of franchised restaurants. | McDonald’s |
| Humanist Enterprise | The most prominent advocate for the humanist enterprise business model is Brunello Cucinelli. Indeed, Brunello Cucinelli’s business model is based on three key pillars: 1. Italian Craftsmanship, 2. Sustainable Growth, 3. Exclusive Positioning and Distribution. | Brunello Cucinelli |
| Enterprise | In an enterprise business model, a company focuses on large clients, usually Fortune 500 clients that have a massive budget of millions or billions of dollars. This kind of business is primarily based on complex sales. | SalesForce |
| Instant News | 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. | Twitter, Google News |
| Locked-In | Apple is famous in the business world (beyond launching beautifully crafted tech products) for its philosophy in keeping its ecosystem as enclosed as possible. Apple devices will talk to each other in a seamless way, to create a great experience. | Apple |
| Management-Consulting | 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 and having them work on multiple client projects. | Accenture |
| Market-Maker | 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. | Uber |
| Multi-Brand | Luxury groups like LVMH and Kering 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. | LVMH, Kering |
| Multi-Business Model | 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. | Amazon (E-commerce, AWS, Prime) |
| Multi-Sided Platform | On a multi-sided platform, the company operates 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. | |
| Multimodal | 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 |
| Multi-Product | In its expansion strategy, OYO started from 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. | OYO |
| On-Demand | 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. | Netflix |
| One-For-One | 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. | TOMS |
| Open-Source | Where 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. | GitHub, Fastly, GitLab |
| Peer-To-Peer | A peer-to-peer business model is built on the premise of creating value for both the demand and offer side, while the company that acts as a middleman monetizes through commissions. | Airbnb |
| Platform | 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 success. | |
| Platform-Agnostic | 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. Grammarly instead is trying to be anywhere, independently from the platform, thus making the user free to choose the platform. | Grammarly |
| Privacy-As-Business-Model | 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. | DuckDuckGo |
| Razor-And-Blade | Companies like Apple, for instance, use an inverse razor and blade, business model. Apple has created platforms like the App Store and iTunes, which sell apps and songs, movies, or tv series at a convenient price. While Apple charges premium prices on its devices (iPhone, iPad, and Mac). | Gillette |
| Self-Serving | A self-serving model is a freemium-based model able to convert quickly and with low-cost free users in paid accounts. Dropbox’s business model is a great example of acquiring new users efficiently and built-in prompts in the products instead make it possible to convert, with low-touch and automated funnels users in premium accounts. | DropBox |
| Space-As-A-Service | While the main carrier of this model (WeWork) had massive backlashes due to its unsustainable business model. The question of whether this model will be possible in the future still holds. | WeWork |
| Subscription-Based | In a subscription-based model, the company needs to build a continuous relationship with its users/members/customers, and in turn, the customer commits a subscription to sustain the business in the long-term | NYTimes/Netflix |
| Surfer-Model | Small businesses then will need to master how the gatekeeper works and aligns with its business model to reach potential customers. This is at the core of the surfer model, where the small or medium business builds a strong brand by complementing the gatekeeper’s value proposition. | SMBs |
| Three-Sided-Marketplace | Uber Eats is a great example of a three-sided marketplace, where the company facilitates interactions between eaters, delivery partners, and restaurants to develop a solid marketplace. | Uber Eats |
| User-Generated | There are a few interesting aspects of Quora. First, it uses a mixture of AI combined with human intelligence. Quora allows users to write content while using advanced algorithms to make the platform scale up. Second, people writing on Quora do not get paid. | Facebook, Quora, Reddit |
| User-Generates-AI-Amplified | For many, TikTok is just the next generation of social media. However, there is more to it. TikTok is a continuous feed that shows short video formats, where users engage in all sorts of dances, memes, and more (for now). | TikTok, Instagram, Facebook |
| Unbundler | Unbundling is the process of breaking the value chain to take over the most valuable part of it, without owning or bearing the total cost of ownership of maintaining it. In phenomena like showrooming, the customer browses the physical shop, yet it buys from the online retailer, which has more competitive pricing. | Amazon |
| Vertically-Integrated | Yet now that is the most successful company in the optical industry. Instead of being acquired by a large American company, the Italian-based Luxottica was the one acquiring brands like Oakey (the California-based eyewear company). | Luxottica |
Business Models Examples Infographic
The business model examples infographic, from the FourWeekMBA Research.
Business models FAQs
Why business models matter?
As a multi-faceted concept; business models can help entrepreneurs find the formula that works in the real world to build a sustainable company. Business models are also helpful for analysis to understand how businesses work. And to academics to study the available models of organizations present in the marketplace.
Why are business models important?
In the entrepreneurial world, business models help entrepreneurs test their ideas, monetization strategies, and value proposition to build a viable company by minimizing risks, assumptions, and time to market. Thus, offering entrepreneurs a framework for experimentation and a valid alternative to business plans, which can be hardly tested.