MBA Mondays: Revenue Models

A revenue model is "the system design by which a business monetizes its services". That comes from Wikipedia. I like that definition. Short, sweet, and to the point.

I am going to spend the next couple months talking about revenue models for online businesses. We've started off this series by crowdsourcing a list of the various business models that online businesses use. I will use that list as an outline for this series:

Here is the outline:

- Advertising – the service is free to use, marketers pay to reach your users via advertising

- Commerce – sell something to your users, keep some or all of the proceeds

- Subscription – charge your users monhtly or annually for the opportunity to use your service

- Peer to Peer – connect people together in a network, take a small piece of the activity that ensues

- Transaction Processing – settle transactions and take a small piece of the transaction for doing so

- Licensing – charge users once upfront for the opportunity to use your technology

- Data – sell the data your service generates

- Mobile – Mobile is not a revenue model, but we will discuss how mobile presents some unique challenges and opportunities for monetization

- Gaming – Gaming is not a revenue model, but we will discuss how gaming presents some unique challenges and opportunities for monetization

Of course these categories are not mutually exclusive. Many web/mobile services will use multiple revenue models. Freemium, for example is a combination of advertising and subscription.

I will kick off this series by making an important point about focus. I strongly believe that entrepreneurs should pick one revenue model to start with and focus 100% on making that work before rolling out another one. It is very hard to execute two or more revenue models at the same time. Better to nail the first one before rolling out the second.

I am a fan of starting with the most native and easiest to execute revenue model first. Ideally it will be one that improves the user experience or at least in no way harms it.

I am looking forward to writing this series. We'll start next week with advertising.