Posts from Revenue model

Like last week's post on mobile revenue models, gaming isn't a revenue model itself, but it does offer a number of interesting revenue models and is worth discussing in a post in this series. This is the last post in the revenue model series, which is based on the peer produced revenue model hackpad we created at the start of the series.

Gaming is interesting because there are a number of revenue options that game developers can choose from when thinking about how to make money from their game. The hackpad lists the following:

There is still a sizeable business in selling a version of the game to the game player. That's how the console game (xbox, etc) market works. It is also how downloadable games market works. And there is a vibrant market in mobile games that you have to pay for to play.

But the games market has been moving to newer models in recent years. In app upgrades is certainly one of the more important revenue models. Many of the most popular mobile games are free to play but offer in app upgrades to get more game elements or simply to eliminate the ads. This is an example of the freemium business model in action.

Advertising is another important revenue model. For many web based games, advertising is the dominant form of revenue. On mobile, advertising supports the free offer and the elimination of advertising is often the value proposition for the in app upgrade.

The revenue model that is mostly (but not totally) unique to gaming is virtual goods. Virtual goods (like a tractor in Farmville) allow the player to have more capability in the game and they can be earned over time but are often purchased to enhance game play. This revenue model was inititally created in the asian gaming market but has been adopted by game developers all over the world.

I have been waiting for non gaming web and mobile services to adopt the virtual goods model but have yet to see anything that feels like it is working really well. Virtual goods is another excellent implementation of the freemium approach to business model.

There are game developers who use all of these models at the same time. They might sell their game on certain platforms, they might offer a free ad supported version on mobile with in app upgrades and virtual goods. In many ways, I think the gaming market is the most sophisticated about revenue models of all the sectors in web and mobile. That may stem from the fact that most games have a finite life and so the developer has to extract real revenue quickly to get a return on the investment they have made in developing the game. I think there is a lot that the rest of the web and mobile services world can learn from the gaming market.

The Internet is a data generating machine. According to Eric Schmidt, every two days now we create as much information as we did from the dawn of civilization up until  2003. It's also incredibly good at presenting that data, both to humans and machines.

So it makes sense that collecting and publishing data is one of the primary business models on the Internet. Here are some of the examples that you all created on the revenue model hackpad:

I like to think of data businesses in two categories; businesses that aggregate and then publish data and businesses that generate their own proprietary data by virtue of the service they provide on the internet.

Most of the companies listed in the data section of the revenue model hackpad are businesses that aggregate data from others and sell it. These can be good businesses but they are rarely great businesses.

Google is an example of a business that generates its own proprietary data by virtue of the service they provide. Google doesn't monetize with a data revenue model, they monetize with advertising that is targeted based on the data they generate. But in many ways, Google is a data business. Data is the secret sauce of their business and they have invested heavily in data science to maximize the value of their data.

Facebook and Twitter are rapidly becoming data businesses like Google. They collect a ton of data about users and what they think about and care about by virtue of providing a free and valuable service on the Internet. And that allows them to improve their services, make them smarter, and to target advertising to their users.

Going back to the aggregation model, if you are going to pursue this approach, try to figure out how to make your data as proprietary as possible. Anyone can aggregate so you run the risk of commodification in the aggregation game. If you can create some sort of proprietary advantage, either through exclusive access to the data or through some sort of refinement of the data using your own insights and analytics, that leads to a better aggregation type business.

Most data businesses are subscription based, but data can also be sold on a transactional basis. Transactional models are easy to sell when you are just getting going, but subscription models work better over the long run.

Many data businesses use APIs to make it easy for their customers to get data into their own systems. This is a good idea because it makes it harder for customers to leave if your data is part of their systems. If you can make your data part of a broad ecosystem, that is a good thing.

Selling data is a good way to build a business on the Internet but if you can figure out how to leverage proprietary data produced by your service to make your service even better, that often turns out to be an even better "data business".