A business model is a framework for capturing value. The term is most often applied to organizations who seek to capture economic and social value. However, value can include any goals an organization has such as environmental protection, artistic achievements or knowledge acquisition. In many cases, business models are similar for companies across an entire industry. That is to say, that any improvement in a business model is usually rapidly copied by competitors. A business model is a simple representation that conveys the basic economics or value proposition of a business. The following are a few examples of classic business models.
Bricks and Clicks
A retailer who sells products both on the internet and in physical stores. The stores may serve as product showrooms, customer service centers and delivery points.
Cutting Out The Middleman
A producer of a product or commodity who sells their goods directly to customers. This can result in both a higher price for the seller and lower price for the buyer. A common example is a farmers market.
A business that has a well defined set of ethics that are a primary concern. Customers who identify with the ethics of the business may become loyal supporters. In many cases, good businesses try to have a positive impact on the environment and the communities in which they do business or source their products.
A product or service that compliments something offered by another business. An example, is a protective case for a mobile device.
A business that buys a product in bulk to resell to retailers. The distributor may take care of the details of importing, warehousing and marketing that represents a service to retailers.
Sales of a product or service without a physical location for customers to visit. The lack of a physical location means a lower cost base that makes direct sales competitive on price.
Value Added Reseller
A value added reseller sells something that is available elsewhere but adds something to it such as additional features or support. For example, a software vendor may sell freely available open source products backed up by implementation and maintenance support.
A systems integrator is a service that takes different components and makes them work together. It is a common business model in the software industry where systems integration is much of the work of implementing new software.
Offering a free version of a product or service that requires payment for side purchases, special features, additional content or removal of limitations.
Franchising is a technique that attempts to scale a business model that works in one location to new locations. It is usually an agreement between a well known business and an investor who offers capital to help the business scale.
Pay What You Want
Asking users of a service to pay for a service but not specifying a minimum amount. Often used by charity events.
A monopoly is a dominant business that has no real competition in their industry. This allows the business to charge high prices or impose demanding legal terms on their customers. As a result, monopolies are regulated in most countries.
Razor And Blades
Selling a product or service cheaply in order to provide something that is needed to operate it. The classic examples are printers and ink, razors and blades or mobile devices and apps.
Providing buyers and sellers with an auction for a commission on each sale.
A business that competes on price by cutting services commonly offered by their competitors. An example, is a discount airline that charges for things that are commonly complimentary such as baggage or customer service functions.
A business that offers to manage something for a fee. For example, a telecom company may offer managed services such as unified communications that come with an service level agreement.
One Stop Shop
A location or service that offers a number of products and services in one location. The idea is to save the customer time by allowing them to complete a number of purchases quickly. A common example is a well managed convenience store. In Japan, it’s common for a small convenience store to offer thousands of commonly used products alongside services such as package delivery, event tickets and bill payments.
Collective Business System
A collective business system pools the resources of multiple businesses for mutual benefit. An example is a co-operative that makes bulk purchases for a number of small community grocers. The bulk purchasing power allows the small retailers to compete with larger competitors.
A consumer collective pools the purchasing power of its members to negotiate better prices or terms with sellers. An example is an auto club that may be able to reduce the average annual cost of tow trucks for its members through its purchasing power.
An agent acts on behalf of someone else. This usually means a specialized professional who represents a buyer, seller or talent in contract negotiations or sales. In many cases, an agent will work on a commission.
Provides custom manufacturing services based on product specifications, often referred to as Contract Manufacturing.
Developing a design based on customer specifications. Examples include web design or product design.
Industrialization is the process of taking something that is produced at a small scale and producing it at a much larger scale. This tends to reduce prices and can have other benefits such as improved quality. Industrialization can also have disadvantages such as negative social and environmental impacts on communities.
Mass customization is a product or service that can be highly customized by customers but is produced at a significant scale. It is an alternative to industrialization, that produces products that are all much the same.
A service that has no caps or limits that’s offered for a flat fee. An example, is a streaming music service.
A small business that owns equipment that it offers as a service. An example, is a family owned restaurant.
A retailer who allows another retailer to operate on their premises in return for a percentage of sales or flat rate rent. The arrangement is typically made amongst complementary goods such as bookstores and coffee shops.
A utility offers something on demand such as electricity, water or computing power. Utilities tend to have high capital costs and offer an undifferentiated service that is fully commoditized. However, some are natural monopolies that have no real competition.
A craftsperson who keeps a tradition alive. The traditional craftsperson is an unusual business model in that most businesses must change rapidly to survive. The traditional craftsperson may do the opposite, strive to keep alive old ways. This strategy can work because people are often in a hurry to abandon a fading industry but demand may last longer than expected or even rebound with time.
Club goods are attractions such as a theme park that provide public access to significant assets for a fee.