Start-up : How to choose the Business Model ?

A.    Long Tail

The so-called economic models of "long tail" aim to "sell less more" offer a great number of niche products, each of these products being sold relatively rarely. Aggregate sales of niche products can be as lucrative as the traditional model where a small number of bestsellers is the essential income. Economic models of "long tail" must be accompanied by low storage cost and efficient distribution platforms ensuring good visibility for niche content.

Examples: Netflix, eBay, YouTube, Facebook, lulu.com...

For Anderson, three factors have enabled the emergence of this model:

• The democratization of production and the falling cost of technology tools to produce music, short films or software
• The democratization of distribution of digital products via the web (reducing storage costs, communication, transaction,)
• The lower research costs in linking supply and demand (via search engines, reviews, user ratings,)

B.    Economic model of free 

In the economic model of free, a segment of important customers at least has the opportunity to benefit continuously from a free offer

Different configurations make the free offer possible. The segment that does not pay is "subsidized" by another component of the business model or another customer segment

Examples: Metro (free newspaper), Flickr, Skype, Google,...

Three distinct approaches make it possible to free a viable business model BM:

• Advertising in multifaceted platforms
• The freemium model (free basic services with premium services optional)
• The model of "bait and hook" that a free or inexpensive initial offer attracts consumers in repeat purchases stitches.

C.    Economic model of “Freemium”

- The word "freemium" was invented by Jarid Lukin, and popularized by the investor Fred Wilson on his blog.

- The economic model "freemium" is a hybrid model that combines free basic services and paid premium services

- The basic premium customers is usually <10% of service users

- In a freemium model, key indicators are: the average cost of the service of free users and premium conversion rate

D.   Economic model of “the Bait and the Hook”

 The model of the bait and the hook:

- This is a business model that includes an attractive initial offer inexpensive or free, encouraging future repeat purchases of products or services

- Model also known under the names "loss leader" or "razor and blades" (cf. Gilette)

- Goal: Customer Captivity

- Examples: mobile phone subscription, razors and blades, printers and cartridges, coffee machines and capsules...

E.      The multi-sided platforms

- This is an economic model that connects at least two groups of distinct but interrelated clients.

- They only have value if the other client groups are also present because the platform enables interactions between groups

- To grow in value, a multifaceted platform needs to attract more users, which is called the network effect

- Examples: Visa, Google, eBay, Facebook, Microsoft, Windows...

F.    Open business models

- Create and copy of the value by working systematically with external partners

- This collaboration can be exercised in the sense of "outside in" exploitation by the company to outside ideas) or in the sense of "inside-out" to external partners bring ideas or unused assets by the organization) 

- See the work of Henry Chesbrough on Open Innovation

- Examples: Procter & Gamble, GlaxoSmithKline, InnoCentive ...

By @Pozzo