This document discusses various digital business models used by online companies. It describes characteristics of online businesses like low incremental costs and network effects. Common revenue models are discussed such as freemium, where basic services are free but premium features require payment. Examples are provided of companies using freemium like Gmail and Dropbox. Viral marketing is explained as a way to leverage existing users to spread a product. The importance of product and marketing integration is highlighted. Different types of digital business models based on network effects are also outlined.

1. 1
Class 5
Digital Business Models
Ano 2015
Sistemas de Informação
para a Indústria
António Grilo
Prof. Auxiliar FCT-UNL
1Sistemas de Informação para Indústria
© António Grilo 2015Departamento de Engenharia Mecânica e Industrial

2. ONLINE BUSINESS CHARACTERISTICS
1
Low incremental Usage Costs
Free
Freemium
Networked Market
Rapid Word of Mouth
Globaliza on
Network Effects
Product and Marke ng Integra on
To encourage online Word of Mouth
eg. Facebook likes.
Direct Incen ve for products with
Network Effects
Viral Marke ng
Revenue Models
Freemium - Carefully design bait and
hook
Smaller units of charge
Rebundling features
Differen al Pricing
2

3. FREE AND FREEMIUM SERVICE
3
• Targeted Ad Supported – Indirect Revenue
• Increased Adoption
• Increased Word of Mouth
• Demonstration of Basic Version
• Increases Value for paying customers for products with Network Effects

4. EXAMPLE OF FREE SERVICE
4
• Search Engine
• Every Third Party Site
• Google Maps

5. FREEMIUM
• A small percentage (usually less than 5%) paying
clients.
• Free clients act as marketing agents
• Critical Factor – What should be free and what
should be paid
– Too restricted free features – free users will
not find useful
– Liberal free features – Less incentives for
upgrades
5

6. EXAMPLES OF FREEMIUM SERVICES
6
• Gmail
• Google Drive
• Dropbox
- Charge for exceeding free space
• Spotify
– Free Ad Supported
– Monthly Fee for Unlimited Music
• Survey monkey
– Free for basic features/Paid for additional features

7. VIRAL MARKETING
• Use existing clients for spreading with their tacit approval
– Different from word of mouth
– Different from spam
• Hotmail- one of the first examples
• Plaxo – online address books
7

8. VIRAL MARKETING CHARACTERISTICS
8
• Gives away products or services;
• Provides for effortless transfer to others;
• Scales easily from small to very large;
• Exploits common motivations and behaviors;
• Utilizes existing communication networks;
• Takes advantage of others’ resources.

9. PRODUCT AND MARKETING INTEGRATION
• Marketing integrated into all aspects of product
• Incentivise users to invite friends during product usage
9

10. HARNESSING WORD OF MOUTH
• Active Social Media Presence
– Promotion of new products
– Visible Addressing of user complaints
• Participation in Forums
• Actively scan for user issues
• Promotion of user blogs praising a product
10

11. MARKET BUSINESS MODEL
• Develop a core product
• Allow third party app developers to create apps.
• Charge commission on the sale of apps or enhanced features.
11

12. NETWORK EFFECT
• Utility of a product is enhanced when there are more users
• Needs a long term strategy, difficult to enter competitive markets
• Must be used to create lock in effects
• Must have low initial entry barriers – using freemium, viral marketing
12

13. TYPES OF DIGITAL BUSINESS MODELS
BASED ON NETWORK EFFECTS
• Provisioning of Online Services
– Search, Saas, data aggregations, music, etc
– Could be viral, especially in case of freemium
• Single Sided Platforms
– With Network Effects
– e.g. Facebook, Youtube
• Double Sided Platforms
– App development platforms, e-commerce, network effects
– Eg. Amazon, ebay 13

14. DISRUPTIVE BUSINESS MODELS
• Unit Pricing to Subscription based
– Continued Revenue
– Hosted SaaS
– Myerp.com
14

15. DIGITAL BUSINESS MODELS - VOIP
Freemium Business Model
Technology
- Peer to Peer Communications
- Free Skype Calls
- Paid Skype Outs
Cheap, multiple front companies

16. COMMISSION BASED PRICING
16

17. COMMISSION BASED VS SUBSCRIPTION
17
• B2C
• Commission Based
• B2B
• Subscription Based
E-marketplaces

18. AUCTION
• Ebay.com
• Freelancer.com
• Elance.com
18

19. CROWDSOURCING
• Getting users to review Places, Hotels
• Open Innovation
• Crowdvoting
• Microwork
T Shirt Designs
Re-Captcha