Tech Startups have seen unprecedented boom in last decade. 1000s of new ideas are sprouting everyday. But in this vast ocean of ideas, an serious entrepreneur has to pick what can be a good business, and what can’t be.
Often this choice boils down to having a viable revenue model. It turns out that there are mainly 3 basic revenue models associated with past successful tech startups. So when you are evaluating your next idea, you have to take a call about which model suits you most.
Here, let’s understand what these 3 models are –
Ad based revenue model
This is one of the first revenue models that dot.com companies adopted. Biggest success with this model is Google. In India, I feel is Zomato has implemented it pretty effectively.
It involves showing third party Ads to the visitors coming to Website/App, and earning revenue on per-click/per-impression basis.
Normally, this model works good for content driven products, or anything that can drive massive traffic. If your idea can’t potentially generate millions of visitors on daily basis, this revenue model can’t give big returns.
SaaS Revenue Model
This is my personal favourite. Got popular initially through salesforce.com. I find AWS as one of the classic implementations of it. Freshdesk is good example from India. Concept is straightforward — user pays a subscription fees for using your cloud based application. Many implement it via Freemium model, where basic application is free to use, and there is subscription fees for using premium features.This model usually turns out very well for any Cloud + Utility combo!
Transactional Revenue Model
Most familiar with it because it’s something we are following at Townscript :). This model is most popular with Online Marketplaces nature of businesses, and has helped in creating some biggest businesses in recent times like — Amazon, Flipkart, Uber, AirBnB, BookMyShow etc.Online Marketplaces typically facilitate monetary transactions between Suppliers and Buyers. They earn revenue by taking a fixed cut that usually range from 2% to 30% for every transaction happening through them.
Hope it all made sense :)
Before closing, let’s hear what prolific investor Nikesh Arora has to say about the above models.
4/6. 3 ways companies make money -1/3 sell traffic to advertisers! (1 Trillion Industry)
— Nikesh Arora (@nikesharora) March 24, 2015
5/6. 3 ways companies make money — 2/3 get people to pay for value — (subscriptions) More than 1 Trillion Industry.
— Nikesh Arora (@nikesharora) March 24, 2015
6/6. 3 ways companies make money — 3/3 facilitate a transaction (or sell something) — (Global GDP :)!
— Nikesh Arora (@nikesharora) March 24, 2015