BUSINESS MODELS

Emer DooleyUniversity of Washington

What is a Business Model

2 elements What does a business do? How does it make money?

What rights are being sold?

Ownership of an asset Those that significantly transform the

asset: Creator Those that don’t: Distributor

Right to use an asset: Landlord Right to be matched with the buyers

and sellers of something: Broker Assets can be Physical, Financial,

Intangible or Human

Start with…

Revenue Expenses How much capital you’ll need What will the cash flow look like? Do some sensitivity analysis

Revenue Sources and Streams

Single Multiple Interdependent Loss Leader

Subscription Unit-Based Ad-based Licensing Transaction Fee

London-Barcelona $70

Ticket Price, $20

Ad $/ passen-

ger, $1.00

Subsidy -more

expen-sive

flights, $5.50

Credit Card Handling Fee, $6

Priority Boarding,

$5.00

Water, $1.50

Bag Check, $30

$70 Ticket on Ryanair

Other Business Models:

Example Model

Health Club Trials

Apple Store Classes

But one Get on Free

800 Free 411 Calls

“Free” TV

Skype

Linked In

Museum entrance Fees

MIT/Stanford Free Classes online

Model

Simple Cross-Subsidy

Ad-Supported

Freemium

Non-monetary markets

Free DVRs

$500$450$400$350$300$250$200$150$100$ 50 0

0 6 12 18 24 30 36

Months

Total DVR Subscription Revenue

Profit

Months

Loss $250= Cost of DVR

Direct Cross-Subsidy

Product One (Paid) Product One (Free)

Producer

Consumer

Cross-Subsidy

The Three-Party Model

Ad Space (Paid) Content (Free)

Producer

ConsumerAdvertiser

Paid Product

Three-party Model

Freemium

Basic Product(Free)

Premium Product(Paid)

Producer

ConsumerMany Consumers

Cost Drivers and Structures

Fixed Variable Semi-Variable Non-Recurring

Direct Payroll Inventory Space Advertizing

Read

Free: The Future of a Radical Price by Chris Anderson