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What Is a Business Model?

Understanding business models, evaluating successful business models, how to create a business model.

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Learn to understand a company's profit-making plan

the business model description

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

the business model description

Investopedia / Laura Porter

The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.

Key Takeaways

  • A business model is a company's core strategy for profitably doing business.
  • Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
  • There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers.
  • The two levers of a business model are pricing and costs.
  • When evaluating a business model as an investor, consider whether the product being offered matches a true need in the market.

A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.

Types of Business Models

There are as many types of business models as there are types of business. For instance, direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale

Manufacturer

A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.

Example: Ford Motor Company

Fee-for-Service

Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP

Subscription

Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers a free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T

Marketplace

Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business model attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza

Pay-As-You-Go

Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.

Example: ReMax

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

  • Identify your audience. Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
  • Define the problem. In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn't a demand for your services or products.
  • Understand your offerings. With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
  • Document your needs. With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
  • Find key partners. Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
  • Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
  • Test your model. When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

  • Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
  • Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
  • More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Annual Report 2023 ."

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What is a business model? (Plus, how to define yours)

Last updated: September 2023

Business models distill the potential of a business down to its essence. Companies across every industry and at all stages of maturity need business models. Some rely on lengthy processes to build complicated models, while others move quickly to articulate the basics and take action. Either way, having the discipline to work through this planning tool forces internal alignment.

You must build something that real people with real needs will find value in and pay for — otherwise you do not have a lasting business. Brian de Haaff Aha! co-founder and CEO

For established enterprises, a business model is often a living document that is reviewed and adapted over the years. For companies launching products and services or entering new markets, a business model helps ensure that decisions are tied back to the overall business strategy . And for early-stage startups, a simple one-page business model enables founders to explore the mechanics of a business and how you anticipate it will be successful.

Defining and documenting a business model is an essential exercise. Whether you are starting a new venture, expanding into a new market, or shifting your go-to-market strategy , you can use a business model to capture fundamental assumptions about the opportunity ahead and tactics to addressing challenges.

Unfortunately, many companies fail to integrate their business model into all aspects of the organization — from recruiting talent to motivating employees. Part of the issue is accessibility. That is why forward-thinking companies choose tools that make it possible to quickly build and share your business model. The Aha! business model canvas, for example, gives you a collaborative space to explore concepts and connect your model to everyday work.

Build a business model in Aha! Notebooks. Sign up for a free trial .

Business model large

Start using this template now

You can access the business model template shown above using Aha! Notebooks . You can also try a similar template that is built into the product strategy section of Aha! Roadmaps . Or you can download these free Excel and PowerPoint business model templates .

This guide covers the basics of business models, from core concepts to best practices. Jump ahead to any section:

Definition of a business model

Business model components

Business model vs. business plan.

Different types of business models

Pros and cons of different models

Analyzing competitor business models

Business model templates

How to build a business model

What is the definition of a business model?

A business model defines how a company will create, deliver, and capture value.

A business model answers questions that are crucial for strategic decision-making and business operations. Creating a business model for your startup or product means identifying the problem you are going to solve, the market that you will serve, the level of investment required, what products you will offer, and how you will generate revenue. Pricing and costs are the two levers that affect profitability within a given business model.

A business model is part of your overall business strategy. Some business models extend beyond economic context and include value exchange in social or cultural terms — such as the intangible impact the company will have on a community or industry. The process of constructing and changing a business model is often referred to as “business model innovation.”

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There are three main areas of focus in a business model: value proposition, value delivery, and value capture. The proposition outlines who your customers are and what you will offer. The delivery details how you will organize the business to deliver on the proposition. And the capture is a hypothesis for how the proposition and delivery will align to return value back to the business.

the business model description

Below are some components to include when you create a business model:

Vision and mission : Overview of what you want to achieve and how you will do it.

Objectives: High-level goals that will support your vision and mission, along with how you will measure success.

Customer targets and challenges: Description of target customers (written as archetypes or personas ) and their pain points.

Solution: How your offering will solve customer pain points.

Differentiators: Characteristics that differentiate your product or service.

Pricing: What your solution will cost and how it will be sold.

Positioning and messaging: How you will communicate the value of your offering to customers.

Go-to-market: Proposed approach for launching new offerings and services.

Investment: Resources required to introduce your offering.

Growth opportunity: Ways that you will grow the business over time.

Positioning vs. messaging

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  • What is a go-to-market roadmap?

Business models and business plans are both elements of your overall business strategy. But there are key differences between a business model and a business plan.

A business model is seen as foundational and will not usually be reworked in reaction to shorter-term shifts — whereas a business plan is more likely to be updated based on changes in the economy or market.

Related: Business plan templates

What is the benefit of building a business model?

Innovation is about more than the products or technologies that you build. The way that you operate your business is a critical factor in how you stand apart in a crowded marketplace. The benefit of building a business model is that you can use the exercise to expose and exploit what makes your company unique — why choosing your offering is better for customers than any alternatives and how you will grow the business over time.

Many people associate business models with lengthy documents that describe a company’s problem, opportunity, and solution in the context of a two-to-five-year forecast. But business models do not need to be a long treatise.

A one-pager is just as effective for distilling and communicating the most important elements of your business strategy. The concise format is useful for sharing with broader teams so that everyone understands the high-level approach. Done right, a business model can become a touchstone for the team by outlining core differentiators to promote and defend in the market.

Related: A more comprehensive business model builder

What are the different types of business models?

There are many different types of business models. Below are some of the most common business models with example companies for reference (take note of the companies that appear in several categories):

Did you keep track of the companies that appeared in several of the business model examples? Good. You now have a grasp of how complex enterprises with vast portfolios of products and services often employ many business models within the same organization.

Consider a company like Apple, which manufactures and sells hardware products as well as offering cloud-storage, streaming subscriptions, and a marketplace for other applications. Amazon, whose offerings range from retail (with the acquisition of Whole Foods) to marketplace (Amazon.com) to subscription services (Amazon Prime and Amazon Music) to affiliate, also features in different categories. Each division or vertical will have a distinct business model that reflects the nuances of how it operates while also supporting the corporate business model.

Related: The product manager vs. the portfolio product manager

Pros and cons of different business models

Some types of business models work better for certain industries than others. For example, software-as-a-service (SaaS) companies often rely on freemium business models. This makes it easy for potential users to experience the value of the product and incentivizes paid conversions via access to additional features.

Many social media platforms make money through advertising. By providing full access to the platform for free, these companies attract more users. In turn, this creates a more valuable audience for advertisers and increases revenue for the business.

How do you analyze a competitor’s business model?

Business analysts and investors will often evaluate a company’s business model as part of due diligence for funding or market research . You can apply the same tactics to analyze a competitor’s business model — with a few caveats.

Public companies are subject to reporting requirements. This means that the business must regularly disclose financial and performance data to the public — these disclosures occur quarterly and annually. The data includes everything from gross revenue, operating costs and losses, cash flow and reserves, and leadership discussions of business results. Designed to protect and inform investors, these reports can provide you with the information you need to understand the basics of the company’s business model and how well it is performing against the model.

Private companies are not required to reveal business data publicly. Investors or partners may be privy to certain aspects of the company’s performance, but it can be difficult to understand exactly what is happening from the outside. Some analysts or business websites will attempt to “size” a business or market by looking at a variety of factors — including the number of employees, volume of search terms related to the core offering, estimated customer base, pricing structure, partnerships, advertising spend, and media coverage.

Once you have identified relevant alternatives to your offering and gathered all of the information that you can find, a good way to analyze a competitor’s business model is to conduct a competitive analysis.

Related: Competitor analysis templates

You do not want to spend too much time thinking about other companies when you could be focused on your own. A simple SWOT analysis is a helpful way to map out strengths, weaknesses, opportunities, and threats that were revealed during your research.

Below are three types of business model example layouts you can use to succinctly and objectively assess what is possible and what challenges could arise for your business.

Aha! Notebooks business model template

Articulate the foundation of your product or service in a flexible whiteboard-style format with the Aha! Notebooks business model template.

The focus is on capturing key elements like why the solution is worth buying (messaging), pain points of the buyers (customer challenges), and ways you will grow the business (growth opportunities).

Aha! Roadmaps business model canvas

The Aha! Roadmaps business model is the most complete template in this guide — based on our team's decades of experience building breakthrough products and software companies.

You can drag and drop each component within a custom layout. And once you have completed your business model, it is easy to share with your team via a live webpage or exported PDF. This business model builder is included with the free 30-day trial of Aha! Roadmaps.

Business model in Aha!

Aha! Roadmaps lean canvas

Similar to the business model canvas, this model in Aha! Roadmaps takes a problem-focused approach to create an actionable business plan. It is most commonly used by startups and entrepreneurs to document business assumptions. The focus is on quickly creating a concise and effective single-page business model. It documents nine elements, including customer segments, channels used to reach customers, and the ways you plan to make money.

Lean canvas example in Aha!

How to build a business model in 10 steps

Crafting a business model is part of establishing a meaningful business strategy. But a business model is essentially a hypothesis — you need to test yours to prove that it will actually provide value. Many startup founders especially underestimate the costs and timeline for reaching profitability.

1. Identify your target market Who will benefit from your offering? What characteristics do prospective customers share?

2. Define the problem you will solve What is the problem that you are solving? What are the pain points of your potential customers?

3. Detail your unique selling proposition (USP) What will you build and how will you support it?

4. Create a pricing strategy How much will you charge for your offering? What factors will go into choosing your price point?

5. Develop a marketing approach How will you market your product and reach target customers? What channels will you choose for go-to-market?

6. Establish operational practices How will you streamline processes and procedures to reduce overhead and fixed costs?

7. Capture path to profitability How will your business generate revenue? What level of investment will be required and what fixed costs exist?

8. Anticipate challenges Who are your competitors? What opportunities and threats exist for your business?

9. Validate your business model Was your hypothesis correct? Does your business model solve a problem the way you thought it would?

10. Update to reflect learnings What can you do differently in the future to ensure greater success?

Your business model will ultimately guide your organization and influence your product roadmap. Give it the deep thought it deserves — questioning your core assumptions about how you will generate value and how your team will work towards achieving shared goals.

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Additional strategy resources

Using Aha! software

Aha! Roadmaps — Strategy overview

Aha! Roadmaps — Strategic models

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  • How to price your product
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8 Types of Business Models & the Value They Deliver

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  • 26 May 2016

You want to start a company but aren’t sure about a viable business model. How might you create something that people are willing to pay for and could earn you a profit?

Before diving into potential strategies, it’s important to understand what a business is and does. At its heart, a business generates value for its customers. A business model is a specific method used to create and deliver this value.

What Is Value in Business?

A successful business creates something of value . The world is filled with opportunities to fulfill people’s wants and needs, and your job as an entrepreneur is to find a way to capitalize on these opportunities.

A viable business model is one that allows a business to charge a price for the value it’s creating, such that the business brings in enough money to make it worthwhile and continue operating over time. Whatever the business is offering must also satisfy the customer’s needs and quality expectations.

It’s important to note that value is subjective. What’s valuable to one person may not be to another. Moreover, the concept of value excludes any moral judgments about the intrinsic worth of an offering. For example, while most would agree that human life is more valuable than sports, some professional athletes make far more money than the average brain surgeon.

Nonetheless, the concept of value provides a useful bedrock on which to begin building your business model. In particular, consider what forms of value people are willing to pay for. Here are eight potential business models and the forms of value they deliver—as well as the pros and cons of each—to help you get started.

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8 Types of Business Models to Explore

A product is a tangible item of value. To run a successful product-focused business, try to produce the item for as low a cost as possible while maintaining a reasonable level of quality. Once the item is produced, your objective should be to sell as many units as you can for as high a price as people are willing to pay to maximize profit.

Products are all around us. From laptops to books to HBS Online courses (products don’t have to be physical), products are a classic form of value with high upside if you can get them right.

  • Pros: Many products can be easily duplicated. Thus, firms can achieve economies of scale after bearing some upfront costs of production.
  • Cons: Physical products need to be stored as inventory, which can increase costs. They can also be damaged or lost more easily than, say, a service.

Related: How to Create an Effective Value Proposition

A service involves offering assistance to someone else for a fee. To make money from your service, provide a skill to others that they either can’t or don’t want to do themselves. If possible, repeatedly provide this benefit to them at a high quality.

Like products, services are in abundance, especially in the knowledge economy. From hairdressers to construction workers to consultants to teachers, people with lucrative skills can earn good money for their time.

  • Pros: If you have a skill in high demand or a skill that very few others have, you can charge a fair price for your time and stand out in your field.
  • Cons: If you don’t charge enough for your services, or many people have your skill, your business may not be as lucrative.

3. Shared Assets

A shared asset is a resource that many people can use. Such resources allow the owner to create or purchase the item once and then charge customers for its use. To run a profitable business around shared assets, you need to balance the tradeoff of serving as many customers as you can without affecting the overall quality of the experience.

For instance, think of a fitness center. A gym typically buys treadmills, ellipticals, free weights, bikes, and other equipment and charges customers monthly membership fees for access to these shared assets. The key is to charge customers enough to maintain and, if needed, replace their assets over time. Finding the right range of customers is the key to making a shared asset model work.

  • Pros: This model provides people access to a lot of assets they wouldn’t otherwise have access to. In addition, many people are willing to pay a lot for access to trendy social spaces.
  • Cons: Because they don’t own the assets, customers have little incentive to treat your resources well. Make sure you have enough in your budget for quick fixes, if necessary.

4. Subscription

A subscription is a type of program in which a user pays a recurring fee for access to certain specified benefits. These benefits often include the recurring provision of products or services. Unlike a shared asset, however, your experience with the product or service isn’t affected by others.

To have a successful subscription-based offering, build a subscriber base by providing reliable value over time while attracting new customers.

The number of subscription services has exploded in recent years. From magazines to streaming services to grocery and wine delivery subscriptions, businesses are turning to the subscription-based model, often with great success.

  • Pros: This model provides certainty in the form of predictable revenue streams, making financial forecasting a bit easier. It also benefits from a loyal customer base and customer inertia (for instance, customers may forget to cancel their subscription).
  • Cons: To run this model, your business operations must be strong. If you can’t deliver value consistently over time, you may want to consider a different business model.

5. Lease/Rental

A lease involves obtaining an asset and renting it out for an agreed-upon amount of time in exchange for a fee. You can lease virtually anything, but it’s in your best interest to rent assets that are durable enough to be returned in good condition. This ensures you can lease the good multiple times and, perhaps, eventually sell it.

To profit from leases, the key is to ensure that the revenue you get from leasing the asset before it loses value is greater than the purchase price. This requires you to price the rental of the item strategically and potentially not lease to those who may not return it in good condition. This is why many rentals of high-value items require references, credit checks, or other background information that can predict how someone may return the leased item.

  • Pros: You don’t have to have a novel idea to make money using a lease business model. You can purchase assets and rent them to others who wouldn’t buy them for full value and earn a premium.
  • Cons: You need to protect yourself from unexpected damage to your assets. One way to do so is through insurance.

6. Insurance

Insurance entails the transfer of risk from a customer to a seller of an insurance policy. In exchange for the insurance company (the seller of the policy) taking on the risk of a specified event occurring, they receive periodic payments ("premiums" in insurance lingo) from the policyholder. If the specified event doesn’t happen, the insurance company keeps the money, but if it does, the company has to pay the policyholder.

In a sense, insurance is the sale of safety—it provides value by protecting people from unlikely, but catastrophic, risks. Policyholders can take insurance out on almost anything: life, health, house, car, boat, and more. To run a successful insurance company, you have to accurately estimate the likelihood of bad events occurring and charge higher premiums than the claims you pay out to your customers.

  • Pros: If you calculate risk accurately, you’re guaranteed to make money using the insurance business model.
  • Cons: It can be difficult to accurately calculate the likelihood of specific events occurring. Insurance only works because it spreads risk over large numbers of policyholders. Insurance companies can fail if a large portion of policyholders is impacted by a widespread, negative event they didn’t see coming (for example, the Global financial crisis in 2007 and 2008).

Related: 5 Steps to Validate Your Business Idea

7. Reselling

Reselling is the purchasing of an asset from one seller and the subsequent sale of that asset to an end buyer at a premium price. Reselling is the process through which most major retailers purchase the products they then sell to buyers. For example, think of farmers supplying fruits and vegetables to a grocery store or manufacturers selling goods to a hardware store.

Companies make money through resale by purchasing large quantities of items (usually at a bulk discount) from wholesalers and selling single items for a higher price to individuals. This price raise is called a markup.

  • Pros: Markups can often be high for retail sales, enabling you to earn a profit on the items you resell. For example, a bottle of water might cost 10 cents to produce, whereas a customer may be willing to pay $1.50 or more for the same bottle.
  • Cons: You need to be able to gain access to quality products at low costs for the reselling business model to work. You’ll also need the physical space to store inventory to manage sales cycles.

8. Agency/Promotion

Agents create value by marketing an asset, which they don’t own, to an interested buyer. They then earn a fee or a commission for bringing the buyer and seller together. Thus, instead of using their own assets to create value, they team up with others to help promote them to the world.

Running a successful agency requires good connections, excellent negotiation skills , and a willingness to work with a diverse set of individuals. One example is a sports agent who promotes players to teams and negotiates on their behalf to get the best deal. In return, they typically receive compensation equal to a certain percentage of the contract.

  • Pros: You can highly profit from expertise and connections in your industry, be it publishing, acting, advertising, or something else.
  • Cons: You only get paid if you seal the deal, so you have to be able to live with some uncertainty.

So You Want to Be an Entrepreneur: How to Get Started | Access Your Free E-Book | Download Now

Setting Your Business Up for Success

These eight types of business models each have pros and cons and deliver value in their own ways. If you’re looking to start a business and need a place to start, one of these could be the best fit for your venture and entrepreneurial skill set .

Interested in honing your entrepreneurial skills? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn the language of the business world.

This post was updated on February 19, 2021, and is a compilation of two posts, previously published on May 26, 2016, and June 2, 2016.

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Business Model Canvas: Explained with Examples

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Got a new business idea, but don’t know how to put it to work? Want to improve your existing business model? Overwhelmed by writing your business plan? There is a one-page technique that can provide you the solution you are looking for, and that’s the business model canvas.

In this guide, you’ll have the Business Model Canvas explained, along with steps on how to create one. All business model canvas examples in the post can be edited online.

What is a Business Model Canvas

A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.   

The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It’s a one-page document containing nine boxes that represent different fundamental elements of a business.  

The business model canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of a business.

The right side of the canvas focuses on the customer or the market (external factors that are not under your control) while the left side of the canvas focuses on the business (internal factors that are mostly under your control). In the middle, you get the value propositions that represent the exchange of value between your business and your customers.

The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur and introduced in their book ‘ Business Model Generation ’ as a visual framework for planning, developing and testing the business model(s) of an organization.

Business Model Canvas Explained

What Are the Benefits of Using a Business Model Canvas

Why do you need a business model canvas? The answer is simple. The business model canvas offers several benefits for businesses and entrepreneurs. It is a valuable tool and provides a visual and structured approach to designing, analyzing, optimizing, and communicating your business model.

  • The business model canvas provides a comprehensive overview of a business model’s essential aspects. The BMC provides a quick outline of the business model and is devoid of unnecessary details compared to the traditional business plan.
  • The comprehensive overview also ensures that the team considers all required components of their business model and can identify gaps or areas for improvement.
  • The BMC allows the team to have a holistic and shared understanding of the business model while enabling them to align and collaborate effectively.
  • The visual nature of the business model canvas makes it easier to refer to and understand by anyone. The business model canvas combines all vital business model elements in a single, easy-to-understand canvas.
  • The BMC can be considered a strategic analysis tool as it enables you to examine a business model’s strengths, weaknesses, opportunities, and challenges.
  • It’s easier to edit and can be easily shared with employees and stakeholders.
  • The BMC is a flexible and adaptable tool that can be updated and revised as the business evolves. Keep your business agile and responsive to market changes and customer needs.
  • The business model canvas can be used by large corporations and startups with just a few employees.
  • The business model canvas effectively facilitates discussions among team members, investors, partners, customers, and other stakeholders. It clarifies how different aspects of the business are related and ensures a shared understanding of the business model.
  • You can use a BMC template to facilitate discussions and guide brainstorming brainstorming sessions to generate insights and ideas to refine the business model and make strategic decisions.
  • The BMC is action-oriented, encouraging businesses to identify activities and initiatives to improve their business model to drive business growth.
  • A business model canvas provides a structured approach for businesses to explore possibilities and experiment with new ideas. This encourages creativity and innovation, which in turn encourages team members to think outside the box.

How to Make a Business Model Canvas

Here’s a step-by-step guide on how to create a business canvas model.

Step 1: Gather your team and the required material Bring a team or a group of people from your company together to collaborate. It is better to bring in a diverse group to cover all aspects.

While you can create a business model canvas with whiteboards, sticky notes, and markers, using an online platform like Creately will ensure that your work can be accessed from anywhere, anytime. Create a workspace in Creately and provide editing/reviewing permission to start.

Step 2: Set the context Clearly define the purpose and the scope of what you want to map out and visualize in the business model canvas. Narrow down the business or idea you want to analyze with the team and its context.

Step 3: Draw the canvas Divide the workspace into nine equal sections to represent the nine building blocks of the business model canvas.

Step 4: Identify the key building blocks Label each section as customer segment, value proposition, channels, customer relationships, revenue streams, key resources, key activities, and cost structure.

Step 5: Fill in the canvas Work with your team to fill in each section of the canvas with relevant information. You can use data, keywords, diagrams, and more to represent ideas and concepts.

Step 6: Analyze and iterate Once your team has filled in the business model canvas, analyze the relationships to identify strengths, weaknesses, opportunities, and challenges. Discuss improvements and make adjustments as necessary.

Step 7: Finalize Finalize and use the model as a visual reference to communicate and align your business model with stakeholders. You can also use the model to make informed and strategic decisions and guide your business.

What are the Key Building Blocks of the Business Model Canvas?

There are nine building blocks in the business model canvas and they are:

Customer Segments

Customer relationships, revenue streams, key activities, key resources, key partners, cost structure.

  • Value Proposition

When filling out a Business Model Canvas, you will brainstorm and conduct research on each of these elements. The data you collect can be placed in each relevant section of the canvas. So have a business model canvas ready when you start the exercise.  

Business Model Canvas Template

Let’s look into what the 9 components of the BMC are in more detail.

These are the groups of people or companies that you are trying to target and sell your product or service to.

Segmenting your customers based on similarities such as geographical area, gender, age, behaviors, interests, etc. gives you the opportunity to better serve their needs, specifically by customizing the solution you are providing them.

After a thorough analysis of your customer segments, you can determine who you should serve and ignore. Then create customer personas for each of the selected customer segments.

Customer Persona Template for Business Model Canvas Explained

There are different customer segments a business model can target and they are;

  • Mass market: A business model that focuses on mass markets doesn’t group its customers into segments. Instead, it focuses on the general population or a large group of people with similar needs. For example, a product like a phone.  
  • Niche market: Here the focus is centered on a specific group of people with unique needs and traits. Here the value propositions, distribution channels, and customer relationships should be customized to meet their specific requirements. An example would be buyers of sports shoes.
  • Segmented: Based on slightly different needs, there could be different groups within the main customer segment. Accordingly, you can create different value propositions, distribution channels, etc. to meet the different needs of these segments.
  • Diversified: A diversified market segment includes customers with very different needs.
  • Multi-sided markets: this includes interdependent customer segments. For example, a credit card company caters to both their credit card holders as well as merchants who accept those cards.

Use STP Model templates for segmenting your market and developing ideal marketing campaigns

Visualize, assess, and update your business model. Collaborate on brainstorming with your team on your next business model innovation.

In this section, you need to establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company.

There are several types of customer relationships

  • Personal assistance: you interact with the customer in person or by email, through phone call or other means.
  • Dedicated personal assistance: you assign a dedicated customer representative to an individual customer.  
  • Self-service: here you maintain no relationship with the customer, but provides what the customer needs to help themselves.
  • Automated services: this includes automated processes or machinery that helps customers perform services themselves.
  • Communities: these include online communities where customers can help each other solve their own problems with regard to the product or service.
  • Co-creation: here the company allows the customer to get involved in the designing or development of the product. For example, YouTube has given its users the opportunity to create content for its audience.

You can understand the kind of relationship your customer has with your company through a customer journey map . It will help you identify the different stages your customers go through when interacting with your company. And it will help you make sense of how to acquire, retain and grow your customers.

Customer Journey Map

This block is to describe how your company will communicate with and reach out to your customers. Channels are the touchpoints that let your customers connect with your company.

Channels play a role in raising awareness of your product or service among customers and delivering your value propositions to them. Channels can also be used to allow customers the avenue to buy products or services and offer post-purchase support.

There are two types of channels

  • Owned channels: company website, social media sites, in-house sales, etc.
  • Partner channels: partner-owned websites, wholesale distribution, retail, etc.

Revenues streams are the sources from which a company generates money by selling their product or service to the customers. And in this block, you should describe how you will earn revenue from your value propositions.  

A revenue stream can belong to one of the following revenue models,

  • Transaction-based revenue: made from customers who make a one-time payment
  • Recurring revenue: made from ongoing payments for continuing services or post-sale services

There are several ways you can generate revenue from

  • Asset sales: by selling the rights of ownership for a product to a buyer
  • Usage fee: by charging the customer for the use of its product or service
  • Subscription fee: by charging the customer for using its product regularly and consistently
  • Lending/ leasing/ renting: the customer pays to get exclusive rights to use an asset for a fixed period of time
  • Licensing: customer pays to get permission to use the company’s intellectual property
  • Brokerage fees: revenue generated by acting as an intermediary between two or more parties
  • Advertising: by charging the customer to advertise a product, service or brand using company platforms

What are the activities/ tasks that need to be completed to fulfill your business purpose? In this section, you should list down all the key activities you need to do to make your business model work.

These key activities should focus on fulfilling its value proposition, reaching customer segments and maintaining customer relationships, and generating revenue.

There are 3 categories of key activities;

  • Production: designing, manufacturing and delivering a product in significant quantities and/ or of superior quality.
  • Problem-solving: finding new solutions to individual problems faced by customers.
  • Platform/ network: Creating and maintaining platforms. For example, Microsoft provides a reliable operating system to support third-party software products.

This is where you list down which key resources or the main inputs you need to carry out your key activities in order to create your value proposition.

There are several types of key resources and they are

  • Human (employees)
  • Financial (cash, lines of credit, etc.)
  • Intellectual (brand, patents, IP, copyright)
  • Physical (equipment, inventory, buildings)

Key partners are the external companies or suppliers that will help you carry out your key activities. These partnerships are forged in oder to reduce risks and acquire resources.

Types of partnerships are

  • Strategic alliance: partnership between non-competitors
  • Coopetition: strategic partnership between partners
  • Joint ventures: partners developing a new business
  • Buyer-supplier relationships: ensure reliable supplies

In this block, you identify all the costs associated with operating your business model.

You’ll need to focus on evaluating the cost of creating and delivering your value propositions, creating revenue streams, and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners.  

Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).

Value Propositions

This is the building block that is at the heart of the business model canvas. And it represents your unique solution (product or service) for a problem faced by a customer segment, or that creates value for the customer segment.

A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. And if you are offering a product that already exists in the market, it should stand out with new features and attributes.

Value propositions can be either quantitative (price and speed of service) or qualitative (customer experience or design).

Value Proposition Canvas

What to Avoid When Creating a Business Model Canvas

One thing to remember when creating a business model canvas is that it is a concise and focused document. It is designed to capture key elements of a business model and, as such, should not include detailed information. Some of the items to avoid include,

  • Detailed financial projections such as revenue forecasts, cost breakdowns, and financial ratios. Revenue streams and cost structure should be represented at a high level, providing an overview rather than detailed projections.
  • Detailed operational processes such as standard operating procedures of a business. The BMC focuses on the strategic and conceptual aspects.
  • Comprehensive marketing or sales strategies. The business model canvas does not provide space for comprehensive marketing or sales strategies. These should be included in marketing or sales plans, which allow you to expand into more details.
  • Legal or regulatory details such as intellectual property, licensing agreements, or compliance requirements. As these require more detailed and specialized attention, they are better suited to be addressed in separate legal or regulatory documents.
  • Long-term strategic goals or vision statements. While the canvas helps to align the business model with the overall strategy, it should focus on the immediate and tangible aspects.
  • Irrelevant or unnecessary information that does not directly relate to the business model. Including extra or unnecessary information can clutter the BMC and make it less effective in communicating the core elements.

What Are Your Thoughts on the Business Model Canvas?

Once you have completed your business model canvas, you can share it with your organization and stakeholders and get their feedback as well. The business model canvas is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.

What best practices do you follow when creating a business model canvas? Do share your tips with us in the comments section below.

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FAQs About the Business Model Canvas

  • Use clear and concise language
  • Use visual-aids
  • Customize for your audience
  • Highlight key insights
  • Be open to feedback and discussion

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Amanda Athuraliya is the communication specialist/content writer at Creately, online diagramming and collaboration tool. She is an avid reader, a budding writer and a passionate researcher who loves to write about all kinds of topics.

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How to Design a Winning Business Model

  • Ramon Casadesus-Masanell
  • Joan E. Ricart

Smart companies’ business models generate cycles that, over time, make them operate more effectively.

Reprint: R1101G

Most executives believe that competing through business models is critical for success, but few have come to grips with how best to do so. One common mistake, the authors’ studies show, is enterprises’ unwavering focus on creating innovative models and evaluating their efficacy in standalone fashion—just as engineers test new technologies or products. However, the success or failure of a company’s business model depends largely on how it interacts with those of the other players in the industry. (Almost any business model will perform brilliantly if a company is lucky enough to be the only one in a market.) Because companies build them without thinking about the competition, companies routinely deploy doomed business models.

Moreover, many companies ignore the dynamic elements of business models and fail to realize that they can design business models to generate winner-take-all effects similar to the network externalities that high-tech companies such as Microsoft, eBay, and Facebook often create. A good business model creates virtuous cycles that, over time, result in competitive advantage.

Smart companies know how to strengthen their virtuous cycles, undermine those of rivals, and even use them to turn competitors’ strengths into weaknesses.

The Idea in Brief

There has never been as much interest in business models as there is today; seven out of 10 companies are trying to create innovative business models, and 98% are modifying existing ones, according to a recent survey.

However, most companies still create and evaluate business models in isolation, without considering the implications of how they will interact with rivals’ business models. This narrow view dooms many to failure.

Moreover, companies often don’t realize that business models can be designed so that they generate virtuous cycles—similar to the powerful effects high-tech firms such as Facebook, eBay, and Microsoft enjoy. These cycles, when aligned with company goals, reinforce competitive advantage.

By making the right choices, companies can strengthen their business models’ virtuous cycles, weaken those of rivals, and even use the cycles to turn competitors into complementary players.

This is neither strategy nor tactics; it’s using business models to gain competitive advantage. Indeed, companies fare poorly partly because they don’t recognize the differences between strategy, tactics, and business models.

Strategy has been the primary building block of competitiveness over the past three decades, but in the future, the quest for sustainable advantage may well begin with the business model. While the convergence of information and communication technologies in the 1990s resulted in a short-lived fascination with business models, forces such as deregulation, technological change, globalization, and sustainability have rekindled interest in the concept today. Since 2006, the IBM Institute for Business Value’s biannual Global CEO Study has reported that senior executives across industries regard developing innovative business models as a major priority. A 2009 follow-up study reveals that seven out of 10 companies are engaging in business-model innovation, and an incredible 98% are modifying their business models to some extent. Business model innovation is undoubtedly here to stay.

the business model description

  • RC Ramon Casadesus-Masanell is a professor at Harvard Business School and the author, with Joan E. Ricart, of “How to Design a Winning Business Model” (HBR January–February 2011).
  • JR Joan E. Ricart ( [email protected] ) is the Carl Schroder Professor of Strategic Management and Economics at IESE Business School in Barcelona.

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  • What is a business model? Types and examples

the business model description

Few things are as important to a company as its business model. Your business model serves as a template and guide for just about every part of your business. It's essential to not only create a business model that reflects how you will make money, but also adapt it over time as the needs of your market change.

How does a business model work? What are some common types of business models? This guide will introduce you to business models and provide a helpful guide so you can create your own.

Business model definition

A business model explains an organization's core strategy for running a profitable operation. It describes what will be sold, how revenue will be generated and how the customers will pay.

Business models capture the rationale and the plan for creating and delivering value. Business models also reflect the company's unique value proposition, which is the essential way in which the company meets the market’s needs.

Key components of a business model

While every company's business model will look different, a successful business model will contain the following key components:

  • A description of the products or services (including the cost of manufacturing)
  • A strategy for distributing that product (marketing, delivery, merchandising)
  • How the customer pays (pricing structure, payment methods)

Your business model integrates all of the components of your business and organizes them into a cohesive structure.

Business model vs. business plan

The term "business model" is sometimes used synonymously with "business plan." However, the two documents serve slightly different purposes.

A business model is a holistic portrait of how the company operates. Think of a business model as an aerial photograph of your organization, giving you a comprehensive view of your current and future operations.

A business plan refers to the specific strategy for accomplishing a particular goal. A business plan is more like the turn-by-turn directions you receive on your GPS device.

The business model and business plan must be in alignment, but the business model explains how you will succeed while the business plan shows how you’ll get there.

Why choosing the right business model is important

Writing for the Harvard Business Review, Joan Magretta explains that business models matter because they tell a specific story about your company. Your company's "story" explains how all the pieces come together and connects this narrative to your raw financial numbers.

Business modeling is, therefore, important for at least three groups of people:

1. Your company's employees

Your business model determines the scope and strategy of your business processes. It's important for you and your employees to understand your existing business model, as well as how it translates into your day-to-day activities.

But more than that, a successful business model will also provide a vision for the future, which empowers established businesses to improve their cash flow and make expansion plans.

2. Your target customer groups

Successful business models also create value for your business and help you communicate this value to your target customer segments. While your key customers will likely never read your business model, it should help you strategize ways to communicate your unique value proposition to your customers.

3. Investors

Investors will also need to understand your business model. Ideally, your business model describes a clear strategy for meeting a market need, establishing your goals, and setting a long-term vision. A clear business model will help you gain the confidence of investors and secure funding.

What are common types of business models?

There are many different types of business models, with new models emerging as entire industries adapt and grow. The following list is not exhaustive but represents some of the more common business models in use today, along with some business model examples to illustrate how they work in the real world:

Manufacturing business model

A manufacturing business model focuses on the production of goods by sourcing raw materials and using a standardized production process. Manufacturers typically sell their finished products to retailers and other distributors, though some manufacturers also sell directly to consumers.

Examples include Ford Motor Company, Frito-Lay, and Whirlpool.

Retail business model

Retail is likely the most familiar business model for most American consumers. A retailer purchases finished goods from a manufacturer or distributor, then sells these products directly to customers.

This setup usually takes place inside brick-and-mortar stores, though many companies are adapting their business framework to offer online options.

Some of the most common retail business model examples include stores such as Target or Wal-Mart.

Franchise business model

A franchise business model might overlap with other business models, though the key difference is how the business is structured. In the franchise business model, a franchisee purchases the rights to a business from the franchisor or parent company.

The franchisee then operates under the established brand, which gives them more stability than if they'd launched their own business from scratch.

Common franchise business model examples include McDonald's, Ace Hardware, and Planet Fitness.

eCommerce business model

An eCommerce business model functions similarly to a retailer, though it relies on online platforms to advertise products and conduct transactions. eCommerce companies also utilize delivery companies to transport products to their customers.

The most common eCommerce business model example is Amazon.com, though retailers like Target and Wal-Mart have also launched eCommerce segments.

Freemium business model

The freemium business model is popular among technology companies. Freemium business models blend free and paid features on the same platform. The idea is simple: customers who enjoy the free service can be encouraged to sign up and pay for access to premium features.

Flickr, the online photo app, is a good example freemium business model, though many companies offer introductory services before promoting their premium features.

Advertising business model

Advertising companies are third-party organizations that help connect other businesses to their core customer segments. Essentially, the business’s users and customers are two different groups. Strategies can vary widely, especially when digital companies offer print ads, internet marketing, and content for social media platforms to help their clients expand their advertising reach.

Facebook, Instagram, and TikTok all fit into this business model.

Affiliate business model

An affiliate business model is similar to an advertising model, though an affiliate business strategy is more subtle. Instead of clear, overt advertisements, an affiliate business will embed links into other content to drive sales.

For instance, an affiliate business might link to Hulu when writing a review of popular streaming platforms.

How to create a new business model

Creating a new business model is important when launching a startup, but many companies create entirely new business models to adapt as they grow. Here's how to create a new business model that works for your unique industry:

1. Define the problem

First, determine the problem or need that your company can uniquely address. Identifying the problem can ensure that there is a demand out there for your products or services.

Every business idea should start with the question, "Why?" Why does your business exist? What need does it fill? Why will customers want to purchase your product? Keeping this understanding center of mind will help you stay focused throughout the process.

2. Identify your target market

A good business model will focus on specific customer segments. Who are you trying to reach? This insight will help you refine your marketing efforts and product features based on the demographic groups you seek to build relationships with.

3. List your products or services

The next step is crucial. You want to list and describe your products and services and explain clearly how these satisfy the need you defined in step 1. It's important to ensure that your team’s expertise matches the products and services that solve these needs.

For example, if you have a background in personal finance, you might consider how a new accounting software system might assist certain types of established businesses. This stage tends to be iterative, meaning you'll come back and redefine your product offerings based on feedback and adapt them to new market needs.

4. Determine your business needs

Once you zero in on your products, you'll want to determine what you'll need to connect them to your customer base. This calculation can include costs incurred from

manufacturing/product development, as well as the need for personnel, marketing, and other expenses.

5. Build a network of key partners

Depending on the nature of your business, you may want to network with other professionals. For example, if you're relying on a retail business model, you may want to start networking with distributors, manufacturers, and other industry players.

You may want to consider if there's an eCommerce platform you'd like to use in conjunction with retail sales or if there are business tools that can help you run your business more efficiently.

6. Create a financial strategy

Successful businesses use their business model as a financial model to calculate their overall profitability. You'll need to determine how you intend to make money, including things like cost structure, profit formula, pricing, and other core considerations.

A successful business model will ensure that you satisfy the need you identified in step 1 while generating profits that help maintain and grow your operations.

7. Test and refine your model

The most successful companies will test their existing business models to determine how well they're performing. This work might reflect things like customer feedback, financial performance, or the need to adapt to new market conditions.

Here's a tip: conduct a "soft launch" of your business for a select group of customers. Offer discounts in exchange for honest feedback. Incorporate their feedback into your business model design, then proceed to a full-scale launch once you've refined your model.

How to improve your business model

If you've had the same business model for years, it may be time for a review. Improving your current business model can help you adapt to new technology, changing costs, and new customer demands. For example, if an advertising firm's business model doesn't take into account new social media platforms, the company may miss out on opportunities to connect with its audience.

Here are some strategies for business model innovation and improvement:

Listen to customer feedback

Turn your existing customers into coaches. Product and company reviews can be a gold mine for information about current client needs and how well your company meets those needs. You may discover new ways to innovate and adapt.

Lower your overhead

If your company struggles to make a profit, you may want to rethink some of your overhead costs. For example, automating some of your core business processes through technology can help your employees work more efficiently, reducing the number of hours you spend on back-office tasks.

Introduce a new product or service

When your company has been offering the same products and services for years, it might be time to shake things up. Introduce a new product or service to demonstrate your value to your customers, or use this as an opportunity to gain a whole new set of customers.

Reconsider your revenue model

Your current revenue model may be based on an outdated price structure. It may be that the cost of manufacturing or rising inflation warrants an increase in the price of your core products and services.

If you operate a subscription-based service (or a freemium model), you may offer discounts to existing customers while raising the price of a product or service for new customers.

Change your marketing message

Your marketing campaign is how you tell your story. If your story changes, so should your marketing message. Refine your marketing strategy by adapting to new digital channels, or consider developing content that directly impacts your target audience.

How BILL can help improve your business model

Creating and refining your business model is just one way to run a successful business. BILL can help small and mid-size businesses save 50% of the time they spend on accounts payable. Learn more about how to pay smarter.

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Business LibreTexts

1.4: Chapter 4 – Business Models

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  • Page ID 21256

  • Lee A. Swanson
  • University of Saskatchewan

A startup is a temporary organization in search of a scalable, repeatable, profitable business model. – Blank and Dorf (2012, p. xvii)

Today countless innovative business models are emerging. Entirely new industries are forming as old ones crumble. Upstarts are challenging the old guard, some of whom are struggling feverishly to reinvent themselves.

How do you image your organization’s business model might look two, five, or ten years from now? Will you be among the dominant players? Will you face competitors brandishing formidable new business models? – Osterwalder, Pigneur, and Clark (2010, p. 4)

Learning Objectives

After completing this chapter you will be able to

  • Describe what a business model is
  • Analyse existing and proposed businesses to determine what business models they are applying and what business models they plan to apply
  • Develop and analyze alternative business models for new entrepreneurial ventures

In this chapter, the concept of the business model is introduced. One concept of the business model in particular, the Business Model Canvas, is explored as a way to conceptualize and categorize elements of a business model.

What are Business Models?

Magretta (2002) described business models as “stories that explain how enterprises work” (p. 87) and Osterwalder, et al. (2010) said that they describe “the rationale of how an organization creates, delivers, and captures value” (p. 14). Chatterjee (2013) said that “A business is about selling what you make for a profit. A business model is a configuration (activity systems) of what the business does (activities) and what it invests in (resources) based on the logic that drives the profits for a specific business” (p. 97).

The Business Model Canvas

The Business Model Canvas tool is based on the premise that a start-up is something quite different than an ongoing venture. A start-up should not be viewed as a smaller version of a company because starting-up a company requires very different skills than operating one does. A start-up that is still a start-up after some time—maybe after a couple of years for some kinds of start-ups—is actually a failed enterprise since it hasn’t converted into an ongoing venture (Osterwalder et al., 2010).

The business model canvas is made up of nine parts that, together, end up describing the business model.

Figure-6.jpg

Figure 3 – Business Model Canvas from http://www.businessmodelgeneration.com (Designed by: Strategyzer AG, strategyzer.com, Creative Commons Attribution-Share Alike 3.0 Unported License)

The following elements of the Business Model Canvas were taken, with permission, from http://www.businessmodelgeneration.com .

  • Who are our key partners?
  • Who are our key suppliers?
  • Which key resources are we acquiring from partners?
  • Which key activities do partners perform?
  • Motivations for partnerships: optimization and economy; reduction of risk and uncertainty; acquisition of particular resources and activities
  • What key activities do our value propositions require?
  • Our distribution channels?
  • Customer relationships?
  • Revenue streams?
  • Categories: production; problem-solving; platform/network
  • What key resources do our value propositions require?
  • Types of resources: physical; intellectual (brand patents, copyrights, data); human; financial
  • What value do we deliver to the customer?
  • Which one of our customer’s problems are we helping to solve?
  • What bundles of products and services are we offering to each customer segment?
  • Which customer needs are we satisfying?
  • Characteristics: newness; performance; customization; “getting the job done”; design; brand/status; price; cost reduction; risk reduction; accessibility; convenience/usability
  • What type of relationship does each of our customer segments expect us to establish and maintain with them?
  • Which ones have we established?
  • How are they integrated with the rest of our business model?
  • How costly are they?
  • Examples: personal assistance; dedicated personal assistance; self-service; automated services; communities; co-creation
  • For whom are we creating value?
  • Who are our most important customers?
  • Mass market; niche market; segmented; diversified; multi-sided platform.
  • Through which channels do our customer segments want to be reached?
  • How are we reaching them now?
  • How are our channels integrated?
  • Which ones work best?
  • Which ones are most cost-efficient?
  • How are we integrating them with customer routines?
  • Awareness – How do we raise awareness about our company’s products and services?
  • Evaluation – How do we help customers evaluate our organization’s value proposition?
  • Purchase – How do we allow customers to purchase specific products and services?
  • Delivery – How do we deliver a value proposition to customers?
  • After sales – How do we provide post-purchase customer support?
  • For what value are our customers really willing to pay?
  • For what do they currently pay?
  • How are they currently paying?
  • How would they prefer to pay?
  • How much does each revenue stream contribute to overall revenues?
  • Types: asset sale; usage fee; subscription fees; lending/renting/leasing; licensing; brokerage fees; advertising
  • Fixed pricing: list price; product feature dependent; customer segment dependent; volume dependent
  • Dynamic pricing: negotiation (bargaining); yield management; real-time-market
  • What are the most important costs inherent in our business model?
  • Which key resources are most expensive?
  • Which key activities are most expensive?
  • Is your business more: cost driven (leanest cost structure, low price value proposition, maximum automation, extensive outsourcing); value driven (focused on value creation, premium value proposition).
  • Sample characteristics: fixed costs (salaries, rents, utilities); variable costs; economies of scale; economies of scope

The idea is to keep adding descriptions or plans to the nine components to create the initial business model and then to actually do the start-up activities and replace the initial assumptions in each of the nine parts with newer and better information or plans to let the business model evolve. This model is partly based on the idea that the owner should be the one interacting with potential customers so he or she fully understands what these potential customers want. These interactions should not only be done by hired sales people, at least until the business model has evolved into one that works, which can only happen when the venture owner is completely engaged with the potential customers and the other business operations (Osterwalder et al., 2010).

A business plan shouldn’t be created until the above has been done because you need to know what your business model is before you can really create a business plan (Osterwalder et al., 2010). This seems to imply that the Business Model Canvas is best suited to technology-based and other types of companies that can be basically started and operated in some way that can later be converted into an ongoing venture. By starting operations and making adjustments as you go, you are actually doing a form of market research that can be compiled into a full business plan when one is needed.

According to Osterwalder, et al. (2010), the things we typically teach people in business school are geared to helping people survive in larger, ongoing businesses. What is taught—including organizational structures, reporting lines, managing sales teams, advertising, and similar topics—is not designed to help students understand how a start-up works and how to deal with the volatile nature of new ventures. The Business Model Canvas idea is meant to help us understand start-ups.

The Business Model Canvas tool is intended to be applied when business operations can be started on a small scale and adjustments can continually be made until the evolving business model ends up working in real life. This is in contrast to the more traditional approach of pre-planning everything and then going through the set-up and start-up processes and ending up with a business venture that opens for business one day without having proven at all that the business model it is founded upon will even work. These traditional start-ups sometimes flounder along as the owners find that their plans are not quite working out and they try to make adjustments on the fly. It can be difficult to make adjustments at this time because the processes are already set up. For example, sales teams might be in the field trying to make sales and blaming the product developers for the difficulty they are having, and the product developers might be blaming the sales teams for not being able to sell the product properly. The real issue might be that the company simply isn’t meeting customers’ needs and they don’t have any good mechanism for detecting and understanding and fixing this problem.

Lean Start-up

Consistent with the Business Model Canvas approach, Ries (2011) advanced the idea of the lean start-up. His definition of a startup is “a human institution designed to create a new product or service under conditions of extreme uncertainty” (p. 27), and the lean start-up approach involves releasing a minimal viable product to customers with the expectation that this early prototype will change and evolve frequently and quickly in response to customer feedback. This is meant to be a relatively easy and inexpensive way to develop a product or service by relying on customer feedback to guide the pivots in new directions that will ultimately—and relatively quickly—lead to a product or service that will have the appeal required for business success. It is only then that the actual business can truly emerge.

Ries’s (2011) five lean start-up principles start with the idea that entrepreneurs are everywhere and that anyone working in an environment where they seek to create new products or services “under conditions of extreme uncertainty” (27) can use the lean start-up approach. Second, a start-up is more than the product or service; it is an institution that must be managed in a new way that promotes growth through innovation. Third, startups are about learning “how to build a sustainable business” (p. 8-9) by validating product or service design through frequent prototyping that allows entrepreneurs to test the concepts. Forth, startups must follow this process or feedback loop: create products and services; measure how the market reacts to them; and learn from that reaction to determine whether to pivot or to persevere with an outcome the market accepts. Finally, Ries (2011) suggested that entrepreneurial outcomes and innovation initiatives need to be measured through innovative accounting.

Figure-7.jpg

Figure 4 – Business Model and Lean Start-up Books (Photo by Lee A. Swanson)

Growth Wheel

According to its website, GrowthWheel® ( http://www.growthwheel.com/ ) is a decision-making tool for start-up and growth companies to help business advisers and entrepreneurs focus, set agendas, make decisions, and take action (GrowthWheel, 2015). It is effectively a more complex and detailed tool than the Business Model Canvas for describing a business model. A web search will yield a variety of tools, like the Business Model Canvas and the GrowthWheel ® , that can be used to describe business models.

Franchises as Business Models

Franchises are basically business models developed by others (franchisors) that have been proven to work in multiple contexts and that are sold to entrepreneurs (franchisees) who will implement the business model in contexts that the franchisor believes will result in a successful enterprise. Franchises apply various business models. Some are turnkey franchises , like McDonald’s, where the entire business structure is set up from the design of the stores to the supply system, and the franchisor sets up virtually everything for the new franchisee. Other franchise models, like that defining Tap ‘N’ Pay Canada (www.tapnpay.ca/)—a business that provides debit and credit card machines and point of sale equipment—advertise relatively low fees charged to franchisees and quick set-ups in as little as two weeks ( http://www.betheboss.ca/franchises/tap-n-pay ).

Business model canvas deep dive

Business models: the toolkit to design a disruptive company

In today's fast-paced business world, having a solid understanding of business models is essential for creating a successful and disruptive company. In this deep dive article, we will explore the toolkit to design a disruptive company through the lens of the Business Model Canvas.

1. What is a business model?

Definition:.

A business model describes the rationale of how an organization creates, delivers and captures value. It can be described through 9 building blocks: Customer Segments, Value Propositions, Channels, Customer Relationships, Revenue Streams, Key Resources, Key Activities, Key Partnerships & Cost Structure.

Business Model History

Where did the term even come from?

The search to define what a business model is goes as far back as 1994, when Peter Drucker introduced the theory of the business was a set of assumptions about what a business will and won’t do in an article for the Harvard Business Review. He speaks about how companies fail to keep up with changing market conditions, as well as their duty to identify customers and competitors, their values and behaviour. Now considering that we've had businesses for over hundreds of years - it's pretty remarkable we only just came up with the term 'business model' a few decades ago!

In the middle of the 2002 dot com crisis, Joan Magretta  built on Drucker’s business definition to exclaim that business models are “at heart, stories. Stories that explain how enterprises work. A good business model answers Peter Drucker’s age-old questions: ‘Who is the customer? And what does the customer value?'

The shift from a business plan to business model goes hand-in-hand with the rise of personal computers and the use of spreadsheets. Entrepreneurs used to plan their businesses year by year, quarter by quarter, and write it down in a document almost like a book who’s copy is final. The change occurred hand in hand alongside the introduction of powerful new technology such as Microsoft Excel, enabling people to model them digitally and more accurately. Being able to calculate your entire profit and loss for a business was now available to you on a single Microsoft Excel page. This now meant businesses could be modelled before they were actually launched. Products or services could be done ahead of time in terms of calculating the business' recurring revenue, profit, marketing costs, advertising spend etc. in order to model the framework of the business.

This change in approach prompted the likes of Alexander Osterwalder and Yves Pigneur to invent the Business Model Canvas in 2005, the first ever visual business tool of its kind. Long gone are the days of having to come up with a long & highly unrealistic business plan,  trying to predict what product or service you'll be selling at the company five years from now!

What is the Business Model Canvas (BMC) ?

what-is-a-business-model-BMC-canvas

The Business Model Canvas is a strategic management and lean startup template for developing new or documenting existing business models. It is a visual tool with elements describing a company’s value proposition, infrastructure, customers and finances. It provides an organized way to lay out your assumptions about not only the key resources and key activities of your value chain, but also your value proposition, customer relationships, channels, customer segments, cost structures, and revenue streams.

It assists companies in aligning their activities by illustrating potential trade-offs by comparing them to one another and being able to see the bigger picture of their overall business framework. It's essentially taken Peter Drucker's hypothetical concept of a business 'model' and turned it into something much more tangible, that we can now see visually and use as a tool to consider all the different aspects of a single business model.

The Business Model Canvas explained in a short 2-minute video:

Why use the Business Model Canvas?

what-is-a-business-model-whyuse

Create a shared language

This concept can become a shared language that allows you to easily describe and manipulate business models to create new strategic alternatives. Without such a shared language it is difficult to systematically challenge assumptions about one’s business and innovate successfully.

Simple, visual and practical

The canvas is perfect for any good discussion, meeting, or workshop on business model innovation and creates a shared language. We need a concept that everybody understands: one that facilitates description and discussion. We need to start from the same point and talk about the same thing. The challenge is that the concept must be simple, relevant, and intuitively understandable, while not oversimplifying the complexities of how enterprises function.

Discover opportunities

By going through the process of listing the different parts of your business on the canvas, you begin to visualise and understand the different relationships between the nine building blocks that make up the tool.

Iterate quickly

Whether you’re using sticky notes on a real life Business Model Canvas or you’re designing your business model on the Strategyzer app , you can iterate on your designs very quickly. The tool enables you to prototype a first version and simply keep iterating until you’ve tested enough ideas to find product-market fit.

Read more: 14 Ways to Apply the Business Model Canvas

2. The 9 building blocks of The Business Model Canvas

We believe a business model can best be described through nine basic building blocks that show the logic of how a company intends to deliver value and make money. The nine blocks cover the three main areas of a business: desirability, viability and feasibility. The business model is like a blueprint for a strategy to be implemented through organizational structures, processes, and systems. Let’s take a look into the three different sections:

building-blocks-DFV-canvas

Desirability

Value propositions.

The Value Proposition's Building Block describes the bundle of products and services that create value for a specific Customer Segment The Value Proposition is the reason why customers turn to one company over another. It solves a customer problem or satisfies a customer need.

Each Value Proposition consists of a selected bundle of products and/or services that caters to the requirements of a specific Customer Segment. In this sense, the Value Proposition is an aggregation, or bundle, of benefits that a company offers customers. Some Value Propositions may be innovative and represent a new or disruptive offer. Others may be similar to existing market offers, but with added features and attributes

Customer Segments

The Customer Segments Building Block defines the different groups of people or organizations an enterprise aims to reach and serve Customers are the heart of any business model. Without (profitable) customers, no company can survive for long. In order to better satisfy customers, a company may group them into distinct segments with common needs, common behaviors, or other attributes. A business model may define one or several large or small Customer Segments. An organization must make a conscious decision about which segments to serve and which segments to ignore. Once this decision is made, a business model can be carefully designed around a strong understanding of specific customer needs.

The Channels Building Block describes how a company communicates with and reaches its Customer Segments.

Channels are customer touch points that play an important role in the customer experience. Channels serve several functions, including:

  • Raising awareness among customers about a company’s products and services
  • Helping customers evaluate a company’s Value Proposition
  • Allowing customers to purchase specific products and services
  • Delivering a Value Proposition to customers
  • Providing post-purchase customer support

Customer Relationships

The Customer Relationships Building Block describes the types of relationships a company establishes with specific Customer Segments. A company should clarify the type of relationship it wants to establish with each Customer Segment. Relationships can range from personal to automated. Customer relationships may be driven by the following motivations:

  • Customer acquisition
  • Customer retention
  • Boosting sales (up-selling)

Revenue Streams

The Revenue Streams Building Block represents the cash a company generates from each Customer Segment (costs must be subtracted from revenues to create earnings).

If customers is the heart of a business model, Revenue Streams are its arteries. A company must ask itself, For what value is each Customer Segment truly willing to pay? Successfully answering that question allows the firm to generate one or more Revenue Streams from each Customer Segment. Each Revenue Stream may have different pricing mechanisms, such as fixed list prices, bargaining, auctioning, market dependent, volume dependent, or yield management.

A business model can involve two different types of Revenue Streams:

  • Transaction revenues resulting from one-time customer payments
  • Recurring revenues resulting from ongoing payments to either deliver a Value Proposition to customers or provide post-purchase customer support

Cost Structure

The Cost Structure describes all costs incurred to operate a business model. This building block describes the most important costs incurred while operating under a particular business model.

Creating and delivering value, maintaining Customer Relationships, and generating revenue all incur costs. Such costs can be calculated relatively easily after defining Key Resources, Key Activities, and Key Partnerships. Some are more cost-driven than others. So-called “no frills” airlines, for instance, have built business models entirely around low cost structures

Feasibility

The Key Resources Building Block describes the most important assets required to make a business model work Every business model requires Key Resources. These resources allow an enterprise to create and offer a Value Proposition, reach markets, maintain relationships with Customer Segments, and earn revenues.

Different Key Resources are needed depending on the type of business you are building. A microchip manufacturer requires capital-intensive production facilities, whereas a microchip designer focuses more on human resources. Key resources can be physical, financial, intellectual, or human. Key resources can be owned or leased by the company or acquired from key partners.

Key Activities

The Key Activities Building Block describes the most important things a company must do to make its business model work. Every model calls for a number of Key Activities. These are the most important actions a company must take to operate successfully. Like Key Resources, they are required to create and offer a Value Proposition, reach markets, maintain Customer Relationships, and earn revenues. And like Key Resources, Key Activities differ depending on business model type. For software maker Microsoft, Key Activities include software development. For PC manufacturer Dell, Key Activities include supply chain management. For consultancy McKinsey, Key Activities include problem solving.

Partnerships

The Key Partnerships Building Block describes the network of suppliers and partners that make the business model work. Companies forge partnerships for many reasons, and partnerships are becoming a cornerstone of many business models. Companies create alliances to optimize, reduce risk, or acquire resources. We can distinguish between four different types of partnerships:

  • Strategic alliances between non-competitors
  • Coopetition: strategic partnerships between competitors
  • Joint ventures to develop new businesses
  • Buyer-supplier relationships to assure reliable supplies

3. Types of business models

In 2009, Amazon expands from platform to sales by launching Amazon private labels. It copies third-party sellers who created successful businesses by sourcing products absent from Amazon’s platform. Amazon sees this as an opportunity to create its own line of products.

Amazon Business Model

In 1999 Amazon launched its third-party seller marketplace and established itself as an incredibly successful e-commerce platform for other retailers. In 2007 Amazon began to use its platform to sell its own electronic devices (Kindle e-reader) and expanded to private label products under the AmazonBasics brand. While many companies aim to shift from sales to platform, Amazon executed are verse shift from platform to sales. With its private label business Amazon started to compete with third-party suppliers who are also customers of its e-commerce business. Amazon continuously expanded its private label product catalog with a wide selection (from electronics to clothing and everyday accessories) and lower prices.

The term “freemium” was coined by Jarid Lukin and popularized by venture capitalist Fred Wilson on his blog. It stands for business models, mainly Web-based, that blend free basic services with paid premium services. The freemium model is characterized by a large user base benefiting from a free, no-strings-attached offer. Most of these users never become paying customers; only a small portion, usually less than 10 percent of all users, subscribe to the paid premium services. This small base of paying users subsidizes the free users. This is possible because of the low marginal cost of serving additional free users.

In a freemium model, the key metrics to watch are:

(1) the average cost of serving a free user

(2) the rates at which free users convert to premium (paying) customers

Flickr Business Model

Flickr, the popular photo-sharing Web site acquired by Yahoo! in 2005, provides a good example of a freemium business model. Flickr users can subscribe for free to a basic account that enables them to upload and share images. The free service has certain constraints, such as limited storage space and a maximum number of uploads per month. For a small annual fee users can purchase a “pro” account and enjoy unlimited uploads and storage space, plus additional features.

Multi-sided platforms, known by economists as multi sided markets, are an important business phenomenon. They have existed for a long time, but proliferated with the rise of information technology. The Visa credit card, the Microsoft Windows operating system, the FinancialTimes, Google, the Wii game console, and Facebook are just a few examples of successful multi-sided platforms. We address them here because they represent an increasingly important business model pattern.

What exactly are multi-sided platforms? They are platforms that bring together two or more distinct but interdependent groups of customers. They create value as intermediaries by connecting these groups. Credit cards, for example, link merchants with cardholders; computer operating systems link hardware manufacturers, application developers, and users; newspapers link readers and advertisers; video gaming consoles link game developers with players.

The key is that the platform must attract and serve all groups simultaneously in order to create value. The platform’s value for a particular user group depends substantially on the number of users on the platform’s “other sides.” A video game console will only attract buyers if enough games are available for the platform. On the other hand, game developers will develop games for a new video console only if a substantial number of gamers already use it. Hence multi-sided platforms often face a “chicken and egg” dilemma.

One way multi-sided platforms solve this problem is by subsidizing a Customer Segment. Though a platform operator incurs costs by serving all customer groups, it often decides to lure one segment to the platform with an inexpensive or free Value Proposition in order to subsequently attract users of the platform’s “other side.” One difficulty multi-sided platform operators face is understanding which side to subsidize and how to price correctly to attract customers.

Multi-sided platforms bring together two or more distinct but interdependent groups of customers. Such platforms are of value to one group of customers only if the other groups of customers are also present. The platform creates value by facilitating interactions between the different groups. A multi-sided platform grows in value to the extent that it attracts more users, a phenomenon known as the network effects.

Let’s take a look into Google ’s multi-sided business model.

Google Business Model

As a multi-sided platform Google has a very distinct revenue model. It makes money from one Customer Segment, advertisers, while subsidizing free offers to two other segments: Web surfers and content owners. This is logical because the more ads it displays to Web surfers, the more it earns from advertisers. Increased advertising earnings, in turn, motivates even more content owners to become AdSense partners. Advertisers don’t directly buy advertising space from Google. They bid on ad-related keywords associated with either search terms or content on third party Web sites. The bidding occurs through an AdWords auction service: the more popular a keyword, the more an advertiser has to pay for it. The substantial revenue that Google earns from AdWords allows it to continuously improve its free offers to search engine and AdSense users.

Google’s Key Resource is its search platform, which powers three different services: Web search (Google.com), advertising (AdWords), and third-party content monetization (AdSense). These services are based on highly complex proprietary search and match making algorithms supported by an extensive IT infrastructure.

Google’s three Key Activities can be defined as follows:

1. Building and maintaining the search infrastructure.

2. Managing the three main services.

3. Promoting the platform to new users, content owners, and advertisers.

More platform business model examples: Visa, Google, eBay, Microsoft Windows, Financial Times

In 1999 Salesforce.com disrupts the customer relationship management (CRM) arena by offering CRM-as-a service over the Internet. Salesforce unlocks a new market and continuously strengthens its business model with new innovations.

Salesforce.com was founded in 1999 with the goal of “making enterprise software as easy to use as a website like amazon.com.” Salesforce pioneered the software as-a-service (Saas) for customer relationship management tools. The company didn’t stop there and has constantly improved its services and business model. We distinguish between two, non-exhaustive phases: the early business model in 1999 and extensions starting in 2005.

Salesforce Business Model

Subscription

In 2006, Spotify launches a free online music service to compete against freely available, pirated music. Its main revenue source comes from users upgrading to a premium subscription.

Spotify is a music streaming platform that gives users access to a large catalog of music. It uses a freemium revenue model that offers a basic, limited, ad-supported service for free and an unlimited premium service for a subscription fee.

Spotify relies heavily on its music algorithms and its community of users and artists to keep its premium experience delightful. Its premium subscriber base has grown from 10% of total users in 2011 to 46% in 2018.

From the start Spotify saw itself as a legal alternative to pirated music and paid song purchases on iTunes. Spotify pays a significant portion of its revenue in the form of royalties to music labels. It has paid close to $10 billion in royalties since its launch in 2006.

The company accelerated the shift from music downloads to streaming and disrupted Apple iTunes in the process. For the first time in company history, Spotify made a profit in 2019.

Spotify Business Model

4. What is business model innovation?

Business model innovation describes the innovative processes and rationale of how an business creates, delivers and captures value as opposed to how to create a new product or service. It's about fundamentally rethinking your business around a clear, new customer need, and then realigning your key resources, processes and profit formula with this new value proposition.

It’s not easy approach to take when making decisions as it pushes people out of their comfort zones. But the results can be dramatic, providing a real competitive business advantage - and we're seeing this sort of disruption a lot more often. Internet technology giants such as Amazon as world-class at demonstrating this kind of business acumen, where the founder Jeff Bezos even describes his company as 'the best place to fail in the world', referring to his company's approach to coming up with new business ideas.

Take Amazon Web Services for example: A project grew out of the company's need to improve their own tech stack performance. The American company went on to create Amazon Web Services to offers customers reliable, scalable, and inexpensive cloud computing services, paying only for what they used. Within 5-years would go on to totally dominate the cloud computing market and make Amazon over $10bn.

Read the case study we put together for Amazon Marketplace, using the business model portfolio to tell the story of how they validated their business idea: Patience is a Virtue: An Amazon Case Study in Three Parts . Otherwise you can read about the differences between organizations such as Amazon and Nestle .

4. Business Model Patterns

In the following section we outline a pattern library that is split into two categories of patterns: invent patterns to enhance new ventures and shift patterns to substantially improve an established, but deteriorating business model to make it more competitive.

www.strategyzer.comhubfs01-Hero-BusinessModelPatterns

Invent Patterns

Codify aspects of a superior business model. Each pattern helps you think through how to compete on a superior business model, beyond the traditional means of competition based on technology, product, service, or price. The best business models incorporate several patterns to outcompete others.

Shift Patterns:

02-HiltiShift-HiltiShiftCase

Codify the shift from one type of business model to another. Each pattern helps you think through how you could substantially improve your current business model by shifting it from a less competitive one to a more competitive one.

Applying Business Model Patterns

Understand patterns to better perform the following business model activities:

Design and assess

Use patterns to design better business models around market opportunities, technology innovations, or new products and services. Use them to assess the competitiveness of an existing one.

Disrupt and transform

Use patterns as an inspiration to transform your market. In the following section, we provide a library of companies that disrupted entire industries. They were the first to introduce new business model patterns in their arena.

Question and improve

Use patterns to ask better business model questions, beyond the traditional product, service, pricing, and market-related questions. Regardless, whether you are a senior leader, innovation lead, entrepreneur, investor, or faculty, you can help develop superior business models based on better questions.

03-InventPatterns-BusinessModelPatterns

Frontstage Disruption

Market explorers: unlock markets.

Develop innovative value propositions that create, unleash, or unlock completely new,  untapped, or underserved markets with large potential.

Be a pioneer and unearth new revenue potential through market exploration.

Channel Kings: Access customers

Radically change how to reach and acquire a large number of customers. Pioneer innovative new channels that haven’t been used in your industry before.

Gravity Creators: Lock in customers

Make it difficult for customers to leave or switch to competitors. Create switching costs where previously there were none and turn transactional industries into ones with long term relationships.

A great product isn’t enough to bring a flock of customers to your door. You must design a superior business model to attract and retain customers into your ecosystem. Switching costs have enabled industry leaders such as Adobe, Salesforce, Microsoft or Rolls Royce to lock customers in and outcompete other players.

Backstage Disruption

Resource castles: build moats.

Build a competitive advantage with key resources that are difficult or impossible for competitors to copy.

Activity Differentiators: Better configure activities

Radically change which activities they perform and how they combine them to create and deliver value to customers.Create innovative value propositions based on activity differentiation.

Scalers: Grow faster

Find radically new ways to scale where others stay stuck in conventional non-scalable business models.

Profit-Formula Disruption

Revenue differentiators: boost revenues.

Find innovative ways to capture value, unlock previously unprofitable markets, and/or substantially increase revenues.

Recurring Revenue – Generate recurring revenues from one-time sales. Advantages include compound revenue growth (new revenues stack up on top of existing revenues), lower cost of sales (sell once and earn recurrently), and predictability.

Bait & Hook – Lock customers in with a base product (the bait) in order to generate recurring revenues from a consumable (the hook) that customers need recurrently to benefit from the base product.

Freemium Providers – Offer basic products and services free of charge and premium services and advanced product features for a fee. The best freemium models acquire a large customer base and excel in converting a substantial percentage to paid users.

Subsidizers – Offer the full value proposition for free or cheaply by subsidizing it through a strong alternative revenue stream. This differs from freemium, which only gives free access to a basic version of products and services.

Cost Differentiators: Kill costs

Build a business model with a game-changing cost structure, not just by streamlining activities and resources, but by doing things in disruptive new ways.

Resource Dodgers – Eliminate the most costly and capital-intensive resources from your business model to create a game-changing cost structure. (Examples: Airbnb, Uber, Bharti Airtel)

Technologists – Use technology in radically new ways to create a game-changing cost structure. (Examples: WhatsApp, Skype)

Low Cost – Combine activities, resources, and partners in radically new ways to create a game-changing cost structure with disruptively low prices. (Examples: EasyJet, Ryanair, Trader Joe’s)

Margin Masters: Boost margins

Achieve significantly higher margins than competitors by focusing on what customers are willing to pay for most, while keeping your cost structure in check. Prioritize profitability over market share.

Contrarians – Significantly reduce costs and increase value at the same time. Eliminate the most costly resources, activities, and partners from your business model, even if that means limiting the value proposition. Compensate by focusing on features in the value proposition that a well-defined customer segment loves and is willing to pay for, but which are relatively cheap to provide. (Examples: CitizenM, Cirque de Soleil, Nintendo Wii)

High Enders – Create products and services at the high end of the market spectrum for a broad range of high-end customers. Use these to maximize margins and avoid the small size and extreme cost structure of a luxury niche. (Example: iPhone )

5. Business model examples

Below are 4 examples of business models. See our searchable business model examples catalog for dozens of business models analyzed using the business model canvas.

Tesla was founded in 2003 with the goal of commercializing electric vehicles, starting with luxury sports cars and then moving onto affordable, mass market vehicles. In 2008, Tesla began selling its Roadster. Its first breakthrough was in 2012 when it launched the Model S.

Tesla’s first “affordable” car, the Model 3, was announced in 2015 and produced in 2017. Prior to Tesla, the market for electric vehicles was relatively insignificant and was served by utilitarian and unremarkable models. Tesla was the first car manufacturer to view the market for electric vehicles differently: Tesla saw a significant opportunity by focusing on performance and the high end of the market.

Tesla Business Model

Learn more about Tesla’s business model by downloading your free copy of the 100-page preview of our bestselling book: The Invincible Company.

IKEA, the popular furniture company, also relies on customers as their free workforce but in a different way. Hundreds of thousands of IKEA customers assemble their bookshelves, tables, and other furniture at home after buying big boxes at big stores.

This was unthinkable before IKEA made it popular, because people used to expect furniture manufacturers to perform the assembly task. There’s a reason why customers are willing to do the work and it's because IKEA’s business model of boxed furniture offers a larger choice, immediate delivery, and all at a lower cost.

Ikea - Business Model

Read more about how Facebook, IKEA, WhatsApp, and Uber's business model make billions .

Dollar Shave Club

Dollar Shave Club (“DSC”) disrupted the market for shaving products by selling directly to consumers through its online store. Because they cut out the middleman (retail), they can pass on savings to customers. DSC makes up for the lack of established brand and distribution reach by harnessing the power of viral videos and internet marketing.

Could you access your customers in an unprecedented and scalable way? How could you cut out the middleman and create direct access to your end-customers?

Dollar Shave Club - Business Model Canvas Example

Apple is one of the leading smartphone manufacturers in the world. But their product doesn’t do it all; in fact, you could argue that there are better smartphones out there. But Apple’s business model has moats that make it extremely difficult for others to overthrow them.

Apple - iPhone - Business Model

For example Apple’s app store connects its millions of iOS users with countless software developers that supply hundreds of thousands of apps searching for an audience. It's this ecosystem that's hard to copy, not the technology. Even with the best technology it is very hard to gain market share. Only Google with its Android operating system has managed to create a competing ecosystem.

Other interesting business models: AirBnb , ARM , citizenM , Dell , Didi , Dyson , Fortnite , M-Pesa , Microsoft Windows , Patagonia , Spotify , Tupperware , Waze , Whatsapp , Zara .

6. Business model tools and resources

  • Business Model Canvas template
  • The Portfolio Map template
  • Business Model Generation masterclass
  • Business Model Generation book
  • Value Proposition Design book
  • Testing Business Ideas book
  • The Invincible Company book
  • Business Model Generation Masterclass
  • Testing Business Ideas by David Bland & Alexander Osterwalder
  • The Invincible Company: Manage a portfolio of innovation

About the speakers

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How To Describe Your Business Model (Facts You Should Know)

Clearly describing your business model to others, such as partners, investors, consulters, employees, etc., enables you to share your knowledge and effort completely. This article will show you how to describe your business model clearly and easily.

How should you describe your business model? 

The best way to describe your business model is by using these two tools: The Business Model Canvas, and The Business Model Metrics. By combining these two tools, you will create a clear and concise description of your business model.

A clear and sufficient description of your business model is a difficult yet easy task at the same time. I experienced this problem at the beginning of my business journey, and I learned a lesson difficultly. In this article, I’ll show you how you can easily describe your business model. Let’s begin!

Table of Contents

Why is the description of your business model important?

If you can’t describe your business model clearly and efficiently, you will have many problems that result in losing effort, time, and money. This section shows you the importance of this task.

What is the business model?

A business model describes how a company works to achieve its goals. It describes how the company creates value (product), provides value to the customer, and generates profit.

The business model was a confusing term

In the 1990s, the term ‘business model’ became a common term in business.

Usually, when a company works in teams to improve the business, create new products, describe their company during a meeting with an investor, etc., they discuss their business model.

In fact, at that time, there was no standard framework for the business model, and much confusion and ambiguity were surrounding the term. In this case, there was a lack of understanding among all parties.

There is a book written by Dan Roa that called this lack of understanding the BLAH BLAH BLAH phenomenon. This phenomenon happens when people talk, but they don’t understand each other. Not because they’re not smart but because they don’t speak the same language. They spend effort, time, and money, but this session will not produce perfect results.

Finally, if you do not clearly describe your business model, you will lose a lot of effort, time, and money on useless discussions.

The appearance of the business model canvas

In 2010, when  Alexander Osterwalder  published his book “Business Model Generation “, he provided a visual tool called the business model canvas, which was sorely needed. This tool consists of 9 blocks used to describe the business model. This tool provides a standard framework for a business model that can be used in discussions.

The business model canvas

The business model canvas consists of 9 blocks, as shown in the image below. These blocks are used to describe any company’s business model.

Download the Business Model Canvas template.

The 9 blocks of the business model canvas are:

  • Customer segment
  • Value proposition
  • Customer relationship
  • Revenue stream
  • Key activity
  • Key resource
  • Key partnerships
  • Cost structure

Fill the nine blocks of the business model canvas with detailed, clear information. This is the first step in the process of describing your business model. Now, let’s take these blocks one by one in a few lines.

1. Customer segments

In the customer segments block, you should describe the most important customers and create value.

The customer segment is the niche market you selected to serve, solving their specific problem or satisfying their particular needs.

2. Value proposition

In the value propositions block, you will describe the group of products and services that create value for your Customer Segment.

The value proposition is a group or collection of things. This collection describes what you offer to customer segments. Maybe your product has extra services, like free shipping, a warranty, customer support after purchase… etc.

The customer may sometimes select your offer, not because of your unique product but because of other services coupled with it.

Also, you need to describe how important the value proposition is to your customers. Is it a priority need or a luxury need that can be easily discarded?

Explain what your offer is and why the customer will choose it.

3. Channels

In this block, you will describe how your company communicates with customer segments. How does the company reach its customers, deliver a value proposition, receive customer feedback?

The company typically uses multiple channels for different functions. For example, specific media are used for advertising. In contrast, another channel is used by customers to communicate with your company, and others are used to deliver the value proposition to customers and so on.

4- Customer Relationships

Most relationships with customers belong to one of these three categories:

  • How to get the customer?
  • How to keep the customer?
  • How to Grow customer?

Therefore, the customer relationships block describes the strategies and tactics used to get, keep, and grow customers.

5- Revenue Streams

In the revenue streams block, you will describe the cash a company generates from the customer segment.

If your company serves more than one customer segment, each customer segment’s revenue must be declared. Also, if your company provides more than one product/service, the revenue generated from each product/service should be described separately.

6- Key Resources

The key resources block describes the most important assets required to make a business model work.

These resources can be physical, financial, intellectual, or human. Also, the resources can be owned or leased by the company, or they may be acquired.

7- Key Activities

Key activities block describes the main activities required to make your business model work. Extra to the most important actions your company must take to operate successfully.

8- Key Partnerships

The key partnerships block describes the network of suppliers and partners that support you in running the rest of your business model blocks.

9- Cost Structure

The cost structure block describes all costs incurred to operate the business model, such as the primary operating costs of the business, the cost to build and make the product, the costs of using different channels, the cost to get, keep, and grow customers …etc.

During your description of your cost structure, make sure not to mix or count these costs twice, as this will affect all your business models.

Additional description is required

When describing a business model, try not to describe each block as being isolated from the rest of your business model. While describing each block, try to describe the impact of the blocks on each other and how they work together to form a business model as a whole.

Visualization tools have a significant impact. So try to make your description as visible as possible and support your description with shapes and graphics. ِFor example, you can use the value proposition canvas to illustrate how the value affects the customer segment.

Hidden sides of the business model canvas

The Business Model canvas illustrates the business model quickly and easily by presenting the most critical aspects that affect the success of companies.

However, other considerations of business success are implicit but not explicitly covered by the business model board, such as the level and nature of competition and the determination of measurable goals.

Is it enough to use the business model canvas alone?

A business model canvas has been a well-known tool for describing a business model since 2010. But the way people use it makes the difference.

Here are examples of some description mistakes: Describing each block in the business model canvas separately, having no description or incomplete description of how these blocks work together to generate a complete business model.

Therefore, we coupled the business model canvas tool with the business model metrics tool as an additional description tool to supplement any lack in your description.

This additional tool will force you to describe how the business model blocks work together to achieve your company’s goals. Also, this other tool will help remind you if something is missing in your description.

This method makes describing your business model easy, even if you’re not an expert at this point.

The Busines model metrics as description tool

The business model metrics are used to evaluate the business model. But we also found it helpful as a description tool with some modifications. For more detail about the original business model metrics, refer to this article: “ What Are The Business Model Metrics? How Do You Evaluate Any Business Model ”

The business model metrics consist of 4 main factors. You need to describe the strategies and tactics your business model uses in these four factors.

In addition to strategies and tactics, you need to give current factor values or expected future values as much as possible.

The following paragraphs show these factors. Some questions have been added under each element as illustrative examples to identify easily what is required.

1- Profitability

  • Is your business model profitable?
  • How does your business model create profit?
  • What is the balance point of your business model?

2- Competition

  • Who are your main competitors now?
  • What is your competitive advantage?
  • Why does the customer choose your offer and ignore other competitors’ products?
  • How easy or difficult is it for new companies to enter the market?

3- Repatriable

  • Is your business model repeatable? Repeatable means your business model will always produce the same result if you repeat the same steps in different processes, such as production, sale, etc.
  • Can you build a system around your business model?

4- Scalability

  • Is your business model scalable and how?
  • If you would spend an extra $ 1 on your business model, how many dollars would that return as a profit?
  • What is the size of your customer segment?
  • Is your competitive advantage enough to grow?
  • What are the main risks you expect in your business model?
  • Will these risks affect other business model components and other factors such as profitability, replicability, scalability?
  • What are the strategies and tactics that you have prepared to face these risks?

Finally , by pairing these tools, describing your business model will be easy, and the outcome of this process will be a clear and sufficient description of your business model.

Having a poor description of your business model can be a fatal mistake. It will reduce your ability to improve and grow your business. Therefore, a clear and sufficient description is necessary. This is not an option.

Describing your business model is difficult yet easy at the same time. It’s easy for those who have the right tools to begin the process.

The business model canvas has been a well-known tool for describing a business model since 2010. But it is not an excellent tool to describe a business model independently, especially for the non-expert.

Examples of description mistakes include: Describing each block in the business model canvas separately, having no description or incomplete description of how these blocks work together to generate a complete business model.

This article coupled the business model canvas tool with an additional tool to make it easy for a non-expert to get a clear and concise description of their business model.

The business model canvas description blocks

The business model metrics  5 factors.

  • Profitability
  • Competitions
  • Repatriable
  • Scalability

These two tools will force you to describe how your business model blocks work together to achieve your company’s goals. Also, these tools will help you remember if something is missing in your description.

Using the above mothed, the process of describing the business model will be straightforward. The outcome of this process will be a clear and sufficient description of your business model, even if you’re a non-expert at this point.

We suggest attending the Free Training course How to Build a Startup for more details on this subject and related topics.

Related Articles:

  • What Are The Business Model Metrics? How Do You Evaluate Any Business Model?
  • What Is The Business Model Life Cycle?
  • Customer Development Vs. Marketing
  • 5 Reasons Why Customer Development Must Be Done By Founders?
  • How Startup Works and How to Run Startup?
  • When To Use the Business Model Canvas?
  • Why Do You Need The Product Market Fit?

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How to Build a Product Roadmap Based on a Business Model Canvas

Could you list all of the key building blocks you need to develop, manage, maintain, market, and sell a product on a single sheet of paper? With the business model canvas, you can! Using the business model canvas approach is a great way to force yourself to focus on the most strategically important elements of your product. As the name suggests, the typical use case for this tool is to outline the fundamental building blocks of a business, but it also can work really well for a product.

Today we’ll show you how the business model canvas works and how you can use it to come up with a high-level product strategy.

What is a Business Model Canvas?

As you can see from the sample example below (thanks, Strategyzer.com), a business model canvas is a one-page summary describing the high-level strategic details needed to get a business (or product) successfully to market.

The categories or buckets contained in a canvas can be customized. But most will look similar to the one here—covering such key areas as:

  • The product’s value propositions (what it does and promises)
  • Customer segments (who it’s for)
  • Key activities (the steps the team must complete to make it successful)
  • Key resources (what personnel, tools, and budget the team will have access to)
  • Channels (how the organization will market and sell it)
  • Customer relationships (how the team will support and work with its customer base)
  • Key partners (how third parties will fit into the plan)
  • Cost structure (what it costs to build the product as well as how to sell and support it)
  • Revenue streams (how the product will make money)

Business Model Canvas by Strategyzer

If you think about it, that’s a fairly comprehensive set of building blocks you’ll need to think through for your product before you begin developing it. There will certainly be additional factors that’ll affect your strategy, but if you can fill in these high-level details—which, as you can see, should fit comfortably on a single page—you’ll have a useful strategic guide for developing your product roadmap.

Why Should I Use a Business Model Canvas to Develop a Product Roadmap?

Okay, but why? What’s the benefit of building a business model canvas (or the, even more, stripped-down variation, the lean canvas) to guide my product roadmap ?

There are plenty of reasons. But simply put, you can think of a business model canvas as a mission statement for your product roadmap. It’s a handy reference you can refer to, to make sure your roadmap always reflects all the strategic elements needed for your product’s success.

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Our co-founder Jim Semick has a couple of great short videos explaining the business model canvas concept, which you can check out in the player below.

As Jim explains, here are a few of the benefits of using a business model canvas to think through product strategies:

1. You can use a business model canvas to roadmap quickly.

You can use this canvas approach in just a few hours (and as Jim says, you can even do it with sticky-notes).

This way, rather than trying to write out every detail about your product plan beforehand, you can just document the highlights—and then you can get rolling translating the canvas into your product roadmap.

Read the Product Roadmaps Guide ➜

2. A business model canvas will be more agile.

One problem with the old structure of documenting a business model—the traditional business plan—was that it was almost always inaccurate as soon as the author finished drafting it.

These meaty plans included detailed cost estimates, revenue projections going years into the future, and long-term plans for growing the staff. How could any of that remain accurate for long?

In product terms, you can think of the business plan as resembling an MRD (Market Requirements Document). It’s long, detailed, and probably mostly untrue by the time it’s done.

But because you can put a canvas together so quickly, it will much more accurately reflect your strategic thinking and your company’s current reality. And if things change, it’ll be easier than a long and detailed plan to adjust. This brings us to Jim’s third benefit…

3. Business model canvas roadmaps allow you to pivot as needed.

If you build a business model canvas to guide your business roadmap , and something happens that forces you to re-prioritize or pivot your product , it will be a lot easier to update this short, high-level document than it would be if you had some monster MRD or business plan to tear apart and edit.

With a one-page business model canvas acting as the strategic undergirding for your roadmap, you’ll always be able to quickly spot any items or plans that need updating whenever priorities change or new realities demand that you adjust your approach.

How Can I Use A Business Model Canvas to Guide My Product Roadmap?

The alexa example.

Let’s talk through a hypothetical example, using Amazon’s Echo device (“Alexa”) as our guide.

Imagine that as they were talking through what belonged in the “Revenue Streams” bucket of the business model canvas, Amazon’s Echo team came up with three sources of revenue to start with:

1) Selling Echo devices.

2) Using the device to sell other stuff as customers ask it to connect to the Amazon marketplace. (“Alexa, please add laundry detergent pods to my shopping cart.”)

3) Licensing Echo’s proprietary speech-recognition technology to other businesses.

Now, if the Echo product team put these on their business model canvas, they’d know that they need to make room for budget, time, and resources on their product roadmap for all of these revenue streams.

Another Hypothetical Example of the Business Model Canvas: Channels

Or think about the Channels bucket in the business model canvas. If your team was building out a canvas, maybe you’d have several ideas for reaching customers:

1) The in-house sales team. 2) Affiliate partners. 3) Word-of-mouth advertising from users.

It’s easy to write. But how are you going to translate that “word-of-mouth” strategy into an actual plan?

Maybe you’ll need to budget time and resources for developing things right into your product that make it easier for users to share their experiences with friends, such as a handy tool to help them tweet about it. Maybe you’ll even want to include an “Invite a friend” feature that lets users easier send a trial license to friends, or a couponing feature that offers some reward to a user who brings in two more users.

The point is, your business model canvas can serve as a great strategic reminder of the things you’ve determined are important enough to make it onto your product roadmap .

So you can always look back and see immediately—it’s just one page, after all—if you’re still working on all of the essential elements of your product, or if you’ve inadvertently strayed from them and gotten lost in the wrong details.

That’s why we’re big proponents of the business model canvas approach to guiding your product roadmap .

Do you have an opinion about using the business model canvas approach for developing and documenting your product’s strategy? Feel free to share them in the comments section.

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20 Business Model Examples (And How To Pick The Right One)

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If you’ve heard the term “business model,” but don’t know exactly what it means,  you’re not alone .

It’s used all the time by business analysts, and even they disagree on the exact definition of a business model.

But you know  a business model is important.

And it is. Your model  sets your business on the path to success or failure , so you need to get it right.

How Does This Article Serve You?

This is a practical guide to:

  • What a business model is
  • Why it’s important
  • How to create one.

It doesn’t require any previous experience or knowledge and will leave you with everything you need to know to  pick the right business model  for your next venture or reevaluate your current model.

What is a Business Model?

As mentioned, there’s no single definition of a “business model,” so let’s look at the  most common interpretations .

Long ago, the concept of a business model was simple –  how will your business make money .

It wasn’t until the 1990s or so where people started realizing that  your business model can make or break your company.

So it evolved from that basic definition.

While he didn’t specifically mention business models, Peter F. Drucker’s  theory of business  is often cited as the start of a shift. Instead of  just  focusing on monetization, he proposed that businesses should also consider customers, goals, and strategy.

Verifying Your Business Model

A modern business model should at the very least answer Drucker’s famous  five questions :

  • What is your mission?
  • Who is your customer?
  • What does your customer value?
  • What results do you seek?
  • What is your plan?

Still, that’s a bit open-ended.

Finally, Alex Osterwalder developed a  comprehensive system to define a business model .

His view of a business model was that a business model is a combination of assumptions and guesses.

The Business Model Canvas

He developed the Business Model Canvas, which we’ll be looking at in more detail later.

It  divides a model into 9 main sections  that provide an organized way to break down all the important assumptions you have about a business.

Video: Alex Osterwalder provides a brief overview of the Business Model Canvas

What’s the Difference Between Business Models and Business Strategy

They both seem similar at first but have  different scopes .

Business Model

A business model covers  how a business will operate , but a business strategy defines  how that business will carve out a position in its market.

In other words, a business model gives you a  set of limitations . It might tell you how much you’ll charge, and what customers you’ll target.

Business Strategy

However, your business strategy will focus on  how you actually reach those customers  and distinguish yourself from competitors.

You’ll see both terms used interchangeably (incorrectly), but it’s good to know the difference.

Why Do Business Models Matter in the Modern Economy?

The right business model can catapult you to glory or collapse, and that’s not an exaggeration.

Business model innovation is  arguably the biggest form of competition  that exists in modern business.

Clay Christensen, a professor of business administration at Harvard sums it up well:

Most managers think the key to growth is developing new technologies and products. But often this is not so. To unlock the next wave of growth, companies must embed these innovations in disruptive new business models.

IBM’s Institute for Business Value conducted a study in 2009 and found that  70% of companies are actively engaging in business-model innovation.

They also found that 98% of businesses were continually modifying their model to some extent.

Core Values and Competitive Advantage

You’ve seen examples of this, perhaps without realizing it.

Consider taxis and Uber, which both have essentially  the same core value  to customers of providing flexible, on-call transportation.

Uber has a drastically different business model. When they started up, their business model was their  main competitive advantage .

Fast forward to today, and Uber and other similar businesses have  overtaken taxis .

3 Traits of a Good Business Model

Before we look at specific models you may want to consider using, let’s briefly go over the  attributes of a solid business model .

1. They Match Up With Company Goals and Values

Your business model comes after you define what your company is trying to do.

Certain models will  match up with your goals and values , and some won’t. If you start a diamond shop but try to implement a freemium model, there’s essentially no way you’ll succeed.

Pick a model that complements your  mission  and the  way you want to accomplish it .

2. A Business Model Should be Robust

You don’t want to base your entire business off a model that might not be effective after a year or two.

Your business model needs to consider:

  • Resources available –  If your business model requires an upfront investment, but you have limited access to funding, you’re in trouble.
  • Imitators –  Can competitors easily copy or improve upon your business model?
  • Consumer trends –  Will customers still want your solution in the future? Can they substitute it for another?

Taking time to think of these when picking a business model may save you from a big mistake.

3. They Leave Opportunity for Innovation

You’re likely not going to get everything in your business model right the first time.

As Osterwalder noted, business models are based on assumptions. Things rarely go as planned.

If your business model depends heavily on all your assumptions being correct, it’s too rigid. Create a  business model that you can re-evaluate and improve upon  over time.

The 20 Types of Business Models (with Examples)

Mark W. Johnson has a great book called  How to Seize the White Space for Transformation .

In it, he covers 20 types of potential business models that you can choose from and their primary method of monetization.

I’ll summarize them here and provide examples of each, but if you’d like more detail, it’s a good book to pick up.

Affinity Club

An affinity club model is based on  partnerships with other organizations.  By buying or using your products, customers also get special access to other perks, giving them extra incentive.

Of course, you’ll need to provide an incentive to those partners to get them on board.

This is best used in competitive fields where products are all similar.

A great example of this is MBNA, who uses this model with their credit cards.  Different cards come with different perks , so they can target a wide audience.

MBNA screenshot of the affinity mastercard program.

For example, one card is targeted towards football (soccer) fans. If you sign up for a Manchester United card, you get points that can be exchanged for their merchandise.

There are also  monthly draws and other perks .

Automation-Enabled Services

This model relies on technological advancement and is tough to use unless you have a good deal of specific technical knowledge yourself.

The goal is to  automate services that typically use human labor , so your operating costs are reduced.

For example, instead of going to a financial advisor, you can go to  Betterment . It’s an automated online financial advisor that gives you a similar quality of advice as most financial advisors would.

A broker  connects buyers to sellers  and  gets a small fee  for each transaction.

There are many examples of this:

  • Kickstarter.

Any marketplace that allows others to sell on it, and focuses on bringing in customers for those sellers is using a brokerage model.

A bundling business model  packages related products  together to make a more convenient and enjoyable experience for customers.

A classic example of this is the fast-food value meal, but that can be replicated fairly easily.

A better example is the combination of iPod and iTunes. You can’t use an iPod without iTunes, so each new iPod customer results in a new iTunes user (and potential customer).

Screenshot of iTunes landing page.

Bundling is very effective when a company is launching a new business and can  leverage existing success  as Apple has done.

Crowdsourcing

Don’t confuse a crowdsourcing business model with crowdsourcing funding from sites like Kickstarter.

A crowdsourcing business model relies on  user-generated content . The business focuses on making contributions easy and providing an incentive for users to contribute (usually money or a charitable goal).

YouTube is one example of a crowdsourcing model, where users upload videos, and most hope to generate revenue from those videos.

Wikipedia is another great example, where all the content on the site has been  created for free by willing users  who want to spread knowledge.

Data-Into-Assets

The idea behind a data-into-assets is to obtain valuable data that can be sold to willing buyers.

This is one of the few that can run into real ethical dilemmas.

For example, this is the business model that Facebook uses. The site is free for users, but in return, Facebook collects massive amounts of data about users and uses that to generate revenue through advertisers.

The Dangers of Data

They are facing  large privacy lawsuits  that could set a precedent for other businesses.

It’s hard to know where to draw the line, as Google is another data-into-assets business that most have no big issues with. They scrape data from just about all sites and transform that into search results that users desire.

Then they  sell ads to advertisers  on the search results.

Digital Platforms

Since the beginning of the Internet, creating a digital platform has been a viable business model for some companies.

For example, OpenTable started in 1998, which is a site that provides an online restaurant-reservation service.

OpenTable homepage.

There are still opportunities to be innovative in an industry simply by providing a useful product online.

To use this, you can  apply modern technology to outdated industries , or apply new technology to any industries ready for it.

We’re also seeing new digital platforms innovate upon old ones by leveraging new technology like machine learning and blockchain technology. These could almost be considered business models of their own.

Disintermediation

This mouthful simply means directly  delivering a service or product instead  of through a middleman.

Tesla is a great modern example of this. Instead of selling cars through a dealership, you buy online and skip the salesman. Not only is it more convenient, but it  reduces costs for consumers .

Fractionalization

Fractionalization consists of letting customers buy a portion of a product or service.

A good example of this is a time-sharing condo. People buy  part  of the condo and can use it during a certain time of the year that they purchased it from.

It’s a great model when your target  customers only want your product or service part of the time . They get the full benefits but don’t have to pay full price.

Freemium is a modern business model that is often used by software companies.

Because there’s very little overhead in serving data, businesses can choose to provide a portion of their service or product for free, but  requiring payment for full access .

Spotify and Dropbox

Dropbox gives you a small amount of free cloud storage and asks you to upgrade to a paid plan if you need more space.

DropBox plan choices.

Spotify offers free music but has ads. If a user buys a paid plan, they get rid of the ads.

Freemium lets you reach a wider audience, and often get more referrals, which can lead to a steady stream of customers.

Leasing is nothing new and has been used by car dealerships for many years. It works best for expensive products.

When a customer often can’t afford to pay cash or only needs a product one time, you offer them use of the product for a  rental fee .

A low-touch model takes a  high-end offering and reduces the cost  (and quality) of that product or service.

Competing on cost is a difficult business model to succeed with, but can work if you get enough customer volume.

Walmart is a great example of this, who sell lower-quality products than most competitors, but at a better price.

Negative Operating Cycle

This is a business model popularized by Amazon.

It’s especially popular with online retail businesses and allows businesses to  sell products at a low-profit-margin  (or even at cost), and still be highly profitable.

How Does It Work?

By maintaining a low inventory and getting payment upfront. Of course, you need a reliable and fast fulfillment process for this to work effectively.

The profits then come from the volume of sales that are attracted through low prices, or by utilizing the money sitting around before having to pay suppliers.

That  money generates interest  or can be used to fund long-term investments or research and development.

Pay-As-You-Go

This business model is exactly what it sounds like, customers pay as they use your service.

This can only be used in certain industries where customers regularly consume varying amounts.

For example, car2go lets you pay for car rentals by the minute, hour, or day.

Some web hosts, like  Cloudways , let’s you  pay only for the resources  your websites  actually use .

Cloudways homepage.

Razors and Blades

Razors and blades can be interpreted literally or symbolically.

This business model consists of bundling 2 products together that require each other. Then, you sell the main component (razor) at no profit or even a loss but recoup that because the  complementary product has high margins  (blades).

Another good example of this is the personal printer. They’re cheap to buy, but the ink is very expensive and high margin.

Reverse Razors and Blades

This is the same as above, but the two products are split.

You offer the “blades” at a very low cost in order to get people to buy the expensive and high margin “razor.”

One example of this is Amazon Kindle books, which are very cheap, and may tempt consumers into purchasing an expensive Kindle to read the books on.

Kindle Books landing page.

Product-To-Service

There are many times that people want to use a product, without buying it. A product-to-service model lets people pay a service fee to have access to a product.

It’s  similar to leasing and fractionalization .

A good example of this is Zipcar, which is a car-sharing company. Members pay a monthly or annual fee to have access to car reservations as needed.

Standardization

If you can take something that has a lot of variabilities and create a consistent, standardized product, you stand out from competitors.

Dominos did this with their “30 minutes or it’s free” offer for pizza delivery, which at the time was unheard of.

Subscription Club

A subscription club lets customers buy a product on a regular basis.

This is a popular model for software businesses that most SAAS (Software As A Service) platforms fall under.

Netflix and Dollar Shave Club also would be subscription clubs.

User Communities

Finally, some businesses create paid user communities that generate revenue from fees and possibly advertising.

The most famous example of this is Angie’s List, a home services review community that required payment until a little while ago.

It’s a tough model because  most people prefer free forums  and other types of communities, but good if people will pay for higher quality information.

How to Design Your Business Model

We can finally get to some practical work on your business model.

As mentioned before, monetization methods are not enough on their own.

There are 2 main approaches that you can take if you would like to create a new business model or refine an existing one.

Business Model Canvas

The Business Model Canvas comes from Alexander Osterwalder.

It’s a chart that includes the  9 important elements  of a business model.

Business Model Canvas.

You can download a  business model canvas pdf here , or see it  as an image here .

9 Sections of The Business Model Canvas

Let’s go through the 9 sections, each one includes questions to prompt you if you get stuck:

  • What value do we deliver to the customer?
  • Which one of our customer’s problems are we helping to solve?
  • What bundles of products and services are we offering to each Customer Segment?
  • Which customer needs are we satisfying?
  • For whom are we creating value?
  • Who are our most important customers?
  • Through which channels do our Customer Segments want to be reached?
  • How are we reaching them now?
  • How are our Channels integrated?
  • Which ones work best?
  • Which ones are most cost-efficient?
  • How are we integrating them with customer routines?
  • What type of relationship does each of our Customer Segments expect us to establish and maintain with them?
  • Which ones have we established?
  • How are they integrated with the rest of our business model?
  • How costly are they?
  • What are the most important costs inherent in our business model?
  • Which Key Resources are most expensive?
  • Which Key Activities are most expensive?
  • What Key Activities do our Value Propositions require?
  • Our Distribution Channels?
  • Customer Relationships?
  • Revenue streams?
  • What Key Resources do our Value Propositions require?
  • Who are our Key Partners?
  • Who are our key suppliers?
  • Which Key Resources are we acquiring from partners?
  • Which Key Activities do partners perform?
  • For what value are our customers really willing to pay?
  • For what do they currently pay?
  • How are they currently paying?
  • How would they prefer to pay?
  • How much does each Revenue Stream contribute to overall revenue?

Lean Business Model Canvas

The Business Model Canvas is a general model that works well in most cases.

However, the Lean Canvas has been  created by Ash Maurya  as an adaption that’s more suited to startups and small businesses with lots of uncertainty. You can find an  image file to print out here .

Lean Canvas Sections Explained

Again, there are 9 sections, but it’s “easier” to fill out for these types of businesses.

Here’s a brief description of each section:

  • Problem (P) –  What are the main 3 problems that your business solves?
  • Solution (S) –  What are the essential features of your product(s)?
  • Unique Value Proposition (UVP) –  What’s your business’ differentiating factor from competitors that make you better for your customers?
  • Unfair Advantage (UA) –  What part of your business can’t easily be copied by competitors?
  • Customer Segments (CS) –  Who are your target customers? Be as specific and niche as possible.
  • Key Activity (KA) –  What are the key interactions that lead to revenue? For example, creating their first blog post on a blogging platform.
  • Channels (CH) –  What channels will you be using to acquire customers?
  • Cost Structure (C$) –  List both your fixed and variable costs, estimate if needed.
  • Revenue Streams (R$) –  Specify your revenue model (refer to the previous section of this guide).

If you got this far, you understand business models more than most entrepreneurs.

I’d highly recommend spending just another ten minutes or so and quickly  work through either the Business Model Canvas or Lean Canvas .

Even if you can’t fill it out completely, you’ll quickly realize which areas of your business models need more attention and strengthening.

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the business model description

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Una plataforma de monitorización construida para ser flexible y adaptable a cualquier tipo de organización.

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Expande el poder de tu monitorización. Pandora FMS es flexible y se integra con las principales plataformas y soluciones en la nube.

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A monitoring platform built to be flexible and adaptable to any type of organization.

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9 business models

by Pandora FMS team | Last updated Aug 22, 2023 | Remote Control

the business model description

Have you been looking for photos of nice looking youngsters dedicated to the modelling profession to take a few snapshots next to your company logo? Let’s hope not, because this article has nothing to do with that!

When we talk about business models, we could say, in a very brief way, that it is the global plan that defines what products and/or services the company is going to offer, how it is going to offer them, which public it is going to target, how their product will be sold and how to obtain income . The business model encompasses a wide range of factors, such as defining the characteristics of the products to be sold, foreseeing how to reach customers, the forms of advertising and promotion that will be used, the target audience to which the product will be aimed, etc.

It could be said that there are almost as many business models as there are companies in the world. But surely this won’t do you much good. Although each company has its own personality and therefore its own model, different types of business can be typified according to various factors, such as how to obtain income or the type of customers they target. Let’s see some of them.

Multi-sided model

This curious name comes from a business model in which two or more parties (groups of customers), which are in principle not related to each other, need to interact in order to obtain mutual benefit , process during which the company that makes it possible, obtains some kind of benefit. Although it may seem a bit odd, there are a large number of relevant companies that work on the basis of a business with two or more parties involved. For example, Google connects users who are looking for information with other users – usually companies – who need the former to access their offers. In this type of model, a “network” effect will usually be generated that will grow rapidly once the first stages of expansion are over, since the more users there are on one side, the more the number of users on the other side will generally increase, and vice versa.

The franchise

Everybody knows what a franchise is. This is a very widespread model with a long tradition. It consists of reaching agreements with third parties to sell our products, using our commercial methods, our brand and our company image, in exchange for a financial compensation (usually a percentage of the invoicing and/or a fixed fee). There are thousands of examples, especially in the food sector.

Long tail business

It is a model that does not seek to generate a large volume of sales from a small number of mass consumer products, but goes to the opposite end. It consists of offering a wide range of less common or more specific items that will have few individual sales, but that will provide a large amount of revenue when added together. One example of companies that perform well with the long-tail model is e-commerce, which often have huge product catalogues – often very peculiar – for sale.

Freemium model

Very fashionable in recent years. It is a model in which the user is offered a part of the service free of charge and is charged for more complete or advanced services . To achieve this, it is usually necessary to obtain a large number of clients, since usually only a few will be willing to go beyond the free part of the service and pay for an extra. Do you want examples? A huge amount of the apps you can find today are offered under a freemium model.

Subscription

It’s a long-standing type of model. It is about offering a product or service to which the consumer will be bound and for which they will pay on a regular basis . This model provides recurrent revenues. However, to sustain it, it is necessary to offer products or services that give real value to the customer, or else they will end up unsubscribing. The subscription fee for a newspaper or magazine, or even an electricity supply contract are some examples of a subscription model.

The E-Commerce

This is electronic commerce (and in this case we can’t say it’s always been like that, because even if it seems the opposite, it has been very little time with us). A modern version of the traditional shops or supermarkets at street level, which offers its products online and in which the logistics of home delivery plays a fundamental role. It can be used to offer both mass consumer products and “long tail” products. Its growth in recent years is unstoppable.

Dropshipping

This is a very particular form of e-commerce , in which only electronic selling has to be dealt with. The supplier is in charge of storing the product, and also both supplying it and sending it to the final customer. In order to maintain this type of business, it is not usually necessary to invest large amounts of money. However, the margins are usually narrow and it will not be easy for you to control the service quality.

Affiliation

Although it has been around for a long time, it is a model that has been reborn thanks to the Internet. It consists of promoting third-party products and receiving a commission based on the sales achieved . For it to work online, huge amounts of traffic will normally be required. Many of the pages dedicated to analyzing products and providing a link to the company’s marketing page can serve as an example of an affiliation model.

Peer to peer

This is a booming system and a variety of the “multi-sided” model, in which individuals are brought into contact with each other . In general, the company usually earns revenue from advertising or charging small commissions, for example when doing business with individuals. Multiple popular platforms today operate on a peer-to-peer basis, such as those that connect people who want to buy or sell second-hand products.

These are just some of the many business models, both traditional and more modern, that can exist. In addition, a new business model is emerging every day. You, dear reader, may even be about to create a new type that doesn’t exist yet.

Now that you know more about business models, you can continue to learn things. For example, you can find out about Pandora RC . Pandora RC is a nice and friendly remote computer management system, and it is looking forward to your meeting him. Enter here and discover what Pandora RC has to offer.

the business model description

Pandora FMS’s editorial team is made up of a group of writers and IT professionals with one thing in common: their passion for computer system monitoring. Pandora FMS’s editorial team is made up of a group of writers and IT professionals with one thing in common: their passion for computer system monitoring.

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Our next-generation model: Gemini 1.5

Feb 15, 2024

The model delivers dramatically enhanced performance, with a breakthrough in long-context understanding across modalities.

SundarPichai_2x.jpg

A note from Google and Alphabet CEO Sundar Pichai:

Last week, we rolled out our most capable model, Gemini 1.0 Ultra, and took a significant step forward in making Google products more helpful, starting with Gemini Advanced . Today, developers and Cloud customers can begin building with 1.0 Ultra too — with our Gemini API in AI Studio and in Vertex AI .

Our teams continue pushing the frontiers of our latest models with safety at the core. They are making rapid progress. In fact, we’re ready to introduce the next generation: Gemini 1.5. It shows dramatic improvements across a number of dimensions and 1.5 Pro achieves comparable quality to 1.0 Ultra, while using less compute.

This new generation also delivers a breakthrough in long-context understanding. We’ve been able to significantly increase the amount of information our models can process — running up to 1 million tokens consistently, achieving the longest context window of any large-scale foundation model yet.

Longer context windows show us the promise of what is possible. They will enable entirely new capabilities and help developers build much more useful models and applications. We’re excited to offer a limited preview of this experimental feature to developers and enterprise customers. Demis shares more on capabilities, safety and availability below.

Introducing Gemini 1.5

By Demis Hassabis, CEO of Google DeepMind, on behalf of the Gemini team

This is an exciting time for AI. New advances in the field have the potential to make AI more helpful for billions of people over the coming years. Since introducing Gemini 1.0 , we’ve been testing, refining and enhancing its capabilities.

Today, we’re announcing our next-generation model: Gemini 1.5.

Gemini 1.5 delivers dramatically enhanced performance. It represents a step change in our approach, building upon research and engineering innovations across nearly every part of our foundation model development and infrastructure. This includes making Gemini 1.5 more efficient to train and serve, with a new Mixture-of-Experts (MoE) architecture.

The first Gemini 1.5 model we’re releasing for early testing is Gemini 1.5 Pro. It’s a mid-size multimodal model, optimized for scaling across a wide-range of tasks, and performs at a similar level to 1.0 Ultra , our largest model to date. It also introduces a breakthrough experimental feature in long-context understanding.

Gemini 1.5 Pro comes with a standard 128,000 token context window. But starting today, a limited group of developers and enterprise customers can try it with a context window of up to 1 million tokens via AI Studio and Vertex AI in private preview.

As we roll out the full 1 million token context window, we’re actively working on optimizations to improve latency, reduce computational requirements and enhance the user experience. We’re excited for people to try this breakthrough capability, and we share more details on future availability below.

These continued advances in our next-generation models will open up new possibilities for people, developers and enterprises to create, discover and build using AI.

Context lengths of leading foundation models

Highly efficient architecture

Gemini 1.5 is built upon our leading research on Transformer and MoE architecture. While a traditional Transformer functions as one large neural network, MoE models are divided into smaller "expert” neural networks.

Depending on the type of input given, MoE models learn to selectively activate only the most relevant expert pathways in its neural network. This specialization massively enhances the model’s efficiency. Google has been an early adopter and pioneer of the MoE technique for deep learning through research such as Sparsely-Gated MoE , GShard-Transformer , Switch-Transformer, M4 and more.

Our latest innovations in model architecture allow Gemini 1.5 to learn complex tasks more quickly and maintain quality, while being more efficient to train and serve. These efficiencies are helping our teams iterate, train and deliver more advanced versions of Gemini faster than ever before, and we’re working on further optimizations.

Greater context, more helpful capabilities

An AI model’s “context window” is made up of tokens, which are the building blocks used for processing information. Tokens can be entire parts or subsections of words, images, videos, audio or code. The bigger a model’s context window, the more information it can take in and process in a given prompt — making its output more consistent, relevant and useful.

Through a series of machine learning innovations, we’ve increased 1.5 Pro’s context window capacity far beyond the original 32,000 tokens for Gemini 1.0. We can now run up to 1 million tokens in production.

This means 1.5 Pro can process vast amounts of information in one go — including 1 hour of video, 11 hours of audio, codebases with over 30,000 lines of code or over 700,000 words. In our research, we’ve also successfully tested up to 10 million tokens.

Complex reasoning about vast amounts of information

1.5 Pro can seamlessly analyze, classify and summarize large amounts of content within a given prompt. For example, when given the 402-page transcripts from Apollo 11’s mission to the moon, it can reason about conversations, events and details found across the document.

Reasoning across a 402-page transcript: Gemini 1.5 Pro Demo

Gemini 1.5 Pro can understand, reason about and identify curious details in the 402-page transcripts from Apollo 11’s mission to the moon.

Better understanding and reasoning across modalities

1.5 Pro can perform highly-sophisticated understanding and reasoning tasks for different modalities, including video. For instance, when given a 44-minute silent Buster Keaton movie , the model can accurately analyze various plot points and events, and even reason about small details in the movie that could easily be missed.

Multimodal prompting with a 44-minute movie: Gemini 1.5 Pro Demo

Gemini 1.5 Pro can identify a scene in a 44-minute silent Buster Keaton movie when given a simple line drawing as reference material for a real-life object.

Relevant problem-solving with longer blocks of code

1.5 Pro can perform more relevant problem-solving tasks across longer blocks of code. When given a prompt with more than 100,000 lines of code, it can better reason across examples, suggest helpful modifications and give explanations about how different parts of the code works.

Problem solving across 100,633 lines of code | Gemini 1.5 Pro Demo

Gemini 1.5 Pro can reason across 100,000 lines of code giving helpful solutions, modifications and explanations.

Enhanced performance

When tested on a comprehensive panel of text, code, image, audio and video evaluations, 1.5 Pro outperforms 1.0 Pro on 87% of the benchmarks used for developing our large language models (LLMs). And when compared to 1.0 Ultra on the same benchmarks, it performs at a broadly similar level.

Gemini 1.5 Pro maintains high levels of performance even as its context window increases. In the Needle In A Haystack (NIAH) evaluation, where a small piece of text containing a particular fact or statement is purposely placed within a long block of text, 1.5 Pro found the embedded text 99% of the time, in blocks of data as long as 1 million tokens.

Gemini 1.5 Pro also shows impressive “in-context learning” skills, meaning that it can learn a new skill from information given in a long prompt, without needing additional fine-tuning. We tested this skill on the Machine Translation from One Book (MTOB) benchmark, which shows how well the model learns from information it’s never seen before. When given a grammar manual for Kalamang , a language with fewer than 200 speakers worldwide, the model learns to translate English to Kalamang at a similar level to a person learning from the same content.

As 1.5 Pro’s long context window is the first of its kind among large-scale models, we’re continuously developing new evaluations and benchmarks for testing its novel capabilities.

For more details, see our Gemini 1.5 Pro technical report .

Extensive ethics and safety testing

In line with our AI Principles and robust safety policies, we’re ensuring our models undergo extensive ethics and safety tests. We then integrate these research learnings into our governance processes and model development and evaluations to continuously improve our AI systems.

Since introducing 1.0 Ultra in December, our teams have continued refining the model, making it safer for a wider release. We’ve also conducted novel research on safety risks and developed red-teaming techniques to test for a range of potential harms.

In advance of releasing 1.5 Pro, we've taken the same approach to responsible deployment as we did for our Gemini 1.0 models, conducting extensive evaluations across areas including content safety and representational harms, and will continue to expand this testing. Beyond this, we’re developing further tests that account for the novel long-context capabilities of 1.5 Pro.

Build and experiment with Gemini models

We’re committed to bringing each new generation of Gemini models to billions of people, developers and enterprises around the world responsibly.

Starting today, we’re offering a limited preview of 1.5 Pro to developers and enterprise customers via AI Studio and Vertex AI . Read more about this on our Google for Developers blog and Google Cloud blog .

We’ll introduce 1.5 Pro with a standard 128,000 token context window when the model is ready for a wider release. Coming soon, we plan to introduce pricing tiers that start at the standard 128,000 context window and scale up to 1 million tokens, as we improve the model.

Early testers can try the 1 million token context window at no cost during the testing period, though they should expect longer latency times with this experimental feature. Significant improvements in speed are also on the horizon.

Developers interested in testing 1.5 Pro can sign up now in AI Studio, while enterprise customers can reach out to their Vertex AI account team.

Learn more about Gemini’s capabilities and see how it works .

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IMAGES

  1. Business Model Canvas: A 9-Step Guide to Analzye Any Business

    the business model description

  2. 4 major components of business model

    the business model description

  3. What is a Business Model & Top Examples

    the business model description

  4. A complete Guide on Business Model vs Business Plan

    the business model description

  5. Business Model Innovation

    the business model description

  6. Business Model Canvas Template (2022)

    the business model description

COMMENTS

  1. What is a Business Model with Types and Examples

    The term business model refers to a company's plan for making a profit. It identifies the products or services the business plans to sell, its identified target market, and any anticipated...

  2. Business Model

    The essence of a business model is that it defines the manner by which the business enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit: it thus reflects management's hypothesis about what customers want, how they want it, and how an enterprise can organize to best meet those needs, get ...

  3. What Is a Business Model? Best Practices and Examples

    Roadmaps. Or you can download these free Excel and PowerPoint business model templates. This guide covers the basics of business models, from core concepts to best practices. Jump ahead to any section: Definition of a business model Business model components Business model vs. business plan Different types of business models

  4. Business Models: Types, Examples and How to Design One

    A business model is a plan for generating revenue. Types include retail, manufacturing, subscriptions and more. By Randa Kriss, Rosalie Murphy Last updated on April 13, 2021 Edited by Ryan Lane...

  5. Business model

    A business model describes how an organization creates, delivers, and captures value, [2] in economic, social, cultural or other contexts. For a business, it describes the specific way in which it conducts itself, spends, and earns money in a way that generates profit.

  6. 8 Types of Business Models & the Value They Deliver

    A business model is a specific method used to create and deliver this value. What Is Value in Business? A successful business creates something of value. The world is filled with opportunities to fulfill people's wants and needs, and your job as an entrepreneur is to find a way to capitalize on these opportunities.

  7. What Is a Business Model? Definition, 17 Types and Examples

    A business model is a foundational part of the company and expresses the primary method through which the company generates profit. The business plan is a detailed explanation that includes specific goals, strategies and resources. Related: What Is a Business Plan? Why are business models important?

  8. Business Model Canvas: Explained with Examples

    A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.

  9. Business Model Canvas: The Definitive Guide and Examples

    1. Customer Segment 2. Value Proposition 3. Distribution Channels 4. Customer Relationship 5. Revenue Streams 6. Key Resources 7. Key Activities 8. Key Partners 9. Cost Structure Applications and Analysis What to Do After? Some Tips for Beginners Software for Business Model Canvas What Are the Benefits of the BMC?

  10. Business Model Canvas Explained: Definition and Components

    Business Model Canvas Explained: Definition and Components. The simple, visual template of the Business Model Canvas has made it a favorite among entrepreneurs and business strategists. With its one-page, nine-points design, a Business Model Canvas allows stakeholders to quickly understand the key needs and goals of any business.

  11. How to Design a Winning Business Model

    Ramon Casadesus-Masanell is a professor at Harvard Business School and the author, with Joan E. Ricart, of "How to Design a Winning Business Model" (HBR January-February 2011). JR. Joan E ...

  12. What is a business model? Types and examples

    A business model is a holistic portrait of how the company operates. Think of a business model as an aerial photograph of your organization, giving you a comprehensive view of your current and future operations. A business plan refers to the specific strategy for accomplishing a particular goal. A business plan is more like the turn-by-turn ...

  13. 1.4: Chapter 4

    Lean Start-up. Consistent with the Business Model Canvas approach, Ries (2011) advanced the idea of the lean start-up. His definition of a startup is "a human institution designed to create a new product or service under conditions of extreme uncertainty" (p. 27), and the lean start-up approach involves releasing a minimal viable product to customers with the expectation that this early ...

  14. 17 Business Model Examples

    These are referred to as tiered offerings. A vivid example is Netflix, with three monthly plans: Basic for $8.99, Standard for $12.99, and Premium for $15.99. The subscription-based business model is suitable for service-based or content websites.

  15. Business Model Canvas

    Description. Formal descriptions of a business become the building blocks for its activities. Many different business conceptualizations exist; Osterwalder's 2004 thesis and co-authored 2010 book propose a single reference model based on the similarities of a wide range of business model conceptualizations. With his business model design template, an enterprise can easily describe its business ...

  16. Business Models: Toolkit to Design a Disruptive Company

    A business model describes the rationale of how an organization creates, delivers and captures value. It can be described through 9 building blocks: Customer Segments, Value Propositions, Channels, Customer Relationships, Revenue Streams, Key Resources, Key Activities, Key Partnerships & Cost Structure. Business Model History

  17. How To Describe Your Business Model (Facts You Should Know)

    A business model describes how a company works to achieve its goals. It describes how the company creates value (product), provides value to the customer, and generates profit. The business model was a confusing term In the 1990s, the term 'business model' became a common term in business.

  18. What is the Business Model Canvas?

    A business model canvas provides a high-level, comprehensive view of the various strategic details required to successfully bring a product to market. The typical use case for this tool is to outline the fundamental building blocks of a business, but it can be used effectively for individual products as well.

  19. Business Model Canvas: Definition, Benefits, and Examples

    As Jim explains, here are a few of the benefits of using a business model canvas to think through product strategies: 1. You can use a business model canvas to roadmap quickly. You can use this canvas approach in just a few hours (and as Jim says, you can even do it with sticky-notes). This way, rather than trying to write out every detail ...

  20. 20 Business Model Examples (And How To Pick The Right One)

    1. They Match Up With Company Goals and Values. Your business model comes after you define what your company is trying to do. Certain models will match up with your goals and values, and some won't. If you start a diamond shop but try to implement a freemium model, there's essentially no way you'll succeed.

  21. Business Models

    The St. Gallen Business Model Navigator, which is at the core of our approach, uses a business model description that is based on practical work and is more suitable for interactive workshops. This simplified approach is more expedient than complex canvas work, leading to more focused discussions. It is based on four dimensions or questions ...

  22. Business models; a brief description and nine examples

    Freemium model. Very fashionable in recent years. It is a model in which the user is offered a part of the service free of charge and is charged for more complete or advanced services. To achieve this, it is usually necessary to obtain a large number of clients, since usually only a few will be willing to go beyond the free part of the service ...

  23. How to Write a Business Description (with Examples & Templates!)

    1. Start with your basics The goal of a business description is to introduce any reader to your company—-and to do that quickly. So when you're getting started writing this description, it's a good idea to list out the basic information that you'll need to include. Here's what needs to go in your business description: What your company name is

  24. 10 Essential Managerial Skills and How to Develop Them

    First, sharing tasks with others saves you time at work and reduces your stress levels. Delegating also engages and empowers your employees, helps build their skill sets, and boosts productivity in the workplace. 2. Ability to inspire and motivate. Employees depend on managers for support and guidance.

  25. Introducing Gemini 1.5, Google's next-generation AI model

    A note from Google and Alphabet CEO Sundar Pichai: Last week, we rolled out our most capable model, Gemini 1.0 Ultra, and took a significant step forward in making Google products more helpful, starting with Gemini Advanced.Today, developers and Cloud customers can begin building with 1.0 Ultra too — with our Gemini API in AI Studio and in Vertex AI.

  26. Sora: OpenAI will now let you create videos from verbal cues

    Artificial intelligence leader OpenAI introduced a new AI model called Sora which it claims can create "realistic" and "imaginative" 60-second videos from quick text prompts.