95% of companies meet no success because they have an idea they think is unique and creative but do not support this idea with a strong business plan. A good business model is based on what clients’ pains your company is meant to relieve and why your product is better that the one your competitors offer. In this blog post, we will show you 5 business models that will lead your company to success in 2018.
On-Demand business model
This one is going to be the breakout of 2018. Let’s face it. Consumers are impatient. They want to pay only for the time they use a service. Which makes sense when you think about it. What’s the point of paying for an annual gym pass, if you’re going to work out for just two months out of the year?
On-demand businesses use assets that people already possess like apartments for leasing or cars for delivery. They manage the operational aspects of all these assets themselves and focus on the increased customers’ convenience. The on-demand model is meant to actually save consumers’ money and time while totally disrupting more traditional business sectors.
Uber is one of the best examples of an on-demand business. They now have drivers in over 60 countries around the world. Customers can choose the car, the driver and check out the rating other customers gave them. Uber simply fulfills the demands of the clients by immediately providing them with transportation services. And again, they pay for a ride, not for a membership.
On-demand businesses are young. They entered the world market about five years ago. However, during this time, they managed to accumulate investments of about $5 billion in capital.
Aggregator business model
This is a network business model. Let’s say, Company X collects information about providers of services or goods they are interested in. They find Company Y and become partners. Now Company X promotes and sells the goods and services of Company Y under a single brand. Company X is an aggregator who establishes a brand, quality and price. Nevertheless, Company Y remains the independent owner of the provided goods or services. The company-aggregator only helps promote the product in a win-win fashion.
Airbnb doesn’t own any room, apartment or house, yet the company offers accommodation to customers all over the world. Airbnb provides rooms with standardization under a well-trusted brand. The company doesn’t obey the same principles Hilton or Marriott do and invest billions of dollars in building properties. The key resource of Airbnb is people. They made the company grow so fast at almost zero marginal cost.
Airbnb provides accommodations in more than 34,000 cities in the world. They have served over 35,000 million travelers. In 2012, the company overtook Hilton Hotels in amount of nights booked.
Reverse auction business model
This business model allows buyers and sellers to change their roles. Literally. In a reverse auction business, buyers offer their price for a service. Then, if the seller agrees on the price, the buyer has to commit to their terms.
That’s how Priceline works. The company provides price-sensitive travelers with the possibility to rent cheap hotels, cars, flights and cruises. They offer a Name Your Own Price feature where the clients can win with their bids. Customers think they get the cheapest offers because they actually run the bidding. According to the financial statistics of the company, by implementing the reverse auction model they achieved 50% profit growth, 22% revenue growth and a 46% increase in stock price over the last ten years.
Choosing this model for your startup, your task is to find an initial investment and create a simple marketing strategy. The model allows clients to handpick a seller and set their own price. The reverse auction is yet to become viral in different spheres and is restricted to some digital services.
Marketplace business model
Based on Juniper Research, the development of the marketplace economy is expected to double between 2018 and 2022, increasing from $19 billion to $40 billion. The marketplace business model is constantly evolving. Companies like eBay, Amazon, Grubhub, Farfetch, and Overstock are just picking up steam.
Building a marketplace company is a long-term game. This business model operates with a 10-20% margin (a fee paid by sellers to the marketplace). In the first years of operation, this may not even be enough break even. When choosing this model for your business, your key tasks are to create and promote a brand, provide quality support and ensure superb security.
The biggest benefit of this business model is that you have no product responsibility. You do not hold any inventory. Sellers and buyers interact through your platform, and your part of the deal is marketing and technical support.
The freemium/subscription business model
The freemium business model is used in the online app industry to entice customers to purchase the full version of the app. First, you are provided with the core functionality for free, but if you want some extra features – please, subscribe. Dropbox is free until you want to store more than 2GB. WordPress is free until you want a custom domain name. Spotify, one of the largest freemium business model adopters, is free until you get irritated with ads and want to listen to tracks offline.
In the online publishing industry the model works according to the same principles. The reader can view and read, let’s say, 80% of all content for free. But if the reader wants some premium articles (an editorial piece, current economic or political happenings, etc.), they have to subscribe. The American Lawyer, Washington Post, Harvard Business Review, The New York Times and many others follow the freemium/subscription model. When you land on the main page, you get access to all articles. But when you tap on the premium article, it is displayed only partly and the whole content will be available only after you subscribe. Free content is the bait. The customer swallows it and buys the subscription.
