What’s the best way to create your business model?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays: Revenue Models – Subscriptions – AVC

The big gotcha in subscription revenue models is churn. If you churn more than 10% of your customers every year, subscriptions can be a challenging model. You need to grow new customers at 10% just to stay even.

Unknown (who knows!?)
Wensing, M. – The Anatomy of Profitable Freemium

Using a free car analogy, the kinds of premium value (types of freemium) include: Cargo Freemium (Examples: Dropbox, iCloud), Airbag Freemium (Example: WordPress, Red Hat), Bomb Freemium (Example: Yammer, Salesforce to a lesser extent), Cruise Control Freemium (Example: GitHub), and Bells & Whistles Freemium (lots of examples).

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
You Are Working Too Hard And Not Getting Anywhere – AVC

The moral of this story is sometimes you have the right product but the wrong business model. Fixing the business model can fix the company. It certainly did in the case of TACODA.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays: Revenue Models – Licensing – AVC

The only form of licensing that USV is actively investing around is the open source model. We think open source is an attractive form of licensing that creates network effects in the developer and user community and we have had success investing in the open source model.
That said, licensing is probably the least interesting business model to me of all the ones we are covering in this series. It is possible that entrepreneurs will invent new way… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays: Revenue Models – Transaction Processing – AVC

For financial transactions, the fees are generally small, typically in the 2-4% range. For banking transactions, the fees are often much smaller than that because the credit and fraud risks are lower. For logistics (shipping and handling), the fees vary but relate to the costs of providing the service. For telephony, the fees are generally expressed per minute or per message and are generally low but can be high in certain markets. Platform dist… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays: Revenue Models – Peer to Peer – AVC

The thing about peer networks is most of the value is created by the participants in the network. The business doesn’t do that much. It provides the basic infrastructure so that the market can work. It provides trust and safety and governance. And it provides customer service and support. The participants in the network do most everything else. That means these businesses can and should operate very efficiently at scale.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays: Revenue Models – Subscriptions – AVC

The emergence of the subscription model has made the software business better. In the old upfront license fee model, software companies would trade at 2-4x revenues. Now they trade at 6-8x revenues. That reflects the recurring, almost annuity nature of the subscription model.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays: Revenue Models – Commerce – AVC

Retailing is a tough business. The difference between what you buy the product for at wholesale and sell it at retail is called your gross margin. Amazon’s gross margin ranges between 20% and 25% depending on what time of year it is. The holiday quarter brings the lowest gross margins because retail makes up a larger perecent of revenues. At Amazon’s size, a 25% gross margin turns into a lot of money. But a smaller online retailer can really stru… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays: Revenue Models – Advertising – AVC

I would break up advertising into two big buckets; ads that are sold and ads that are bought. The first is a relationship business, requires a direct salesforce or a salesforce that you can tap into, and will bring a higher revenue per impression in most cases. The latter is a data business, automated by machines and software, is a volume game and will bring a lower revenue per impression in most cases. Much of the online advertising market is mo… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays: The Revenue Model Hackpad – AVC

I think six of them are truly definitive revenue model categories (advertising, commerce, subscription, transactions, licensing, and data). The other three (peer to peer, mobile, and gaming) could be folded into the first six since they mostly map to existing models (mobile ads are ads).

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Some Thoughts On The Louis CK “Experiment” – AVC

The business model of going direct to the fans is powerful, it has none of the negative issues of the existing business model (like fucking with the architecture of the net in a naive attempt to quell piracy) and is going to work bigtime.

Eric Ries (Author, The Lean Startup)
The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses

Sustainable growth is characterized by one simple rule: New customers come from the actions of past customers. There are four primary ways past customers drive sustainable growth: 1. Word of mouth. 2. As a side effect of product usage. 3. Through funded advertising. 4. Through repeat purchase or use.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays: Revenue Models – Gaming – AVC

I have been waiting for non gaming web and mobile services to adopt the virtual goods model but have yet to see anything that feels like it is working really well. Virtual goods is another excellent implementation of the freemium approach to business model.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
How To Be In Business Forever: Week Four – AVC

I went ahead and created a Business Model Canvas of my own using bmfiddle.com.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
A Lens Into The Future Of Enterprise Software – AVC

We know that “freemium SAAS” works well for horizontal enterprise applications like Dropbox, Slack, Google Apps, etc and I believe we will start seeing freemium SAAS models applied to vertical applications as well. We already are.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
The First Law Of Internet Physics – AVC

many users * low arpu >>>> few users * high arpu

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
A Lens Into The Future Of Enterprise Software – AVC

I am seeing a bunch of new SAAS companies get started whose entire value proposition is building on the open APIs that most enterprise SAAS products have released in the past few years. If you are in finance, or HR, or marketing, or sales, you are now using a host of SAAS applications to get your job done and a big trend in the market is new applications that tie all of those together (via APIs) so that you can have a single view into your workfl… (read more)

Bill Gurley (General Partner at Benchmark Capital)
All Markets Are Not Created Equal: 10 Factors To Consider When Evaluating Digital Marketplaces | Above the Crowd | By Bill Gurley

Payment Flow. All things being equal, being part of the payment flow is superior to not being a part of the payment flow. This is due to the fact that it is much easier to extract reasonable economics when you are in the flow of payment. The supplier not only looks to you as a provider of revenue, but they receive that revenue “net of the fee.” Contrast this with a marketplace where you add value first, and then send a bill to the supplier at lat… (read more)