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What monetization model to choose for an IT startup: examples and cases

The digital era has made life easier for users: new payment methods and distribution channels have appeared, the range of services and the possibility of obtaining discounts has expanded. Thanks to this, the owners of IT companies can significantly increase revenue if they choose a successful monetization model.

Model 1: Subscription


Previously, this option was suitable mainly for the media. But thanks to the Internet, the monthly content pay model has become widely used by online cinemas (Kinopoisk), software services (Adobe), and even retail companies (Blacksocks). If the user has regular expenses (for watching movies, buying clothes), then a monthly subscription is more profitable than individual purchases. In addition, many companies offer a free trial period or discounts on subscriptions issued for a long period (for a year, for example).

Business Benefits: This model generates a steady income that is easy to predict. In addition, some customers do not unsubscribe from laziness.

Disadvantages:profit depends on a large customer base, so it is important to monitor the number of failures and their causes.

Case: when Disney produces a film, after its release the main success indicator is box office. Not too informative. But the streaming service Netflix, which works by subscription, builds close relationships with users and carefully monitors which films and series the person watched, whether he switched halfway, whether he continued to watch more content in the same genre and with the same actors. This customer-centric approach allows Netflix to take a leading position in the market.

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Model 2: Long Tail


The company makes the main bet not on a limited number of expensive "hits", but on many cheap niche products. And the total revenue from the sale of rare goods brings enormous amounts. According to this principle, the iTunes music service works, where you can buy individual songs (including little-known artists). The same applies to large eBay or Amazon portals, where various sellers trade for a small fee. For consumers, this model is good in that you can find anything you want.

Advantages: this model allows you to attract many consumers who will come back again and again.

Disadvantages: Long Tail is not suitable for selling innovative products that users know little about.

Case:Etsy specializes in selling handicrafts and vintage items. In 2018, the resource revenue amounted to 603.7 million US dollars, and net income - 41.25 million US dollars. At the same time, sellers themselves pay a commission of only 5% of the value of the goods for each completed transaction (in excess of 20 cents for each item).

Model 3: Lock-in


Customers are attached to the product due to the fact that the transition to a competitor is too expensive. The most famous examples are Apple and Microsoft. The patented ecosystem of products consisting of hardware and software, as well as related products, makes the transition extremely expensive and time-consuming. The same can be said about Gillette's products: a budget machine requires special expensive blades. And changing the brand will hurt the client’s budget.

Benefits: With this model, customer commitment is easy to achieve.

Disadvantages: the product must have unique characteristics or be considered the highest quality in its niche.

Case:LEGO designers are more expensive than similar competitors. But LEGO offers not only high quality, but also plot solutions (for example, designers based on "Star Warrior"). Since only one plot can be assembled from such sets (a castle cannot be obtained from a starship), buyers are involved in a regular shopping cycle.

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Model 4: User Created


The company allows users to take a creative approach when creating a product. For example, the German company Spreadshirt created an online T-shirt store where users can come up with ideas for prints that will be printed on clothes. Customers can also sell their designs to other customers. The fact that customers do the work of a company to develop a product, which surprisingly increases the value of the product - it becomes more individualized.

Advantages: automation of the process of collecting ideas and organizing such a business does not require a lot of time or labor.

Disadvantages: the model works better in those markets where users are accustomed to make decisions and take the initiative than to get the finished product without effort.

Case:Subway fast food chain offers visitors to independently assemble their sandwich - choose those ingredients that they like. But one of the difficulties in Russia was that many visitors are accustomed to the standard menu and find it difficult to choose.

Model 5: Freemium


The basic version of the product is offered for free, but you have to pay for additional features in the premium version. This is one of the most common business models in the IT field: the phone application can be installed for free, but you will have to pay to get the most useful add-ons. Spotify, YouTube, LinkedIn, Skype and many others earn on this idea.

Advantages: The business model uses the well-known reciprocity rule in social psychology. When people get something for free, they feel indebted and want to thank something. For this reason, if people like the basic version, they quite easily agree to purchase the advanced version.

Disadvantages:This model requires significant time and money to reach your audience, and even more effort to turn free users into paid customers.

Case: Dropbox file hosting provides every gigabyte user with two gigabytes of cloud storage. It can be used for an unlimited period of time. But if the place is over, you can increase it for a monthly fee. Free use increases the user base, while the subscription, which we spoke about at the very beginning, brings a steady income.

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