Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.
April 23rd, 2005, Jawed Karim a German-born young fellow, who had moved to Minnesota with his family thirteen years before, uploaded a video entitled “Me at the zoo:”
Nothing remarkable so far, this wasn’t the first ever video on a video-sharing platform, that started to grow at an exponential rate. By July that platform went from zero to over seven million unique visitors.
Only to become among the most popular sites on earth, which got acquired by another tech giant, Google. This is the story of YouTube and how it grew to a multi-billion dollar business.
The reason I started from YouTube story is that – I argue – the most popular video-sharing platform on earth has all the essential ingredients of business model patterns that were built-in to scale up.
We’ll take into account three primary proven business model patterns that helped many companies to scale up and thrive.
If you’re looking for ways to grow your business exponentially, those might be for you. However, keep in mind that a business model pattern is just one of the ingredient for a successful business model.
Yet these are a good starting point!
Freemium pattern
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.
A freemium patter is primarily a service, given for free either entirely (in this case the service might be ad-supported) or a basic version of it. In the latter case, if you want to have more advanced or unlimited features of the service, you’ll have to pay a fee.
Entire industries have been built on the premise of freemium business models. One element that makes this pattern powerful is its virality element. In short, if you have a great product, that solves an actual need for a set of users. Those users will be able to find it and use it with no friction.
Also, those same users will also spread the word on a massive scale. This element of virality and enhanced word of mouth makes possible to companies running on a freemium pattern to grow exponentially, at least the users’ adoption.
A few successful examples of a company that scaled up thanks to its freemium pattern that triggered virality growth are Spotify, MailChimp, and DropBox.
Founded in Sweden in 2006, Spotify has risen to become one of the world’s largest music streaming service providers. The platform can now boast 356 million active users, with approximately 44% of those being paid subscribers. The company has a mission to unlock the potential of human creativity and allow billions of listeners to enjoy and be inspired by music. Spotify plans to fulfill this mission by paying 1 million artists enough money to live off their creative work through royalties based on stream shares.
Marketplace pattern
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.
A marketplace is another business model pattern that can help you build a business at scale.
While it isn’t easy to create a marketplace, being successful at it means being able to build multi-million, if not billion, organizations.
That’s because the marketplace would benefit from network effects, where more users joining would make the overall platform more valuable for those joining afterward.
Marketplaces like Airbnb have become extremely popular. One key economic advantage of the marketplace is the fact it can extract financial value from each interaction happening on the platform.
Airbnb is a platform business model making money by charging guests a service fee between 5% and 15% of the reservation, while the commission from hosts is generally 3%. For instance, on a $100 booking per night set by a host, Airbnb might make as much as $15, split between host and guest fees.Airbnb is a two-sided marketplace where hosts and guests transact via its booking platform. Thus, Airbnb makes money by charging a fee on top of hosts and guests when a transaction goes through. For instance, in 2023, Airbnb generated $ 9.92 billion in transaction rates, with an average take rate of 13.5%.In 2021, Airbnb generated enabled $46.9 Billion in Gross Booking Value, and it generated $6 Billion in service fee revenues. On 2021, there were $300.6 Million Nights and Experiences Booked, ad an average service fee of 12.78%, at an Average Value per Booking, $155.94.
Two-sided platform pattern
If I ask you, what’s the most valuable platform for connecting with professionals? Chances are you’ll think right away about LinkedIn, the professional social network that combines both people looking for jobs and companies looking for qualified candidates.
The key element of building a successful two-sided platform is to start focusing on one of the sides of the equation.
For instance, when LinkedIn started, it soon realized how the profile page had become many a business card to show to their employees.
When that became viral, the company began to enjoy network effects which made the platform also valuable to employers.
Indeed, in a world made of bits where data is the most valuable asset, having millions of people curating their professional pages was a massive enhancer for LinkedIn growth.
As more people joined in, the platform also became valuable for companies willing to invest money in it to find qualified candidates.
On the other side of the platform, professionals were looking for ways to connect more effectively with employers with advanced features. LinkedIn is a compelling case of a freemium pattern, a two-sided platform that has become valuable for millions worldwide!
How do apps make money?
Apps in the Apple Store follow five primary business model patterns: the free model where the app might make money via paid ads. Freemium model where the app charges for premium features; subscription-based model, paid model, and paymium model, which is a mix of paid and freemium.
How do influencers make money
Online influencer marketing is a relatively new creation, but it has fundamentally changed how brands communicate with consumers. People with targeted audiences are now the focus of advertising efforts. Influencers can tap from small to larger audiences thus, giving companies another way to promote their products. Indeed, influencers make money by selling digital products via sponsorships and affiliations, brand ambassadors programs, and physical products.
How do e-commerces make money?
We can classify e-commerce businesses in several ways. General classifications look at three primary categories: – B2B or business-to-business, where therefore a business sells to another company. – B2C or business-to-consumer, where a business sells to a final consumer. – C2C or consumer-to-consume, or more peer-to-peer where consumers sell to each other.
How food delivery companies make money?
In the food delivery business model companies leverage technology to build platforms that enable users to have the food delivered at home. This business model usually is set up as a platform and multi-sided marketplace, where the food delivery company makes money by charging commissions to the restaurant and to the customer.
How do open source projects make money?
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.
Key takeaway
Scaling up an organization is among the hardest endeavor, in a world governed by a winners-take it all effect. In this scenario, being able to prepackage a business model made of patterns that proved successful is a good starting point.
Above we saw three proven patterns (freemium, marketplace and two-sided platform) that have proved to work over and over again.
If you’re starting a digital business, you might want to look at the options above!
Key Highlights
Freemium Pattern: The freemium pattern is a growthstrategy where a majority of users are provided with a free service, while a small percentage converts to paying customers. Virality and word of mouth play a significant role in spreading the brand. Successful examples include Spotify, MailChimp, and Dropbox.
Marketplace Pattern: A marketplace connects buyers and sellers on a platform, generating revenue through transaction fees. Successful marketplaces benefit from network effects, becoming more valuable as more users join. Airbnb serves as a prime example, generating substantial revenues from service fees.
Two-Sided Platform Pattern: Platforms like LinkedIn are two-sided, focusing on one side of the equation initially and leveraging network effects to attract the other side. LinkedIn started with professionals building profiles, making the platform valuable for employers as well.
E-commerce Business Models: E-commerce can be classified into B2B (business-to-business), B2C (business-to-consumer), and C2C (consumer-to-consumer) models. Each involves selling products or services online, catering to different target audiences.
Food Delivery Business Model: Food delivery companies build platforms that connect restaurants with customers, charging both parties commissions for using their services.
Open Source Projects and Monetization: Open source projects can be monetized through the open-core model, where a core part of the software is offered for free, and premium features or add-ons are sold. GitLab is an example of this approach.
Key Takeaway: Scaling up a business requires effective business model patterns. The freemium, marketplace, and two-sided platform patterns have consistently demonstrated their scalability and success potential in various industries.
Case Studies
Company
Revenue Model
Case Study
Analysis
Netflix
Subscription-Based Model
Netflix’s subscription streaming service
Netflix relies on monthly subscription fees, providing access to a vast library of content with no ads.
Spotify
Freemium Model
Spotify’s free and premium music streaming
Spotify offers both free ad-supported and premium ad-free subscriptions, generating revenue from premium users and advertisers.
Amazon
E-commerce and Marketplace Model
Amazon’s online retail and third-party sellers
Amazon generates revenue through product sales, third-party seller fees, and Amazon Web Services (AWS).
Google
Advertising Model
Google’s online advertising, AdWords, and AdSense
Google earns revenue by displaying ads on its search results pages and partner websites.
Apple
Hardware and Ecosystem Model
Apple’s sale of hardware and services
Apple generates revenue from the sale of hardware (iPhone, Mac) and services (Apple Music, App Store).
Airbnb
Commission Model
Airbnb’s commission from host and guest bookings
Airbnb earns a percentage from hosts and guests for each booking facilitated on its platform.
Uber
Commission and Ride Fees Model
Uber’s commission from drivers and ride fees
Uber takes a commission from driver earnings and charges riders based on distance and time.
LinkedIn
Subscription and Recruitment Model
LinkedIn’s premium subscriptions and job postings
LinkedIn generates revenue from premium subscriptions, talent solutions, and marketing solutions.
Dropbox
Freemium and Subscription Model
Dropbox’s cloud storage and file-sharing
Dropbox offers free storage with premium subscriptions for additional features and space.
Facebook (Meta)
Advertising and Data Monetization Model
Facebook and Instagram’s advertising and user data
Meta earns revenue by displaying targeted ads to users and monetizing user data.
Etsy
Handmade and Artisanal Goods Marketplace
Etsy’s platform for artisans and crafters
Etsy provides a platform for artisans to sell their unique handmade products to a global audience.
Upwork
Freelance Talent Marketplace
Upwork’s platform for freelancers and clients
Upwork connects businesses with freelance talent for various projects, spanning from writing to programming.
eBay
Online Auction and Sales Marketplace
eBay’s platform for auctions and sales
eBay allows individuals and businesses to buy and sell a wide range of goods through auctions and direct sales.
Alibaba Group
B2B and B2C E-commerce Marketplace
Alibaba’s e-commerce and wholesale platforms
Alibaba connects global buyers and sellers, facilitating trade and e-commerce transactions on a massive scale.
Turo
Peer-to-Peer Car Rental
Turo’s platform for car owners and renters
Turo enables individuals to rent their vehicles to travelers, disrupting the traditional car rental industry.
Fiverr
Freelance Services Marketplace
Fiverr’s platform for freelance services
Fiverr offers a marketplace for freelancers to offer a wide range of services, from graphic design to content writing.
TaskRabbit
On-Demand Task and Service Marketplace
TaskRabbit’s platform for taskers and clients
TaskRabbit connects individuals with skilled taskers who can complete a variety of household and business tasks.
OpenTable
Restaurant Reservation Marketplace
OpenTable’s platform for restaurant reservations
OpenTable allows users to book restaurant reservations and helps restaurants manage their tables efficiently.
StockX
Sneaker and Collectibles Marketplace
StockX’s platform for sneakers and collectibles
StockX provides a marketplace for authenticated sneaker and collectible sales, ensuring transparency and trust.
Poshmark
Fashion Resale Marketplace
Poshmark’s platform for fashion resale
Poshmark connects fashion enthusiasts to buy and sell gently used clothing and accessories.
Thumbtack
Local Services Marketplace
Thumbtack’s platform for local service providers
Thumbtack helps users find and hire local service professionals, from plumbers to wedding photographers.
HomeAway (Vrbo)
Vacation Rental Marketplace
HomeAway’s platform for vacation rentals
HomeAway offers a marketplace for vacation rentals, connecting travelers with property owners.
Booking.com
Hotel and Accommodation Booking
Booking.com’s online travel agency platform
Booking.com enables travelers to book hotels and accommodations worldwide, serving as an intermediary between customers and hotels.
Zillow
Real Estate Marketplace
Zillow’s platform for buying and selling homes
Zillow provides tools for home buyers, sellers, and renters, simplifying the real estate process.
Freelancer.com
Freelance Job Marketplace
Freelancer.com’s platform for freelance jobs
Freelancer.com connects employers with freelancers to complete a wide range of projects, from software development to graphic design.
Rover
Pet Services Marketplace
Rover’s platform for pet care services
Rover connects pet owners with pet sitters and walkers, offering a range of pet care services.
99designs
Design Services Marketplace
99designs’ platform for design contests
99designs hosts design contests, allowing businesses to receive custom designs from a global community of designers.
WhatsApp
Subscription and In-App Purchases Model
WhatsApp’s subscription and in-app sticker purchases
WhatsApp offers a free messaging service with revenue generated from subscriptions and in-app purchases.
Patreon
Membership and Crowdfunding Model
Patreon’s support for content creators
Patreon allows creators to offer exclusive content to paying members, generating income through memberships.
Shopify
Subscription and E-commerce Model
Shopify’s e-commerce platform and subscription fees
Shopify offers e-commerce solutions and earns revenue through monthly subscription fees and transaction fees.
HubSpot
Inbound Marketing and SaaS Model
HubSpot’s inbound marketing and SaaS services
HubSpot provides inbound marketing and sales software on a subscription basis, generating recurring revenue.
Airbnb for Work
Corporate Travel and Service Fees Model
Airbnb for Work’s service fees for corporate travel
Airbnb for Work charges service fees for businesses booking accommodations and experiences.
Coursera
Online Education and Certification Model
Coursera’s online courses and specialization certificates
Coursera offers courses for free or as part of a subscription, with revenue generated from paid certificates.
Yelp
Advertising and Local Business Model
Yelp’s advertising and partnerships with local businesses
Yelp offers advertising and business solutions, generating revenue through partnerships.
LinkedIn Talent Solutions
Recruitment and Subscription Model
LinkedIn’s recruitment tools and premium subscriptions
LinkedIn Talent Solutions provides tools for talent recruitment and generates revenue through premium subscriptions.
Square
Payment Processing and Financial Services
Square’s payment processing and financial services
Square offers payment processing and financial services, earning revenue through transaction fees and subscriptions.
Your UVP is the exclusive feature or benefit you offer to your customers. It could be anything at all. If you offer a service, it could be “100% pay after satisfaction”. It could be a time factor offers. Say you provide a service that reviews CV. Your UVP could be “Get a revamped résumé in 24 hours”. This makes you stand out from every other person offering that service, as your unique offering is the ability to deliver in 24 hours. Your slogan could also be your UVP, as it automatically gives your audience what to expect from you. The cost structure is one of the building blocks of a business model. It represents how companies spend most of their resources to keep generating demand for their products and services. The cost structure together with revenue streams, help assess the operational scalability of an organization.In corporate finance, the financial structure is how corporations finance their assets (usually either through debt or equity). For the sake of reverse engineering businesses, we want to look at three critical elements to determine the model used to sustain its assets: cost structure, profitability, and cash flow generation. Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward. A distribution channel is the set of steps it takes for a product to get in the hands of the key customer or consumer. Distribution channels can be direct or indirect. Distribution can also be physical or digital, depending on the kind of business and industry.A marketing channel represents the set of activities necessary to create a distribution for a product and make sure that the product is delivered in the hands of the right people and that the potential customer is satisfied with it. The marketing channel also needs to be aligned with the brand message of the company.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
