This was a good exercise in collaboration with an LLM to distill my current understanding of various business models for startups, based on what I have seen over the past several years. I first made a spreadsheet by hand, where I drafted my ideas. Then I asked the LLM to simplify it, which produced the text below, and then finally I asked to re-write it as a csv. You can find the raw data on this Google spreadsheet, and here is a csv.
1. Open Source Ecosystem
Model Overview
Leveraging the Open Source model, businesses initiate projects to foster a community of contributors and users. The strategy is to monetize through premium services like paid components or cloud solutions, or by creating tools that contemporaneously add value to an existing open-source ecosystem.
Key Considerations
Customer Profile: Highly technical, requiring a product that is genuinely open and enjoys community-driven development and wide adoption.
Business Strategy: Product-led growth underpinned by authentic understanding and engagement within the open-source community.
Challenges: The need for a veritable open-source trajectory; inauthentic efforts are readily apparent and poorly received in the community.
Revenue Streams
Licensing
Subscription
Notable Examples
MongoDB
Elastic
Docker
2. Infrastructure as a Service (IaaS)
Model Overview
Infrastructure services build on the demand for utility resources like computing power and storage, offering them on a usage-basis. Key to success is providing these resources cost-effectively, enhancing accessibility, or addressing novel demands, notably within the FinTech industry.
Key Considerations
Resource Intensity: Requires substantial back-end development with a world-class developmental team.
Capital: Anticipated to necessitate significant capital expenditures, both initial and ongoing.
Competitive Edge: Emphasizes reliability and maintaining a position as the cost leader in the market.
Future Demand: To sustain growth, the potential market size—or entitlement—must represent a significant expansion from present unsatisfied demand levels.
Revenue Streams
Metered billing
Notable Examples
AWS
Twilio
Stripe
Snowflake
Cloudflare
Visa
OpenAI
3. Vertical Software as a Service (SaaS)
Model Overview
Identify a specific industry problem and provide a software solution that optimizes workflows and decreases errors, with the aim of reducing costs, mitigating risks, or driving revenue for a particular vertical.
Key Considerations
Market Saturation: Large, established verticals may have already been capitalized extensively.
Product Stickiness: Achieving a compelling value proposition poses a challenge due to the potential congestion of existing solutions.
Service Orientation: Risk of transitioning into a service provider due to customer demand for customization and support.
Revenue Streams
Subscription
Notable Examples
Procore
Appfolio
Toast
MindBody
4. Developer Tools
Model Overview
Developer Tools is a niche within Vertical SaaS that involves offering solutions, including open source, IaaS, and workflows, specifically designed for a highly technical user base such as software developers.
Key Considerations
User Expectations: Elevated expectations require top-tier technical capabilities for satisfactory fulfillment.
Community Engagement: Building and nurturing a dedicated community is both essential and demanding.
Open Source Expectation: Presence of open-source elements is customary to adhere to community standards.
Revenue Streams
Freemium offerings
Subscription
Metered billing
Notable Examples
GitHub
HuggingFace
HashiCorp
5. Government Solutions
Model Overview
This business model encapsulates selling specialized solutions to government entities, including departments focused on defense, law enforcement, immigration, and education.
Key Considerations
Sales Dynamics: Sales processes are intricate, requiring connections and a comprehensive understanding of the public sector’s procurement practices.
Contractual Framework: Engagements range from singular project-focused to ongoing subscription-based arrangements.
Revenue Streams
Subscription
Per-project billing
Notable Examples
Anduril
SpaceX
6. Business-to-Business (B2B) Services
Model Overview
Offering tailored services for businesses, this model reflects bespoke solutions that may include relationships facilitation, specialized knowledge, or outsourcing accountability for complex issues.
Key Considerations
Knowledge Disruption: Vulnerability exists against new learning models capable of disrupting specialized knowledge services.
Defensive Relationships: Sustaining and leveraging business relationships grant competitive advantage and resilience against industry shifts.
Revenue Streams
Per-project fee
Retainer agreements
Notable Examples
McKinsey
PwC
Accenture
Various Investment Banks
7. Data and Information Commerce
Model Overview
Businesses monetize exclusive, complex, or frequently updated data sets, making them available through APIs or structured data formats.
Key Considerations
Usage Monitoring: Tracing data use is complex, with a push towards API dependency by providers.
Data Lifecycle Management: Contractually enforcing data erasure poses significant challenges—hard to execute and confirm compliance.
Legal Environment: The sector is subject to intensive litigation.
Revenue Streams
Data set provision
Metered usage
Notable Examples
Mapbox
Bloomberg
Dun & Bradstreet
CoreLogic
Nielsen
Thomson Reuters
Cherre
8. Aggregator Platforms
Model Overview
Aggregators attract user segments by providing relevant information, reviews, or tutorials. They monetize their influence by guiding user transactions towards partnered vendors or marketplaces, earning a share per lead or sale.
Key Considerations
SEO and Algorithm Dependency: Evolving search engine and algorithmic landscapes influence the aggregator business model’s success.
Destination Challenges: Achieving status as a go-to platform requires significant investment in customer acquisition strategies.
Revenue Streams
Advertising
Transactional fees
Notable Examples
Zillow
Google
Expedia
Reddit
SoftwareAdvice
FindTheBest
WikiHow
Bankrate
9. Freemium SaaS
Model Overview
This business model offers a base-level product or service without cost, with the longer-term goal of converting users to paying customers. The model often targets professional or business contexts for upselling.
Key Considerations
Feature Balance: Strategically determining which features are free and which are premium to avoid alienating the free user base.
User Conversion: Crucial to persuade a significant portion of the user base to adopt paid tiers.
Acquisition Costs: Striking the right balance between feature offerings and acquisition costs, which are notably low margin in the context of paid user conversion.
Revenue Streams
Advertising
Subscription
Notable Examples
Slack
Discord
Substack
Gmail / GDocs
Zoom
Dropbox
10. Online Marketplaces
Model Overview
Online marketplaces connect buyers and sellers, fostering liquidity in markets that historically faced barriers to entry such as trust or regulatory issues.
Key Considerations
Simultaneous Scaling: Marketplaces must grow supply and demand concurrently to thrive.
Competitive Strategy: Developing dominance is costly, especially when competing against other emerging platforms. High subsidies may be necessary to secure a lead position.
Revenue Streams
Transaction fees
Notable Examples
Airbnb
Uber
eBay
StubHub
11. Social Networking Platforms
Model Overview
Digital communities that facilitate content creation, sharing, and interaction are the focus of social network platforms. They cater to various user dynamics, from one-to-many broadcasting to interactive discussion forums.
Key Considerations
User Base Growth: Acquiring a critical mass of users is arduous and maintaining it can be just as challenging.
Regulatory Navigation: The landscape for acquisitions and management is complicated by diverse and evolving regulations.
Revenue Streams
Advertising
Premium user experiences
Notable Examples
Facebook
TikTok
Instagram
Strava
12. Entertainment Services
Model Overview
The entertainment model spans personal and group experiences, with a primary goal of captivating user attentiveness and securing repeat engagement. Successful entities in this space often become iconic within cultural narratives.
Key Considerations
Creator Relationships: Collaborating with creative talent and managing copyrights can be fraught with challenges.
Predictive Difficulty: Anticipating market reception to new entertainment offerings is speculative, with unpredictable outcomes.
Technological Disruption: The industry confronts high exposure to innovations in generative AI, which may alter production and consumption patterns.
Revenue Streams
Subscriptions
Pay-per-experience models
Notable Examples
Spotify
Netflix
Disney
Music Festivals
Movie Theaters
13. Consumer Products
Model Overview
Consumer products, encompassing both physical goods and services, aim to meet customer needs through functionality, branding, and design, increasingly with the offer of subscription-based models alongside traditional per-unit sales.
Key Considerations
Customer Expectations: Product differentiation is challenging in the face of competition and imitation.
Brand & Loyalty: Building and maintaining brand affinity and customer loyalty are critical, substantial investments.
Purchase Frequency: Addressing the challenges related to products that are purchased infrequently, influencing strategies for fostering long-term customer loyalty.
Revenue Streams
Per-unit sales
Subscription models
Notable Examples
Apple
Tesla
Garmin
Amazon(ish)
Ring