13 Business Models

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