ASHISH DUBEY

ENTREPRENEURSHIP MANAGEMENT
BUSINESS MODELS ASSIGNMENT

WHAT IS BUSINES MODEL

The term business model refers to a company's plan for making a profit. It
identifies the products or services the business plans to sell its identified target
marketed and any anticipated expenses. Business models are important for both
new and established businesses. They help new developing companies attract
investment, recruit talent, and motivate management and staff. Established
businesses should regularly update their business plans or they'll fail to anticipate
trends and challenges ahead. Business plans help investors evaluate companies
that interest them.

1) Companies: - Spotify and YouTube

2) Business model name: - Spotify is using freemium business model and

YouTube is using crowd sourcing model

3)A. Freemium business model: - A combination of the words free and premium
the term freemium is a type of business model that offers basic features to users
at no cost and charges a premium for supplemental or advanced features. A
company using a freemium model provides basic services for free often in a free
trial or limited version for the user, while also offering more advanced services or
additional features at a premium.

B. Crowd sourcing model: - Crowd sourcing involves obtaining work, information,

or opinions from a large group of people who submit their data via the
Internet, social media and Smartphone apps. People involved in crowd sourcing
sometimes work as paid freelancers, while others perform small tasks on a
voluntary basis. For example, traffic apps encourage drivers to report accidents
and other roadway incidents to provide real-time updated information to app
users.

4) Competitors of Spotify:- Apple Music, Amazon Music, YouTube Music, Google

Play Music, Sound Cloud, Pandora, Deezer Music, Tidal, Napster, and Band camp.

Competitors of YouTube: - Vimeo, Wistia, Daily motion, Twitch, Sprout Video,

IGTV, Metacafe, Veoh, TikTok, and Dtube.

5) A. Benefits of Freemium Business model: - The freemium business model has

its own advantages when it comes to user acquisition reduced cost of sales is one
of the main ones. This is achieved by offering a self-service product to the users,
giving them a chance to try the product. From that point they have a chance to
figure out the product's value on their own, instead of spending tons of money on
an army of salespeople who will be explaining and persuading the value to the
prospects. In the good old days, software companies would spend half of their
revenue on sales, passing these costs onto customers. It didn't take long before
they figured out that they were paying twice as much as they needed for
something that had little value once the product was installed. The software
companies have been striving to reduce the cost of sales ever since. When this is
achieved, the software companies can direct the saved energy and resources into
delivering that awesome product they originally had in mind.

B. Benefits of Crowd sourcing Business model: - Market research is

fundamental in all lifecycle phases of a product or technology. Using Open
Innovation for that ensures that you receive valuable input from the crowd.
Digital crowd sourcing platforms guarantee that people are able to work on your
project from any place and at any time. It normally costs a lot of money to pay
people to work for you. But when people come together digitally, the cost is
significantly lower. And in successfully motivating your target group, you can
minimize expenses in terms of money, time and organization. Open Innovation
projects create attention and attention from potential customers is worth its
weight in gold. An attention span of only a few seconds, as with traditional
advertising, is simply not enough. Participants focus intensively on the brand, a
product or an idea. This of course can have a positive effect on future purchasing
decisions.

At the same time, businesses collect valuable data from a valuable target group
who they can also contact in the future. Open Innovation is therefore also a
marketing measure.

6) A. Alternative business model for Spotify is Subscription model:-

The Spotify business model is still evolving. Even though its revenues primarily
come from paid members, the company might try to push more on its ad-
supported services, and enter more and more in the digital advertising space.
Therefore, a business model that is subscription-based might become advertising
based in the long run. As of now over 10% of Spotify revenues come from ad-
supported services, while the remaining, about 90% comes from membership
services.

B. Alternative business model for YouTube is Subscription model:-

The YouTube main source of income comes from YouTube channels and
advertises if YouTube adds subscription model to its business for latest movies
and series they can earn more from this model so according to me YouTube
alternate model is subscription model.

7) A. Business model canvas of spotify:-

1. Customer segments: Who are the group of customers?

Spotify uses a multi-sided platform model for its customer segmentation which is
oriented towards two customer segments, firstly the community of young people
looking for new affordable ways to listen to music and secondly the advertisers
looking for ways to reach this community with their advertising. Spotify needs to
build up a community to create and large audience attractive for advertisers,
since out of the total members or users of Spotify only a 25% are premium users
or paying customers, which covers part of the expenses, but the members
listening to the free version have to listen to advertising in-between and this is
where revenue is generated from the advertisers. So the two revenue bases are
the premium users/ paying subscribers or the advertisers advertising on Spotify.

2. Value proposition: What is the offer for each customer segment?

The value proposition that Spotify offers is in its newness, accessibility and
convenience for the end user to stream online music for a short set of time. There
are two ways to this one is being able to stream music for free, but having to
listen to advertisement, which is favorable for customers since its free although
they have the trade off to listen to the advertisement as well. The second way is
where customer buy premium accounts to listen to music for the period of one
month of 12 million songs, opposed to iTunes where they are able to buy 1 song
or an album at a higher price, customers need to pay between 5-10 dollars for a
monthly subscription in order to be able to stream any of the 12 million songs and
not forced to listen to any advertisement as opposed of the free accounts.

The value proposition in Spotify’s case is that customers have access to the whole
database, but there is also a Trade-off in that the customer are not owning any of
the songs, they only buy rights to stream from the database for a period of one
month if they pay or they are forced to listen to advertisement if they go for the
free account.

Spotify created the blue ocean for themselves by creating a new market for
customers by offering access to a whole database of songs at a low price instead
of offering songs or albums at a higher price. The value for costumers is that they
don’t have make choices between their favorite songs they can listen to all of
them, although they trade of their owner rights to any of the songs for access to
all of them.

3. Channels: How to reach each of the customer segments?

The primary channels are the corporate website Spotify.com, the software

application and the mobile application. All the surfaces on which the customers
have direct contact with the company or its products.
 1.   Awareness
Spotify uses a its different platforms and interfaces to promote itself to costumers
and makes use of co-branding with other companies like Face book and large
Telecom companies offering their products for a set of time with some tariffs, like
Vodafone does in the UK or Base in Belgium.

2.   Evaluation
The Evaluation happens mainly on the corporate website of Spotify and other
platforms like the Spotify blog, YouTube channels and Face book account.
Customers can visit these sites in order to get more information of the company
what it does and if it is worth it for them to buy its products.

3.   Purchase
The products of Spotify are available at the corporate website of the company or
in the app stores of Google and Apple as of 2013. As for advertisers they can
facilitate direct contact with Spotify through emails, since they are engaging in a
different kind of business.

4.   Delivery
The delivery happens through the enabling of the music streaming application for
users, which depending on the account type, can happen on different devices.

Customer Relationships: How to relate with customers over time?

The customer relationship is automated service which is a more sophisticated

form of self-service. Customers are able to buy the software online and customize
it to their specific needs. It’s an online relationship without direct contact with the
company itself. Customers are given all the means to buy, download, and use the
software themselves. The relationship is based solely on self-service of the
frequently asked question section on their website, the community or the
personal assistance for more direct contact for technical problems. Beside this
there is little personal contact with customers since the product is an automated
service and uses automated processes to deliver value.
As for advertisers they have a more personal contact with them, since it is a more
dedicated form of personal assistance in their customer relationship with them.
They are also larger buyers and have to get more attention, since they are an
important part of the Freemium business model.

Revenue streams: How to earn revenues?

Spotify operates with a Freemium model in which they offer the basic service of
online streaming and with the premium account they add more features to it. In
case of the free account they earn on advertisement and in case of the premium
account the customer pay for the usage and don’t have to listen to
advertisement.

The revenue streams come from the subscription fees from premium and
unlimited users and the advertising fees from the companies advertising on the
platform for free users. The revenues come from these to sources and create the
total revenue from which 70% goes to licensing fees for the songs and the
remaining 30% of revenue stays by the company.

The company uses a fixed menu pricing for its product where you have a list price
for accounts offered, which are the following:

 1. Free account
 2. Unlimited account
 3. Premium account
The price depends on the features bought by the costumers, which off course
goes up with the price so premium users can stream on any device with no adds,
while free users can only stream on laptops and computers and have to listen to
advertisement.

The price also depends on the customer segments so each account type is aimed
at different segment and even free users generate revenues through
advertisement which is important as they account for 80% of the users, the
difference is the trade-off they have to make depending on the account type.
The price is also volume dependent, this is why the record labels aimed at
lowering the time free users can listen to music, since they thought its giving away
the music for free, believing with lowering the benefits for free users they will
have to change and become premium users, because of that they changed from
30 hours to 20 hours per month for Freemium users and raised the length of
advertisement from 15 to 30 seconds.

Key resources: What assets are required to run the business?

The key resources of the company are the licensing agreements they have with
the big music labels (although it is common for the industry and is rather a
hindrance for business, more about the evolution section).

The key physical resources are the platform and the software which they need to
operate the service and offer the customers the full satisfaction of the music they
are looking for

The Intellectual resources are the brand name which Spotify created for itself
among the customers. The service works like a music sharing social network in
which you can see you friends pal lists or what they listen to strengthening the
social belonging and the brand.

The key human resources are the software ad network engineers making sure the
operation, development and evolution of the software. The technical experts of
the company are the most essential human resources for and online company,
just like in the case of Spotify.

Key activities: What are the important activities/processes?

The most important is to keep the platform/software operational at all times in

order to full fill customer expectations, because any disruption in the delivery of
the service will result in the loss of the customer base and will immediately and
directly effect revenues of the company. The platform maintenance is the most
important activity of the company since it is the direct connection with the
costumers and any disruption to it proposes the greatest risk and will damage the
brand, the costumer base and the company itself.
Partner network: Who are the key partners and suppliers?

The key suppliers are the big music labels and record companies, which are the
ones licensing the music to Spotify, without them the company couldn’t function,
since they are intermediate between the customer and the music labels providing
the platform for the customers to access the music, but they rely on the music
labels to provide content to them, because without music there is no content and
a platform without content is useless.

The key partners are different by each country, but each of these key partnerships
are used for co-branding and selling boundless in order to promote both Spotify
and a certain product, like in England they are partners with Vodafone and with
certain tariff from the phone company they can enjoy the premium account
benefits of Spotify. There are countless other partnerships and co-branding, from
which the most important would be with Facebook, which has the highest
turnover rate of new customers.

Cost structure: What are the important costs?

The most important cost of Spotify is the licensing fees with the music labels and
recoding companies, which takes up 70% of the revenues, according to the deal
made with the 4 major label companies Spotify either pays 200 million dollars
each year or 70% of all its revenues, based on these information the most
important cost are related to the licensing fees. The remaining 30% of revenues
are still need to be used to cover for the operation cost of the company, like
salaries and other expenses.

Other important cost include the salaries of the technician keeping the platform
operational at all times and the cost related to the technical necessities of the
platform like servers, programs, updates….and so on.

The most important costs are:

 1. Licensing fees for the music/content

 2. Salaries of key personnel/technicians
 3. Expenses related to maintenance of the platform
These are the most influential expenses that need to be covered in order for the
company provide service to the customers, after these come other expenses. The
high % of the revenues paid to the music industry makes t hard for cover all
arising expenditures of the company, because of this Spotify hasn’t been
profitable since 2008 and its cost are rising. The company is not unique in this
regard, online startups all struggle with the same problem, the latest partner
Tango and Pandora also have the same issues, they both grew they revenue in
recent years, but also raised their losses. The problem doesn’t necessarily comes
from the business model of these companies, but from the fact that they are all
startups and that core power is by the music industry since they have a very high
bargaining power over these companies, which influences the profitability of it
and puts a lot of boundaries in the operation of the companies in this industry.

Evolution of the business model

Spotify created a new blue ocean for them self with offering online streams
instead of downloads and making possible for costumers to listen to unlimited
music. Off course many artists have been upset about the revenue model of
Spotify, because there can be many different versions of the songs and some can
be streamed less than other, making less revenue, then digital downloads.

The most important evolution happened to the Freemium model, which was
more and more pushed back by music labels and record companies, because they
so it as a way of giving away music for free, so they pushed for lower listening
time/month from 20 to 30 hours and higher length of advertisements from 15 to
30 seconds in order to own more on advertising and force Freemium user to
convert to premium users.

The music streaming companies face much pressure from the content providers
the music labels, since they rely heavily on them, since these companies like
Spotify are an intermediate between the content providers and the end users.
Because of this music labels have a lot of bargaining power in enforcing changes
to the industry. Most of evolution will be the source of this, because companies
will try to comply with the demands of the content providers and look for new
way to generate revenues with other functions. So changes to the business model
will span from creating higher revenues or looking for new sources of revenues,
which stays in the company
 B. Business model canvas of YouTube:-

1. Customer Segments: There are 3 groups of people the company is trying to

reach

 Internet Users (looking for content to watch/listen)

 Advertisers (looking for users that fall into their Buyer Personas)
 Content Producers (looking for users to watch/listen their content in order
to attract advertisers)

These Customer Segments are tightly bonded since the satisfaction of each one of
them is strictly related to the satisfaction of the members of the other 2 groups.

Therefore, the groups generate a Multi-sided Market.

Users, Advertisers and Content Producers are segmented based on:

 Demographic Factors
 Psychographic Factors to build Buyer Personas in order to find the right
matches and to generate mutual satisfaction.

2. Value Propositions: YouTube developed dedicated Value Propositions for each

of the Customer Segments

 Internet Users are provided with a platform for connecting people by

distributing content
 Advertisers are provided with a way to connect to a relevant audience
 Content Producers are provided with a stage where they can perform

Anyway, operating in a Multi-sided Market, a harmonization of the Value

Propositions is needed.

Therefore, YouTube extensively uses Artificial Intelligence and Big Data Analytics
to Cluster its Customer Segments in order to find the right matches and to
generate mutual satisfaction.
 3. Channels: the way YouTube communicates and delivers its Value Propositions
to its Customer Segments is based on Own Channels such as:

 Youtube.com
 Mobile Apps
 Smart TV Apps
 Google Ads

These are fully integrated in order to maximize the possibility to generate mutual
satisfaction between the Customer Segments.

4. Customer Relationships: YouTube entertains Digital Relationships with its

Customer Segments that are typically established through:

 Review Systems/Sharing Functions that help to select the most popular

content and to create communities around it
 Google Analytics where all the data about content are sent and analysed in
order to connect Advertisers and Users through
 Content Creators
 Customer Care

Suggestions by YouTube, Review Systems and Sharing Functions help to create a

viral loop where more and more users are dragged into visiting content.

5. Key Activities: the core activities for YouTube are:

 Platform Development to allow it to generate an increasing mutual

satisfaction between the Customer Segments
 Community & Content Management to eliminate inappropriate/offensive
content and to ensure the Review Systems work smoothly
 IT Operations to get the complex machine going

6. Key Resources: the key assets for YouTube are:

 Content that is the Value Proposition delivered to users

 Traffic that is generated by good content
 Platforms that make the content available for the users to enjoy
 Recommendation Algorithms that retain traffic by proposing a more
interesting content

These digital factors are fundamental to create a relationship with Advertisers

and, therefore, to generate revenues.

7. Key Partners: YouTube’s business model works thanks to the relationship the

company has with:

 Google that is the owner of the company and provides data/tools such as
(Google Ads and Google Analytics)
 Content Creators that, acting as partners/suppliers, generate content and
attract the users
 Advertisers that, acting as partners, generate revenues

The partnership YouTube put in place with Content Creators and Advertisers is a
sort of Strategic Alliance that aims to cluster Users into Buyer Personas to target
them with advertising and to generate revenues.

8. Revenue Streams: revenues are mainly generated by Advertising while

YouTube is working hard in finding new ways to generate incomes such as
Premium, TV and Music Subscriptions

9. Cost Structure: the main expenses for YouTube are due to:

 IT Operations
 Marketing
 Legal
 Property rights

10. Social & Environmental Benefits/Costs: apparently there are no major

Environmental Benefits/Costs related to YouTube Business Model.When talking
about Social Costs it could be good to point out that this business model can
affect the time people spend on the phone.