Session 4: Business Model (contd.

) and Revenue Models

E-Business
IBEA 2021
Head- Data Analytics & Director-Consulting, StratAgile Pte Ltd
Dr. Suman Ann Thomas
Group Project

• Note your group names

• GET TO WORK…

• April 1→ Session 7→ mid review slots are open

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 Let us design a business model canvas

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 KEY PARTNERS KEY ACTIVITIES VALUE PROPOSITIONS CUSTOMER CUSTOMER SEGMENTS
RELATIONSHIPS

KEY RESOURCES CHANNELS

COST STRUCTURE REVENUE STREAMS

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 KEY PARTNERS KEY ACTIVITIES VALUE PROPOSITIONS CUSTOMER CUSTOMER SEGMENTS
RELATIONSHIPS

KEY RESOURCES CHANNELS

Affiliate sites

COST STRUCTURE REVENUE STREAMS

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 IT Infrastructure Services are
22/03/2021 Amazon.com’s big strategic bet!
 KEY PARTNERS KEY ACTIVITIES VALUE PROPOSITIONS CUSTOMER CUSTOMER SEGMENTS
RELATIONSHIPS

online companies
Offline companies

KEY RESOURCES CHANNELS

Internet
Risk reduction interfaces
and security Affiliate sites

COST STRUCTURE REVENUE STREAMS

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 The marketplace business model is much more powerful than
the retail model due to the scalability potential

HyunWook Cho
Singapore Country Manager
Qoo10

IT Infrastructure Services are

22/03/2021 Amazon.com’s big strategic bet!
 Transformation
to Marketplace
Business
IT Infrastructure ServicesModel
are
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 KEY PARTNERS KEY ACTIVITIES VALUE PROPOSITIONS CUSTOMER CUSTOMER SEGMENTS
RELATIONSHIPS

Online companies
Offline companies

KEY RESOURCES CHANNELS Internet

interfaces

Internet
Risk reduction interfaces
and security Affiliate sites

COST STRUCTURE REVENUE STREAMS

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 5 business model patterns

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 1. Unbundling business model

Customer relationship business

3 types of businesses may
Product innovation business
co-exist within a single
corporation Infrastructure business

Each has a different

• economic,
• competitive and
• cultural imperatives

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 1. Unbundling business model

They can be ‘unbundled’ into
separate entities to avoid
conflicts and undesirable
trade-offs
Entity 1
Customer relationship business
Entity 2 Product innovation business
Infrastructure business
Entity 3

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 1. Unbundling business model

e.g. unbundling the mobile telco

(equipment, network, content)
France Telecom focuses on building Unbundled
customer relationship after outsourcing their
operations and maintenance
Telco Customer relationship business

Sweden’s Tat concentrates on creating Content Product innovation business

advanced mobile user interface
provider
Infrastructure business
Equipment manufacturer, Ericsson, runs
Equipment
the mobile networks for mobile telco manufacturer
companies

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 2. The long tail business model

Top 20%
Focus on a small
# of sales

number of products
each selling in high
volume

Long tail
Focus on a large number of niche products,
each selling in low volume. It can be
lucrative if one serve this market efficiently

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# of products
 2. The long tail business model

Key success factors:

LOW INVENTORY COSTS & STRONG PLATFORMS
# of sales

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# of products
 3. Multi sided platforms

Brings together two or more distinct but interdependent groups of customers

Value Creation Mechanisms

Interdependency
The platforms are of value to one
set of customers only if the other
group is present
Facilitating interactions Growth through
Platforms creates value by network effect
facilitating interactions between A multisided platform grows in value to
the different groups the extent that it attracts more users
(network effect)

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 3. Multi sided platforms

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 4. Free as a business model

At least one customer segment continuously benefits from the free offer and they
are financed by another part of the business model or another customer segment

Multi-sided Freemium Bait & Hook

Free offer based on multi-side Free basic services with Free initial offer lures
platforms (advertising-based) optional premium service customers into repeat purchase

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 5. Open business models

Create and capture value by systematically collaborating with

outside partners

Exploiting outside ideas and Providing external parties with ideas

bringing them into the firm or assets lying idle within the firm
Outside-in Inside-out

Research labs bring

researchers into their business
Data as a product
to see how they can benefit

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Revenue streams

represents the type of revenues an organization generates from each customer segment for a specific value proposition
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Types of revenue streams
• Asset sale
• Usage fees
• Subscription fees
• Lending/Renting/Leasing
• Licensing
• Brokerage fees
• Advertising
• Fixed pricing vs dynamic pricing
• Bargaining/auctioning and reverse auctioning
• One time vs recurring revenues
• Bundling
• Freemium
• Low-touch
• Negative operating cycle
• Razor blade and reverse razor blade
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 What kind of revenue mechanisms
do the following businesses use?

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 Direct Sales Commission on 3rd Subscription on Ads & co-
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party Sales Prime branding
Subscription
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 Usage fee, Subscription fee
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 Advertising
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 Subscription/usage fee
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 Brokerage fee/ transaction cut, annual fee

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 Licensing, subscription model
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 Online advertising, Subscription
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What is monetization?

• The conversion of online activity into revenue

Major trends

Data/AI
Virtual & Mobile
Software as a Service (SaaS)
Advertising (AdSense Era)
Traffic (Banner ads) & Content (portals)
Fee for software

1995 2000 2005 2010 2020

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Monetization models

• Search
• Gaming
• Social network
• Marketplace
• Video
• Commerce
• Subscription
• Audio-Music
• Lead Generation

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Search Models

• Consumers looking for products and services

• They search
• Companies need to bid for the keywords
• The higher you are on the bid, the higher your ads are going to be

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Factors affecting your performance-Ad rank

• Bid price
• 2nd price sealed bid
• Quality of ads

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Quality Score

• An aggregate estimate of ad performance in ad auction on a score of 1-10

• Is a measure of ad quality
• It does not affect Ad rank directly
• But is a diagnostic metric on where your ad is
• Considers the following:
– Ad’s expected CTR
– Ad relevance
– Landing page experience

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Factors affecting your performance-Ad rank

• Bid price
• 2nd price sealed bid
• Quality of ads
• Expected click through for the ads
• Keyword selection

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Key words are important!!!

• Fat head-long tail

• 2-3 words long
• Think like your customer and group keywords
• 5-20 keywords per ad group
• Broad or specific depending upon your goal
• Use tools to help build your keyword
• Use negative keywords- exclude word
combinations
• Scrub your keyword list often
• Language and location to be considered
• Start broad and then narrow down

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Factors affecting your performance-Ad rank

• Bid price
– Second price sealed bid
• Quality of Ads
• Expected click through for the ads
• Keyword selection
• Ad copy & its relevance

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Ad copy/Landing pages

Have a good text ad!

• Highlight what makes your business, product, or
offer unique
• Include prices, promotions, and exclusives
• Include at least one of your keywords in your ad
text
• Match your ad to your landing page
• Experiment

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Factors affecting your performance-Ad rank

• Bid price
– Second price sealed bid
• Quality of Ads
• Expected click through for the ads
• Keyword selection
• Ad copy & its relevance

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How much do you pay?

Adrank=Ad Quality X Bid Price

3 slots- 4 advertisers
Advertisers Max Bid AQ Ad Rank Advertisers AQ Ad rank Avg CPC
AVIVA 4 3 12 SBIL 6 18 =12/6+0.01=2.01
SBIL 3 6 18 AVIVA 3 12 =10/3+0.01=3.31
BA 2 5 10 BA 5 10 =7/5+0.01=1.41
PB 1 7 7
What happens if AVIVA increases its QS What happens if SBIL increases its QS
to 5? to 9?
Advert Max AQ Ad Avg CPC Advert Max AQ Ad Avg CPC
isers bid rank isers bid rank
AVIVA 4 5 20 =18/5+0.01=3.61 SBIL 3 9 27 =12/9+0.01=1.34
SBIL 3 6 18 =10/6+0.01=1.68 AVIVA 4 3 12 =10/3+0.01=3.31
BA 2 5 10 =7/5+0.01=1.41 BA 2 5 10 =7/5+0.01=1.41

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Factors affecting your performance-Ad rank

• Bid price
– Second price sealed bid
• Quality of Ads
• Expected click through for the ads
• Keyword selection
• Ad copy & its relevance
• Ad rank thresholds- the minimum bid necessary to show the ad in a particular
position
– Ad quality
– Ad position
– User signals and attributes like device type, location etc
– Topic and nature of search
– Related auctions

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Factors affecting your performance-Ad rank

• Bid price
• Quality of Ads
• Expected click through for ads
• Keyword selection
• Ad copy & its relevance
• Ad rank thresholds
• Competitiveness of the auction
• Context of the search
– Device, time of search, other ads
• Impact of extensions and other ad formats→ endogenous relationship
• Search engine

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 Source:
https://www.wordstream.com/blog/ws/2020/04/06/goo
gle-ads-benchmarks-during-covid-19

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 Source:
https://www.wordstream.c
om/blog/ws/2020/04/06/g
oogle-ads-benchmarks-
during-covid-19
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 Source:
https://sandpaperme.com/
uae-expensive-country-
world-average-cost-per-
click-cpc/

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 Source: https://gs.statcounter.com/search-engine-market-share

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 https://alphametic.com/global-search-engine-market-share

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Measures of Display/Search Success

• Common
– CPC
– CPM
– CTR
– TCR/CR
– Average position
• CPA/CPL
• Revenue per Click
• Impressions per campaign
• Leads per campaign
• Page hits
• Page views
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Search Technology Landscape

A
M SEM Tools

A P u
Search Engines
R Search
E d
Agencies Agencies
K O i
E SEO Platforms/Tools P e
T L n
E
Search
E c
R Search Analytics Verification
Retargeting
e

Search
Media Planning & Web Analytics Networks/Syndication
Attribution

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Search Model Monetization

• Monthly unique visitors: 5,000,000

• Queries per visitor p.m.: 10
• Total queries: 50,000,000
• Click rate: 5%
• Monetizable clicks: 2,500,000
• Average revenue per click: 0.35
• Monthly revenue: $ 875,000
• Annual revenue: $10,500,000

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Thank you!

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