Exploring Diverse Business Model Examples for Success

Successful organizations rely on robust and efficient business models that combine strategies and structures to generate recurring revenue. Innovative business models are changing the world as we know it. This article explores various business models with examples to inspire your own business ideas.

You don’t have to invent an entirely new business model to start a business. In fact, the vast majority of businesses use existing business models and refine them to find a competitive edge. Here’s a list of business model examples you can use to start your own business.

Understanding the Basics of a Business Model

When we talk about business models, we could say, in a very brief way, that it is the global plan that defines what products and/or services the company is going to offer, how it is going to offer them, which public it is going to target, how their product will be sold and how to obtain income.

A business model is a specific method used to create and deliver value. At its heart, a business generates value for its customers. A viable business model is one that allows a business to charge a price for the value it’s creating, such that the business brings in enough money to make it worthwhile and continue operating over time. Whatever the business is offering must also satisfy the customer’s needs and quality expectations.

It could be said that there are almost as many business models as there are companies in the world. Although each company has its own personality and therefore its own model, different types of business can be typified according to various factors, such as how to obtain income or the type of customers they target.

Key Business Model Examples

1. Advertising Business Model

The advertising business model has been around a long time and has become more sophisticated as the world has transitioned from print to online. The fundamentals of the model revolve around creating content that people want to read or watch and then displaying advertising to your readers or viewers. In an advertising business model, you have to satisfy two customer groups: your readers or viewers, and your advertisers. Your readers may or may not be paying you, but your advertisers certainly are.

An advertising business model is sometimes combined with a crowdsourcing model where you get your content for free from users instead of paying content creators to develop content.

Advertising Business Model Examples

• CBS
• The New York Times
• YouTube

2. Affiliate Business Model

The affiliate business model is related to the advertising business model but has some specific differences. The focus lies in supporting others to successfully sell products and directly benefit from successful transactions. Affiliates usually profit from some kind of pay-per-sale or pay-per-display compensation. For example, Amazon will pay you a small commission for every sale that you refer to them.

Affiliate Business Model Examples

• TheWireCutter.com
• TopTenReviews.com

3. Brokerage Business Model

Brokerage businesses connect buyers and sellers and help facilitate a transaction.

4. Customization Business Model

Some businesses take existing products or services and add a custom element to the transaction that makes every sale unique for the given customer. For example, think of custom travel agents who book trips and experiences for wealthy clients. You can also find customization happening at a larger scale with products like Nike’s custom sneakers.

Customization Business Model Examples

• NIKE
• iDJourny

5. Crowdsourcing Business Model

If you can bring together a large number of people to contribute content to your site, then you’re crowdsourcing. Crowdsourcing business models are most frequently paired with advertising models to generate revenue, but there are many other iterations of the model. Threadless, for example, lets designers submit t-shirt designs and gives the designers a percentage of sales.

Companies that are trying to solve difficult problems often publish their problems openly for anyone to try and solve. Successful solutions get rewards and the company can then grow its business. The key to a successful crowdsourcing business is providing the right rewards to entice the “crowd” while also enabling you to build a viable business.

Crowdsourcing Business Model Examples

• Kickstarter
• Patreon

6. Disintermediation Business Model

If you want to make and sell something in stores, you typically work through a series of middlemen to get your product from the factory to the store shelf. Disintermediation is when you sidestep everyone in the supply chain and sell directly to consumers, allowing you to potentially lower costs to your customers and have a direct relationship with them as well. Direct selling refers to a scenario whereby a company's products are not sold through intermediary channels, but are available directly from the manufacturer or service provider. In this way, the company skips the retail margin or any additional costs associated with the intermediates. These savings can be forwarded to the customer and a standardized sales experience established.

Disintermediation Business Model Examples

• Casper
• Dell
• Apple

7. Fractionalization Business Model

Instead of selling an entire product, you can sell just part of that product with a fractionalization business model. Fractional ownership describes the sharing of a certain asset class amongst a group of owners. Typically, the asset is capital intensive but only required on an occasional basis.

One of the best examples of this business model is timeshares, where a group of people owns only a portion of a vacation home, enabling them to use it for a certain number of weeks every year.

Fractionalization Business Model Examples

• Disney Vacation Club
• NetJets

8. Franchising Business Model

Franchising is common in the restaurant industry, but you’ll also find it in all sorts of service industries from cleaning businesses to staffing agencies. The franchisor owns the brand name, products, and corporate identity, and these are licensed to independent franchisees who carry the risk of local operations. Revenue is generated as part of the franchisees’ revenue and orders.

In a franchise business model, you are selling the recipe for starting and running a successful business to someone else. You’re often also selling access to a national brand and support services that help the new franchise owner get up and running. In effect, you’re selling access to a successful business model that you’ve developed.

Franchise Business Model Examples

• Ace Hardware
• McDonald’s
• Allstate

9. Freemium Business Model

With a freemium business model, you’re giving away part of your product or service for free and charging for premium features or services. The basic version of an offering is given away for free in the hope of eventually persuading the customers to pay for the premium version. The free offering is able to attract the highest volume of customers possible for the company. Freemium isn’t the same as a free trial where customers only get access to a product or service for a limited period of time. Instead, freemium models allow for unlimited use of basic features for free and only charge customers who want access to more advanced functionality.

Software-as-a-Service (SaaS) and mobile application companies have embraced the freemium model extensively. This intelligent marketing strategy entices prospective customers with access to essential features of the software or app at no cost. Still, it encourages them to upgrade to the premium version for a fee in return for increased functionality.

Freemium Business Model: Offering a choice of free and optional paid services attracts new users and convinces them to upgrade.

10. Leasing Business Model

In fractionalization, you are selling perpetual access to part of something. Leasing, on the other hand, is like renting. The customer does not buy a product, but instead rents it. This lowers the capital typically needed to gain access to the product. The company itself benefits from higher profits on each product, as it is paid for the duration of the rental period. At the end of a lease agreement, a customer needs to return the product that they were renting from you.

Leasing is most commonly used for high-priced products where customers may not be able to afford a full purchase but could instead afford to rent the product for a while.

Leasing Business Model Examples

• CarsDirect
• Capital

11. Low-Touch Business Model

With a low-touch business model, companies lower their prices by providing fewer services. Some of the best examples of this type of business model are budget airlines and furniture sellers like IKEA. In both of these cases, the low-touch business model means that customers need to either purchase additional services or do some things themselves in order to keep costs down.

Low-Touch Business Model Examples

• IKEA
• Ryan Air

12. Marketplace Business Model

Marketplaces allow sellers to list items for sale and provide customers with easy tools for connecting to sellers.

The marketplace business model can generate revenue from a variety of sources including fees to the buyer or the seller for a successful transaction, additional services for helping advertise seller’s products, and insurance so buyers have peace of mind. The marketplace model has been used for both products and services.

Marketplace Business Model Examples

• eBay
• Airbnb

13. Pay-As-You-Go Business Model

Instead of pre-purchasing a certain amount of something, such as electricity or cell phone minutes, customers get charged for actual usage at the end of a billing period. The actual usage of a service or product is metered. The customer pays on the basis of what he or she effectively consumes. The pay-as-you-go model is most common in home utilities, but it has been applied to things like printer ink.

Pay-As-You-Go Business Model Examples

• Water companies
• HP Instant Ink

14. Razor and Blade Business Model

The razor blade business model is named after the product that essentially invented the model: sell a durable product below cost to increase volume sales of a high-margin, disposable component of that product. The basic product is cheap or given away for free. The consumables that are needed to use or operate it, on the other hand, are expensive and sold at high margins. The initial product's price lowers customers’ barriers to purchase, while the subsequent recurring sales cross-finance it.

This is why razor blade companies practically give away the razor handle, assuming that you’ll continue to buy a large volume of blades over the long term. The goal is to tie a customer into a system, ensuring that there are many additional, ongoing purchases over time.

Razorblade Business Model Examples

• Gillette
• Inkjet printers
• Xbox
• Amazon’s Kindle

15. Reverse Razor and Blade Business Model

Flipping the razor blade model around, you can offer a high-margin product and promote sales of a low-margin companion product. Similar to the razor blade model, customers are often choosing to join an ecosystem of products. But, unlike the razor blade model, the initial purchase is the big sale where a company makes most of its money. The add-ons are just there to keep customers using the initially expensive product.

Reverse Razorblade Business Model Examples

• iPhone & iTunes
• Peloton

16. Reverse Auction Business Model

A reverse auction business model turns auctions upside down and has sellers present their lowest prices to buyers. Buyers then have the option to choose the lowest price presented to them.

You can see reverse auctions in action when contractors bid to do work on a construction project. You also see reverse auctions anytime you shop for a mortgage or other type of loan.

Reverse Auction Business Model Examples

• Priceline.com
• LendingTree

17. Subscription Business Model

Subscription business models are becoming more and more common. In this business model, consumers get charged a subscription fee to get access to a service. The customer pays a regular fee, typically on a monthly or an annual basis, in order to gain access to a product or service. Within this framework, companies promise to deliver specific services to their customers in return for a fixed payment due monthly, quarterly, or even annually.

While magazine and newspaper subscriptions have been around for a long time, the model has now spread to software and online services and is even showing up in service industries.

Subscription Business Model: By providing different plans tailored to match different consumer segments, Netflix ensures that customers return for more.

Subscription Business Model Examples

• Netflix
• Salesforce
• LivePlan

Additional Business Models

Here are some additional business models that companies use to generate revenue:

• Aikido: As a business model, Aikido allows a company to offer something diametrically opposed to the image and mindset of the competition.
• Auctioning: Auctioning means selling a product or service to the highest bidder. This allows the company to sell at the highest price acceptable to the customer.
• Barter: Barter is a method of exchange in which goods are given away to customers without the transaction of actual money.
• Cash Machine: In the Cash Machine concept, the customer pays upfront for the products sold to the customer before the company is able to cover the associated expenses.
• Digitization: This pattern relies on the ability to turn existing products or services into digital variants, and thus offer advantages over tangible products, e.g., easier and faster distribution.
• E-Commerce: A modern version of the traditional shops or supermarkets at street level, which offers its products online and in which the logistics of home delivery plays a fundamental role.
• Layer Player: A layer player is a specialized company limited to the provision of one value-adding step for different value chains.
• Long Tail: The internet has fanned the success of this model by enabling the profitable sale of niche or specialized products.
• Open Source: In software engineering, the source code of a software product is not kept proprietary, but is freely accessible for anyone.
• Peer-to-Peer (P2P): This model is based on a cooperation that specializes in mediating between individuals belonging to an homogeneous group.
• Servitization: Instead of selling a product or a service as a one-off, servitization companies operate on a subscription or ongoing service model, building a more intimate understanding of their customers in the process.
• Two-Sided Market: A two-sided market facilitates interactions between multiple interdependent groups of customers.
• White Label: A white label producer allows other companies to distribute its goods under their brands, so that it appears as if they are made by them.

This is by no means an exhaustive list of all business models that exist-but, hopefully, it gets you thinking about how you might structure your business.

Examples of Companies with Innovative Business Models

Three leading examples of innovation can illustrate this-Netflix’s subscription model, Spotify’s freemium model, and Airbnb’s marketplace model.

Here are some examples of companies with unique business models:

1. Airbnb: An online marketplace that enables people to list, find, and rent accommodations (single rooms, apartments, houses, …) for a processing fee.
2. Alibaba: The largest (online) retail company in the world with no inventory. Alibaba`s main focus is to connect buyers with sellers.
3. Hilti: A multinational company that develops, manufactures, and markets products for construction, maintenance, and mining industries, primarily to the professional end-user.
4. IKEA: A group of companies that designs and sells ready-to-assemble furniture appliances and home accessories.
5. Tesla: An American automotive and energy storage company that designs, manufactures, and sells electric cars, electric vehicle powertrain components, and battery products.
6. Wikipedia: A free Internet encyclopedia that helps to improve common knowledge.
7. Zara: A Spanish clothing and accessories retailer. It is one of the world’s largest international fashion companies.
8. Local Motors: An American motor vehicle manufacturing company focused on low-volume manufacturing of open-source motor vehicle designs using multiple micro-factories.
9. Easybank: The second-largest direct bank in Austria.
10. Red Bulletin: A lifestyle magazine that features sports, culture, music, nightlife, entrepreneurship and lifestyle stories.

How to Design a Good Business Model

All of these companies have realized their customer needs and are putting their pains in the center of their focus. It’s key to have a good knowledge of your customers to build a successful business.

A genius business model can change your business works and even determine whether your business is successful or not. Try to think out of the box. What other ways are there to deliver value to your customers. A subscription model instead of just selling goods? The sky is the limit. Stay open-minded and don’t stick to the status quo.

Using existing models can lead to success because the model has been proven to work. You’ll be innovating in smaller ways within that existing business model to grow your business.

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