Types of revenue models

The type of revenue model that is available to a firm depends, in large part, on the activities the firm performs, and how it charges for those. Various models by which to generate revenue include:

Advertising model

The advertising model is often used by media businesses which use their platforms where content is provided to the customer as an advertising space. Possible examples are newspapers and magazines which generate revenue through the various adverts encountered in their issues. Internet businesses which often provide services will also have advertising spaces on their platforms. Mobile applications in particular use this specific revenue model to generate revenues. By incorporating some ad space, many popular apps such as Twitter and Instagram have strengthened their mobile revenue potential after previously having no real revenue stream.[4]

Commission model

The commission model is similar to the markup model as it is used when a business charges a fee for a transaction that it mediates between two parties. Brokerage companies or auction companies often use it as they provide a service as intermediaries and generate revenue through commissions on the sales of either stock or products.[1]

Fee-for-service model

In the fee-for-service model, unlike in the subscription model, the business only charges customers for the amount of service or product they use. Many phone companies provide pay as you go services whereby the customer only pays for the amount of minutes he actually uses.

Licensing model

With the licensing model, the business that owns a particular content retains copyright while selling licenses to third parties. Software publishers sell licenses to use their programs rather than straight-out sell copies of the program. Media companies also obtain their revenues in this manner, as do patent holders of particular technologies.[5]

Shareware model

In the shareware model, users are encouraged to make and share copies of a software product, which helps distribute it. Payment may be left entirely up to the goodwill of the customer (donationware), or be optional with an occasional reminder (nagware), or the software may be designed to stop working after a trial period unless the user pays a license fee (trialware or demoware), or be crippled so that key features don't work. Or it may be a free feature-limited "lite" version (freemium), with a more advanced version available for a fee.

Donationware

Donationware is a licensing model that supplies fully operational unrestricted software to the user and requests an optional donation be paid to the programmer or a third-party beneficiary (usually a non-profit).[6] The amount of the donation may also be stipulated by the author, or it may be left to the discretion of the user, based on individual perceptions of the software's value. Since donationware comes fully operational (i.e. not crippleware) with payment optional, it is a type of freeware.

Nagware

Nagware is a type of shareware that persistently reminds (nags) the user to register it by paying a fee. It usually does this by popping up a message when the user starts the program, or intermittently while the user is using the application. These messages can appear as windows obscuring part of the screen, or as message boxes that can quickly be closed. Some nagware keeps the message up for a certain time period, forcing the user to wait to continue to use the program.

Crippleware model

In software, crippleware means that "vital features of the program such as printing or the ability to save files are disabled until the user purchases a registration key". This allows users to take a close look at the features of a program without being able to use it to generate output.

Freemium model

Freemium works by offering a product or service free of charge (typically digital offerings such as software, content, games, web services or other) while charging a premium for advanced features, functionality, or related products and services. For example, a fully functional feature-limited ("lite") version may be given away for free, with advanced features disabled until a license fee is paid. The word "freemium" is a portmanteau combining the two aspects of the business model: "free" and "premium". It has become a highly popular model, with notable success.

Markup model

In the markup model, unlike with previous models, the business buys a product or service and increases its price before reselling it to customers. This model characterises wholesalers and retailers, who buy products from manufacturers, mark up their prices, and resell them to end customers.

Production model

In the production model, the business that creates the product or service sells it to customers who value and thus pay for it. This is the most common revenue model and a possible example would be a company that produces paper, sells it to either the direct public or other businesses who pay for the paper thus generate revenue for the paper company.

Subscription model

In the subscription model, the business provides a product or service to a customer who in return pay a pre-determined fee at contracted periods of time to the business. The customer will be required to pay the fee until the contract with the business is terminated or expires, even if he is not utilising the product or service but is still adhering to the contract. Possible examples are flat-rate cellular services, magazines and newspapers.