- Social Graph
Someone posted a question on Quora the other day – and the question itself was insightful:
I’m a bit of a stickler for consistent definitions of terms in business (particularly entrepreneurship), so I provided a detailed answer clarifying the differences between a Business Model, Revenue Model and Monetization Model.
The first person to answer the question stated that they don’t see much of a difference between a revenue model and monetization model. But of course, there are very big differences. First – let’s make sure no one is confusing “Business Model” with “Revenue Model” (many many people use those terms interchangeably and this is just plain inaccurate). But to answer this question:
… is generally about how all aspects of your business fit, or contribute to sustainable success (usually profit, but other aspects of success can be important too). So the business model is not just about your product, technology, customers etc … There are volumes of books and college courses devoted to this subject, so I won’t dive further.
The Revenue Model
Is just one aspect of the business model – and it simply is the method or process by which you intend of extracting (not attracting) money from the ‘market’ for your value you are providing. I tried to phrase this in abstract terms so cover most kinds of businesses, but more specifically: the revenue model is how the money flows from the paying customer to your company. There are usually only a few possible basic revenue models:
- Charging for subscriptions
- Fremium to Premium
- Pay-per -(view, use, seat, etc.)
- Single price (simply selling a product for a fixed price)
- And, a handful of others
The Monetization Model
… is how you get from “not collecting money” to “collecting money”: It’s that simple (the definition is simple; actually monetizing is not!).
Sometimes this can be called a “monetization plan”: e.g. “We’ll spend a year building a great website and attracting 20 Million users a month – then start charging for advertising” Once that happens, you would now have a revenue model.
A good paradigm for monetization model would be a fremium-to -premium path: Where you have a series of products or services, and a basic feature set that is offered for free. The monetization plan/model is how you intend to upsell the more sophisticated, premium services to the smaller set of users who are willing to pay.
In the above example, the revenue model for each tier might be different, e.g. advertising revenue for the free-tier, monthly subscriptions for the next tier, and a SaaS model for the highest tier. But the overall monetization model is the ongoing method, usually marketing techniques, to translate the product (or users) into steady sales.
“Monetization Model” is often associated with more modern businesses on the web – because selling sandwiches in a local store doesn’t require much of a unique model, but not always: Some consulting firms offer consulting at a very low cost, even at a loss, so that later they can package and sell software products based on the technology they developed as consultants. Others have the opposite monetization model: Offering a software product for free, or low-cost, and making the money on (monetizing) by selling custom programming services, consulting, or upgrades.
Written by CJ Cornell
Serial Entrepreneur. University Professor. Software Engineer. Media Executive. Venture Capitalist. Researcher. Marketer. Advisor. Mentor. Author and Speaker. Founded or co-founded nearly a dozen companies in software, digital media and television.
For the past few years I’ve been Co-Director of the Knight Center for Digital Media Entrepreneurship and Professor of Digital Media & Entrepreneurship at Arizona State University, and the university’s first full time Entrepreneur-in-Residence. Currently Visiting Professor of Entrepreneurship & Innovation at New York Institute of Technology and Managing Director at Propel Ventures LLC.