Revenue model

Revenue model describes the way a business, typically an online business, monetizes its services. As Prof. Dr. Mark von Rosing defined is Revenue Model one of the three different types of business model innovation and transformation that exist:

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Prof. Dr. Mark von Rosing's Competitive Forces Model.

• Revenue model innovation - Innovate how the company makes money by changing the value proposition (product/service/value mix) and the pricing model.
• Industry model innovation - Redefine an existing industry, move into a new industry or create an entirely new one.
• Enterprise Business model innovation - Innovate the way the organization operates, rethinking the organizational boundaries of what is done in-house and what is done through collaboration and partnering.

During periods of relative stability in the industry landscape, companies can make incremental adjustments to their business model over extended periods of time. They can continue to realize the economic benefits of their existing business model. During periods of extensive industry change, however, companies must choose to either shake up their industries – harness disruptive technologies, go after new customer segments, dislodge competitors – or face their own demise.

Strategic competitiveness and differentiation has been defined in the literature as an organization’s ability to identify major changes in the external environment, to quickly commit resources and capabilities to new courses of action, and to act promptly when it is time to halt or reverse such capability and resource commitments. In the attached figure " von Rosing's Competitive Forces Model " the different competitive forces impacting the internal and external environment of an organization are illustrated.

Organizations in nearly every industry face the above competitive forces exerted by suppliers, customers, rivals, potential new entrants, complementors, and substitute products. The stronger these competitive forces, the less profitable the industry’s organizations are likely to be. Where the competitive forces on industry organizations are low, allowing these organizations to be, on average, more profitable than organizations in other industries.

In general, successful companies take advantage from emerging opportunities in the new economic environment by innovating their business model in three ways:

1. Many organizations revisit their enterprise business model during a downturn to reduce cost through new collaboration and partnership models and by reconfiguring the asset mix.
2. Industry leaders with strong financial resources take advantage of the unprecedented industry transformation by introducing alternative industry models and disrupting their competitors.
3. Many also rethink their revenue model and value propositions to respond to a different set of customer behaviors and market requirements.

While any type of business model innovation can lead to success, financial outperformers are more likely to be industry and enterprise business model innovators than revenue model innovators. Business model innovation and transformation is the most prominent, especially during challenging economic times.

Revenue Model Innovation is an important tool to both capture, design, innovate and transform the business. However in order to transform ones organization and align them to ones revenue model, the needed business model innovation can and should not be seen separately, but as Prof. Dr. Mark von Rosing has specified, in connection with :

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A step-by-step roadmap that describes the synergy and context between Revenue Model Innovation and alignment of business innovation into the organization.

• The main business goals of the organization, e.g. strategic business objectives, critical success factors and key performance indicators, which a holistic business model approach should include.
• The main business Issues/pain points and thereby organizational weakness, which a holistic business model approach should include for they represent the threat to the company’s business model.
• A clear cause and effect linkages between the competencies, desired outcomes and performance measurements e.g scorecards.
• An emphasis on business model management and thereby a continuous improvement and governance approach to the business model.
• The business maturity level, in order to develop the organization representation of core differentiated and core competitive competencies [linked to strategy], which is a basis for building a business model as they the represent some of the most important sources of uniqueness. These are the things that a company can do uniquely well, and that no-one else can copy quickly enough to affect competition.
• Linkages among competences and competency development.
• The possible value creation and realization of the organization.
• The information flow, and thereby information need for effective and efficient decision making.

Examples

• Freemium
• Subscription
• Affiliate marketing
• Ad-funded
• Lead generation
• Online shopping

External links

• Revenue Models in the software industry