Business model is the mechanism by which a business intends to generate revenue and profits. It is a summary of how a company plans to serve its customers. It involves both strategy and implementation. It is the totality of: • How it will select its customers
• How it defines and differentiates its product offerings • How it creates utility for its customers
• How it acquires and keeps customers
• How it goes to the market (promotion strategy and distribution strategy) • How it defines the tasks to be performed
• How it configures its resources
• How it captures profit
There are many different types of business models as some are more complex than others depending on the service. A few examples of types of business models are as follows: • The subscription business model
is a business model where a customer must pay a subscription price to have access to the product/service. The model was pioneered by magazines and newspapers, but is now used by many businesses and websites. • The razor and blades business model
is a business model where one item is sold at a low price (or free) in order to increase sales of a complementary good, such as supplies (inkjet printers and ink cartridges) or software (game consoles and games). • The pyramid scheme business model
is a non-sustainable business model that involves promising participants payment, services or ideals, primarily for enrolling other people into the scheme or training them to take part, rather than supplying any real investment or sale of products or services to the public. • The multi-level marketing business model
is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a down line of distributors and a hierarchy of multiple levels of compensation. • The network effects business model
is the effect that one user of a good or service has on the value of that product to other people. When network effect is present, the value of a product or service increases as more people use it.
Facebook fits into the network effects business model, which was pretty common in the dot-com boom of the late 1990s. This type of business model is based on the network effect which causes a good or service to have a value to a potential customer dependent on the number of customers already owning that good or service. Facebook fits this model because the more registered users there are on the site, the more useful the site is.
How it will select its customers
Facebook’s selection of customers is a very important part of the company’s business model. Social networking sites have been on the rise in the last decade and many are in existence today including MySpace, Friendster, and Live Journal. Most of these social networking sites are not very specific and have a variety of users. This fact is what makes Facebook’s selection of customers so important. Zuckerberg developed a personal niche for his site in making it specifically for high school (recently), college and university communities.
How it defines and differentiates its product offerings
The second aspect of a business model is how the company defines and differentiates its product offerings. One of the key elements to Facebook’s success is differentiation, particularly from the social networking giant, MySpace. What makes a student with an existing MySpace account want to register with Facebook? The answer to this question lies in how Facebook sets itself apart from other social networking sites. Facebook is the only brand of these sites that is for students and students only. Also, to narrow down the potential networks even more, members are mostly restricted to viewing detailed information about students only at their school. As a result of this, more intimate communities are created based on the school. For example, when a UCSD student types...