Monetizing devices and services

While Apps are usually monetized through marketplaces or advertisement – the predominant model for services is subscription based.

So…what is the best business model for a devices and services scenario?

As a rule of thumb – monetization per download (the model of many App marketplaces) makes the most sense for scenarios which include none or very little service capabilities. Prime examples of that approach are some games: For instance Rovio monetizes Angry Birds through the many different marketplaces – they get paid for the App download and usually no further revenue occurs after that.

On the other hand – if a solution contains service capabilities – it is much better to gear the revenue towards service monetization. This generates recurring revenue and provides the opportunity for up and x-selling across different subscription levels. For instance, the Swedish company Spotify provides three subscription levels for their music as a service offering: While the entry level is free, only the premium subscription enables the seamless music experience across multiple devices. Because monetization is based on their own service, the Spotify Apps can be downloaded for free. In such scenarios, the App marketplace is only used as a distribution channel.

There is no size fits all business model – every solution requires a thorough analysis of the market opportunity , sales channels and the respective pricing. Alex Osterwalder’s Business Model Canvas (BMC) provides a great tool to create your very own business model. It is a graphical representation of 9 building blocks – with the value proposition in its center:

Business Model Canvas

Business Model Canvas

The right part of the model describes the value towards the customers while the left part focuses on the efficiency in delivering it. Here a short description of the 9 building blocks:

  • Value Proposition – the value created for a specific customer segment
  • Customer Segment – different group and people which will be served/sold to
  • Channels – how to communicate value proposition to customer segments
  • Customer Relationship – the type of relationships established with customer segments
  • Revenue Streams – cash generated per customer segment
  • Key Resources – the most important assets to make this model work
  • Key Activities – the most important activities to make this model work
  • Key Partners – the required partners to make this model work
  • Cost Structure – cost to operate this model

Alex’s book “Business Model Generation” is a must have if you want to learn more about BMCs and even more importantly – want to create your own model based on it.