Gennaro Cuofano's Blog, page 242
December 22, 2018
How Do Apps Make Money?
Apps in the Apple Store follow five primary business model patterns:
Free model
Freemium model
Subscription model
Paid model
Paymium model
Free Model
Users get those apps for free. This makes the whole experience of getting the app frictionless as it removes the barriers to enter and download the app.
How do free apps make money?
Developers either don’t make money, or they do make money by displaying ads within the apps. In the case in which developers decide to make money by showing ads, they need to optimize for a large user base and to have a strong engagement.
Indeed, this is the most sustainable way to make enough money from a free app.
Why developers use the free model?
The free model has a few advantages. Some of them are:
branding: a successful free app can be recognized across a large base of users
large user base: free is a powerful way to have users try your app, quickly
lead generation: if you have other apps, a free app might be used as a lead magnet to attract users to download or purchase other paid apps
While those elements might seem appealing, in reality, given the competition on the Apple Store, many free apps might never turn a dime.
Freemium Model
In a freemium app model, the user stills downloads the app for free, which removes the initial friction.
If the user wants to have additional features, or content not available in the free version, she/he will be prompted to buy the premium version of the app.
How do freemium apps make money?
Those apps make money by converting free users into paid ones. This implies the content in the app needs to be optimized for conversion.
Therefore, a basic version needs to be significant enough to convince free users to keep using it, and add features, or limit the usage, so that free users might want more and switch to paid.
Why developers use the freemium apps model?
The freemium model has become quite popular in the Apple Store. However, making money from a freemium, it’s not as easy as it might seem.
Convincing users to switch to paid requires a deep understanding of the users base willing to pay for the app. At the same time, a paid app requires a high cost of maintenance for the content it carries.
While you might develop a completely free app, and leave it there. You can’t with an app built on top of a freemium strategy. Continuous support will be needed.
However, similar to a free model with the freemium you can easily reach larger users base, being recognized as a brand and convert free users in paid ones.
However, you need to make sure to keep offering a great experience for both free and paid users. This is a crucial element.
In fact, by allowing everyone to try the app for free, also those users willing to pay beforehand might opt for the free version before deciding whether to leap to the paid one.
As pointed out on the Apple Developer Blog:
In most cases, providing a great experience to all users regardless of whether they choose to spend is an integral aspect of the freemium model. The path to monetization is through engagement, and when users are given time to enjoy an app, they may be more inclined to invest in paid features.
As JP Chookaszian, Director of Revenue at VSCO points out in the same article “From their first session with the app, we’re trying to develop trust with users. And we do that by demonstrating value without asking anything from them first.“
Subscription Model
The subscription model works by a paid memberships that keep renewing automatically until the user decides to cancel the service.
This implies a focus and emphasis on continuous improvement and additional features of the app. Or a reason for the user to keep paying to avoid to lose something valuable.
How do subscriptions apps make money?
As reported by the Apple Developer blog:
Within a subscriber’s first year of subscription, you receive 70% of the subscription price at each billing cycle, minus applicable taxes. After a subscriber accumulates one year of paid service, your revenue increases to 85% of the subscription price, minus applicable taxes.
Thus, if the user is retained after the first year, the developer makes more money. In short, Apple tries to incentivize developers to build a model to keep users engaged or to gain them back.
Indeed, if a user unsubscribes from an app service but gets back within the 60 days grace period days of paid service continue to be accounted by Apple so that at the renewal of the first year the developer will earn more.
Why developers use a subscription model?
A subscription model might be the most sustainable in the long run. While the user base initially using the service might be way more limited than the free and freemium model, developers also can leverage on a few strategies to gain subscribers quickly.
As mentioned in the Apple Developer blog, “Apps with auto-renewable subscriptions can offer a discounted price or a free trial for a limited time at the beginning of a subscription.”
In short, the developers can use one of the following strategies:
Pay as you go: this works by lowering the price of the service for a limited period, which works well with price-sensitive users
Pay up front: one-time introductory for a specified duration at a lower price. This allows users still uncertain to enjoy of the first period with minimum investment and then decide whether to renew at full price
Free trial: the user enjoys a limited period for free. The subscription starts right away, but the user won’t pay until the end of the trial. The user can cancel before the trial ends
To make this model work, developers have to:
create a frictionless and seamless sign-up process with a clear value proposition, call to action, pricing and terms make
the onboarding process smooth
offer territory-specific prices set according to country and currency
re-engage churned users by sending tailored messages with compelling offers
offer bundle apps: if you have multiple apps on the Apple Store think of a bundle offer that makes the perceived value of the overall offering way higher
Paid Model
In a paid model, rather then accessing the app via a periodic fee, the users can get access to it via a one-time payment formula. This is extremely appealing for many.
However, by limiting the option of the users, like in subscription or freemium model, a user will evaluate the app more carefully before proceeding with the purchase.
This implies that the app needs to be well positioned in terms of the value proposition.
How do paid model apps make money?
Those apps make money via a one-time payment. To make sure users can evaluate the app fully before the one-time purchase, developers have to optimize the app for things like title, icon, description, preview, and screenshots.
Marketing becomes extremely important for acquiring users.
Another lever developers have bundle offering. Those primarily consist of:
Pricing: offer a discount compared to the separate purchase price of the individual apps in the bundle
Subscriptions: a user subscribes in one app, they must be able to access all other apps in the bundle at no additional cost
Why developers use a paid model?
In respect to a subscription-based app, a paid model has a pricing structure that although might create some friction initially might be in general more appealing.
Many people like one-time purchases. Also, this might also imply a lower cost of having to engage users in the long run, with support costs. On the other hand, a paid model also suggests lower predictability on the forecasted revenues.
Paymium Model
The paymium model is a mix of paid and freemium. Where users pay to download the app, but also need to pay to use additional features or get access to additional content. As the initial cost might make users evaluate their purchase more carefully the same principles of paid models apply.
How do Paymium apps make money?
They make money by both an initial payment and an additional payment at download level and afterward if users are converted again to paid.
Developers using this model can leverage from tools from both freemium and paid models.
Why do developers choose the Paymium model?
A paymium model is attractive as it mixes the levers from a freemium and paid model.
The resources you need to get started with your business model:
What Is a Business Model? 30 Successful Types of Business Models You Need to Know
What Is a Business Model Canvas? Business Model Canvas Explained
Blitzscaling Business Model Innovation Canvas In A Nutshell
What Is a Value Proposition? Value Proposition Canvas Explained
What Is a Lean Startup Canvas? Lean Startup Canvas Explained
How to Write a One-Page Business Plan
The Rise of the Subscription Economy
How to Build a Great Business Plan According to Peter Thiel
What Is The Most Profitable Business Model?
The Era Of Paywalls: How To Build A Subscription Business For Your Media Outlet
How To Create A Business Model
What Is Business Model Innovation And Why It Matters
What Is Blitzscaling And Why It Matters
Snapshot: One Year Of “Business Model” Searches On Google In Review
Business Model Vs Business Plan: When And How To Use Them
The Five Key Factors That Lead To Successful Tech Startups
Top 12 Business Ideas with Low Investment and High Profit
Business Model Tools for Small Businesses and Startups
How To Use A Freemium Business Model To Scale Up Your Business
Popular case studies from the blog:
The Power of Google Business Model in a Nutshell
How Does Google Make Money? It’s Not Just Advertising!
How Does DuckDuckGo Make Money? DuckDuckGo Business Model Explained
How Amazon Makes Money: Amazon Business Model in a Nutshell
How Does Netflix Make Money? Netflix Business Model Explained
How Does Spotify Make Money? Spotify Business Model In A Nutshell
The Trillion Dollar Company: Apple Business Model In A Nutshell
DuckDuckGo: The [Former] Solopreneur That Is Beating Google at Its Game
The post How Do Apps Make Money? appeared first on FourWeek MBA.
Are Business Models Useful? Business Models As Models
The term business model seems to have sprouted from the internet era. When a whole new set of companies managed to propose what might appear at first innovative business models. The term itself has been growing in popularity in the last decades:
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This might make us fall into the assumption that business modeling is something new, pretty much tied to the internet era. However, that’s not. When you walk in the corporate rooms chances are you’ll hear the term business model with a growing frequency.
Given its importance at least across a growing number of managers, and entrepreneurs, I wondered whether a business model framework is useful at all.
For that matter, I looked into a research paper entitled “Business Models as Models” by Charles Baden-Fuller and Mary S. Morgan. In 2010 they started an investigation to ask a few critical questions, such as “Are Business Models useful?” and if so what’s their aim?
The paper highlighted that business models are useful, especially at solving three main functions:
to provide and classify businesses
to operate as sites for scientific investigation
to act as recipes for creative managers
Business modeling isn’t something new
[image error]
Source: “Business Models as Models” by Charles Baden-Fuller and Mary S. Morgan
It’s easy to fall into the trap of thinking of new concepts as something wholly new. However, in many cases, those concepts are just an evolution of old ones.
This also applies to business modeling. As pointed out in the paper, the concept of business models (not its label) was known in medieval times.
As the paper points out the prevailing economic model and “behavioral” model of business could be pictured as a single workshop, small-scale production, of craft skills used to produce single item goods with guaranteed-quality outputs and high-value-added per piece.
I’d define this business model as the “craftsmanship model.”
Until, the industrial revolution kicked in, and starting the late 18th century a new prevailing model based on a “factory system” became the norm.
This model relied on division and specialization of labor, mass production, and standardization. In a way, this model of mass production was the opposite of the craftsmanship model.
While this distinction of business models relies on how the manufacturing processes evolved. We could also draw a line on other kinds of business models based on other characteristics.
Yet what’s important here is that although there might have been not a label for a business model, there might have been a sort of consciousness around that concept.
Are business models useful?
As we saw the paper argues that business models have three primary functions. They can be used as a taxonomy tool, which in a way allows knowledge of a discipline to grow.
Also, business models can be used as a mean to scientific investigation. And last but not least as a “recipe” for managers to advance their organizations.
Let’s give a quick look at each of those aspects.
Scale models and role models
The paper highlights that “scale models are copies of things; role models are models to be copied
In this context of taxonomies are useful to describe different kinds of businesses. In short, scale models offer representations or shorthand descriptions of things that are in the world.
Role models instead are things that can be offered as ideal cases to be admired.
In short, a scale model is supposed to be a scaled-down version of the real thing. However, as the scaled-down version, it only captures certain aspects and elements of that business model. Those aspects and elements that might have been critical for their success.
As pointed out in the paper scale model and role model come together. According to the kind of elements those business models focus on it also changes the definition of the concept itself:
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Source: “Business Models as Models” by Charles Baden-Fuller and Mary S. Morgan
Business models as organisms
In this sense, the paper compares business models as a domain of understanding of reality, just like biologists study organisms. In other words, business models allow managers to study real-life examples to study.
For instance, studying and understanding the McDonald‘s business model is a way to understand how and why that was successful and to create a framework that allows the replication in the same industry.
This approach combines theory and practice.
This connects to a third point.
Business models as management recipes
A third and most congenial way – I believe – is to apply business modeling as a sort of recipe. As firms continue to redesign and tweak their business models a “recipe approach” to business modeling allows managers and practitioners to drive effective change to their companies in the marketplace.
In short, business modeling becomes a tool that entrepreneurs and managers can leverage on to create a lasting advantage for their organizations.
Key takeaway
At the questions “are business models useful?” “Business Models as Models” by Charles Baden-Fuller and Mary S. Morgan pointed out their usefulness from different perspectives.
I think that those three perspectives are all important. As a practitioner, you might want to study, understand other business models.
At the same time, you need to understand what scaled-down version of a business model made it successful so that you can use it as a role model. This, in turn, will allow you to find the right ingredients and how to combine them to make your company successful!
In a sense studying the scaled-down version of the Amazon business model, or the Google business model is critical to understand how to apply those teachings back to your business. Some might argue that those companies are too big now to be used as examples for small businesses.
However, when studying a business model it is also critical to go back and dissect the elements that might have contributed to the success of the initial traction of that organization.
The resources you need to get started:
What Is a Business Model? 30 Successful Types of Business Models You Need to Know
What Is a Business Model Canvas? Business Model Canvas Explained
Blitzscaling Business Model Innovation Canvas In A Nutshell
What Is a Value Proposition? Value Proposition Canvas Explained
What Is a Lean Startup Canvas? Lean Startup Canvas Explained
How to Write a One-Page Business Plan
The Rise of the Subscription Economy
How to Build a Great Business Plan According to Peter Thiel
What Is The Most Profitable Business Model?
The Era Of Paywalls: How To Build A Subscription Business For Your Media Outlet
How To Create A Business Model
What Is Business Model Innovation And Why It Matters
What Is Blitzscaling And Why It Matters
Snapshot: One Year Of “Business Model” Searches On Google In Review
Business Model Vs Business Plan: When And How To Use Them
The Five Key Factors That Lead To Successful Tech Startups
Top 12 Business Ideas with Low Investment and High Profit
Business Model Tools for Small Businesses and Startups
How To Use A Freemium Business Model To Scale Up Your Business
Popular business model case studies:
The Power of Google Business Model in a Nutshell
How Does Google Make Money? It’s Not Just Advertising!
How Does DuckDuckGo Make Money? DuckDuckGo Business Model Explained
How Amazon Makes Money: Amazon Business Model in a Nutshell
How Does Netflix Make Money? Netflix Business Model Explained
How Does Spotify Make Money? Spotify Business Model In A Nutshell
The Trillion Dollar Company: Apple Business Model In A Nutshell
DuckDuckGo: The [Former] Solopreneur That Is Beating Google at Its Game
The post Are Business Models Useful? Business Models As Models appeared first on FourWeek MBA.
A Four Minutes Crash Course In Business Modeling
In this video, you had an introductory crash course in business modeling. Business modeling might have several aims. Yet for the sake of this blog I’ve been studying business models to understand as much as possible how companies “behave” and “thing.”
By studying scaled-down versions of business models such as Amazon, Google, Facebook, and many others – I argue – you too can learn critical lessons to apply back to your organization.
Another element of business modeling is its ability in a single page to dissect a business or to come up with actionable insights to grow your own company.
The resources you need to get started:
What Is a Business Model? 30 Successful Types of Business Models You Need to Know
What Is a Business Model Canvas? Business Model Canvas Explained
Blitzscaling Business Model Innovation Canvas In A Nutshell
What Is a Value Proposition? Value Proposition Canvas Explained
What Is a Lean Startup Canvas? Lean Startup Canvas Explained
How to Write a One-Page Business Plan
The Rise of the Subscription Economy
How to Build a Great Business Plan According to Peter Thiel
What Is The Most Profitable Business Model?
The Era Of Paywalls: How To Build A Subscription Business For Your Media Outlet
How To Create A Business Model
What Is Business Model Innovation And Why It Matters
What Is Blitzscaling And Why It Matters
Snapshot: One Year Of “Business Model” Searches On Google In Review
Business Model Vs Business Plan: When And How To Use Them
The Five Key Factors That Lead To Successful Tech Startups
Top 12 Business Ideas with Low Investment and High Profit
Business Model Tools for Small Businesses and Startups
How To Use A Freemium Business Model To Scale Up Your Business
The post A Four Minutes Crash Course In Business Modeling appeared first on FourWeek MBA.
December 21, 2018
How to Use Kaizen to Grow Your Business
Kaizen is a process that developed out of the auto industry. Its most infamous roots are found in the Toyota Production System, which was heavily influenced by Henry Ford’s assembly line system.
WHY DOES KAIZEN MATTER TO YOUR BUSINESS?
Building a business is and will always remain something of a hit or miss process. While there are obviously many entrepreneurs that have successfully ushered startups into fully flourishing companies, no two have probably ever done it exactly the same way.
This doesn’t mean that there aren’t certain underlying principles that can help guide the process, nor some fairly common obstacles to building most businesses.
They have invested their time and learned all there is about their business segment before taking the leap of faith. To some degree, every business will face competition, financial challenges, skill shortages and opposition to change.
One methodology that can help you address and overcome many of these issues is Kaizen.
HISTORY OF KAIZEN
Kaizen is actually a process that developed out of the auto industry. Its most infamous roots are found in the Toyota Production System, which was heavily influenced by Henry Ford’s assembly line system.
In the 1930s a team from the Toyota Motor Company visited Henry Ford’s plant. At the time, Toyota was producing just 40 automobiles per day, while Ford was producing 8,000.
Toyota decided to implement many of Ford’s techniques, but a visit by one of the lead engineers to the local Piggly-Wiggly gave him an inspiration which significantly advanced the basics of Ford’s system.
Kaizen didn’t gain international popularity, however, until the 1980s when a Japanese organizational theorist and management consultant named Masaaki Imai founded the Kaizen Institute Consulting Group to help introduce the concepts of Kaizen to western businesses.
WHAT IS KAIZEN?
The word Kaizen itself is a hybridization of two Japanese words, kai meaning change and zen meaning good. As we know, not all change is a good change, and not all change ends up having positive results.
Two of the basic tenets of Kaizen involve making small incremental changes – or 1% improvement every day – and the full participation of everyone.
Kaizen methodologies allow you to test, tweak and evaluate consistently while you are making changes to ensure you are actually heading in the right direction. They also help ensure your entire business moves forward as one smooth, seamless unit.
PRINCIPLES OF KAIZEN
Here are the five fundamental principles of Kaizen and how you can use them to grow your business.
1. Small incremental changes
While 1% improvement may not seem like much, over time, it adds up. Imagine putting $1 into savings every day. You would barely notice $1 missing every day, but by the end of the year, you would have $365 saved up.
If you take that $365 and invest it at even a 2% interest rate and then continue to invest another $30 per month, then in just 5 years your $1 a day investment can produce nearly $3,000, thanks to compounded interest. Small changes produce compounded results, the same way interest compounds on your investments.
Every year, millions of Americans make New Year’s Resolutions and yet only a small fraction of them ever succeed. This may be largely due to setting their initial goals too high and trying to achieve them too quickly.
It’s one thing to set a goal of losing 50 pounds in 6 months if you have already been working on getting more exercise and changing your diet.
It’s a whole other issue if you are an avowed couch potato who hasn’t cooked a healthy meal or eaten a vegetable in years. On the other hand, even the most avowed couch potato can make a 1% increase in their activity each day or a 1% improvement in their diet.
Kaizen doesn’t focus on the results; it focuses on the process. But by investing in the process every day, there is no way not to experience significant results.
For your business, take a long, hard look at your finances, and eliminate expenses that you don’t need. Just make sure to do this gradually.
2. Employees are active participants and provide ideas and solutions
Imagine you need to increase production by 15% over the next 6 months. You could call in some type of expert to analyze your operations and make recommendations.
You could then inform your employees of the changes you are making and the results you expect them to produce as a result. The likelihood is that at best you are going to get a lot of pushback and at worst may have an outright revolt on your hands.
Conversely, however, you could approach your employees and ask them how they felt production could be improved. The likelihood is, they have a very good idea of what is slowing production down in the first place.
By asking the people that are actually boots on the ground, you are far more likely to get a far more accurate picture of where the problems are, versus calling in an outside set of eyes.
3. Accountability and ownership of new processes/changes
Once you understand where your employees feel the problems are, you can problem solve solutions together. By involving your employees in coming up with solutions, they literally become partners in the solutions.
For instance, let’s say they identify a step in their process that is a huge time waster, such as getting approval for something from a manager before proceeding. If you investigate and discover that it is, in fact, a wasted or problematic step, then you can trouble-shoot ways of speeding up the process.
From there, you can work with employees to develop new goals based on the newer, more streamlined process and a system of accountability to ensure they are progressing appropriately.
The likelihood is, your employees will participate far more readily if they helped troubleshoot and devise a solution in the first place. Even more importantly, they will begin to hold each other accountable, relieving you of the burden of doing so.
4. Feedback, dialogue, open communication
Even with employee buy-in and tweaks to the system, it doesn’t automatically guarantee that new goals will be met. Sometimes, solving one problem simply creates another.
This is where constant dialogue, feedback, and communication is important. For instance, bypassing manager approval at one step might actually lead to a greater number of mistakes being made or create an influx of additional work somewhere down the line.
By keeping lines of communication open and seeking consistent feedback, you can identify these problems early on and take corrective action before they become a major log-jam.
Perhaps the most vital aspects of implementing Kaizen effectively, however, is to avoid playing the “blame game.” When there is a problem, you can solve it far more effectively by working together to solve it rather than wasting time trying to figure out who is to blame.
The only way employees will feel safe enough to bring problems to the attention of management is if they feel confident that neither themselves nor their colleagues will be blamed for the problems nor “punished” for them in any way.
5. Active monitoring and measuring of changes – positive or negative impact
The one thing Kaizen is not is a “set it and forget it” type of system. While 1% daily improvements are entirely achievable, the whole point of making small, incremental changes is that they allow you to make adjustments and course corrections as you go.
Think of it as the difference between making course adjustments when moving 5 mph versus making course corrections doing 70 mph. Just because you are only moving 5 mph doesn’t mean you don’t need to be constantly vigilant.
The point of moving at 5 mph rather than 70 is to give you ample time to discuss and implement solutions when you start to realize you are getting off course.
One of the biggest reasons many startups fail is that they simply try and grow too fast. Small businesses, in particular, can benefit from Kaizen because it will help slow their growth to a more manageable pace.
In addition, by incorporating Kaizen principles into your business when it is small, it will help ensure they become a part of your business development. That way, they will still be there when your business is grown when you might just need them the most.
What Is a Business Model? 30 Successful Types of Business Models You Need to Know
What Is a Business Model Canvas? Business Model Canvas Explained
Blitzscaling Business Model Innovation Canvas In A Nutshell
What Is a Value Proposition? Value Proposition Canvas Explained
What Is a Lean Startup Canvas? Lean Startup Canvas Explained
How to Write a One-Page Business Plan
What Is Business Development? The Complete Guide To Business Development
Handpicked popular case studies from the site:
The Power of Google Business Model in a Nutshell
How Does Google Make Money? It’s Not Just Advertising!
How Does DuckDuckGo Make Money? DuckDuckGo Business Model Explained
How Amazon Makes Money: Amazon Business Model in a Nutshell
How Does Netflix Make Money? Netflix Business Model Explained
How Does Spotify Make Money? Spotify Business Model In A Nutshell
The Trillion Dollar Company: Apple Business Model In A Nutshell
DuckDuckGo: The [Former] Solopreneur That Is Beating Google at Its Game
The post How to Use Kaizen to Grow Your Business appeared first on Four-Week MBA.
December 18, 2018
How Does Uber Make Money? Uber Business Model In A Nutshell
Uber follows a business model become popular in the era of technological innovation. This is called two-sided marketplace, and it has a simple premise.
You create a platform with great user experience, some elements of gamification, make it easy for two sides of a transaction to connect.
This happens especially in industries where those two sides were prevented from transacting as the industry was dominated by a third party, which extracted most of the profits for that industry.
When that third party is removed via the two-sided marketplace, the owner of the platform collects a fee from both sides of the transaction.
Related: The Framework To Build A Successful Two Sided Marketplace
Uber vision
Becoming a top urban mobility platform is part of Uber’s ultimate vision as pointed out by Uber:
We see the Uber app as moving from just being about car sharing and car hailing to really helping the consumer get from A to B int he most affordable, most dependable, most convenient way,
When acquiring a bike-sharing company called Jum, Uber specified:
Our ultimate goal is one we share with cities around the world: making it easier to live without owning a personal car. Achieving that goal ultimately means improving urban life by reducing congestion, pollution and the need for parking spaces.
Its core principles are:
Expanding access
Delivering reliability
Providing choice
Aligning needs
Being upfront
These elements give us a first glance at Uber long-term direction.
Uber value proposition
Uber value proposition was born on the need to make up for the scarcity of cab drivers and the inefficiencies of urban mobility.
Therefore, Uber attracts two key players:
drivers
and riders
Let’s start from Uber first side of the marketplace, its drivers.
In a series of posts from Uber blog entitled “Why I drive,” several drivers explain why they do it. For instance, Susan explains:
It’s fun. It’s flexible. And it’s profitable!
Kevin instead explains:
I enjoy the flexibility it offers to me the ability to work whenever and however often you want
Calvin explains:
I love the freedom I have to work when I can, and make as much or as little as I need. Meeting different people everyday makes this more enjoyable. It’s the best business opportunity I have ever had. Thank you, Uber!
Thus, even though several drivers find a different reason to drive with Uber, there is a common thread which is a part-time “job” that provides supplemental income and flexibility to work any time, without a boss.
While this value proposition seems compelling, as pointed out by earnest.com, about 84% of Uber drivers make anywhere between $0-499 per month while only 2% make anywhere between $1500-1999 per month.
The ability to generate enough revenues for drivers to get back is a crucial ingredient to Uber success.
This is also why Uber tries hard to get drivers on a constant basis. This need for drivers also fueled other business models, like HyreCar.
Related: How Does HyreCar Make Money? HyreCar Business Model In A Nutshell
On the other hand, when it comes to riders, Uber offers a few key elements that make up a unique value proposition that apply to most of them.
First, as urban dwellers have kept growing, the cost of ownership of a car has become higher and too expensive to bear.
In this respect, in urban areas, giving up to car ownership has become a no-brainer. This makes ride-sharing convenient.
Second, Uber and other apps like Lyft makes it extremely easy to go anywhere with the least friction thanks to their gamified marketplaces.
Another critical element for riders is safety. For instance, Uber performs now background checks on its drivers that comprise “felonies, violent crimes, sexual offenses, and registered sex offender status, among other types of criminal records” which automatically disqualify drivers from the platform.
Uber network effects
A two-sided marketplace has to have built-in mechanisms that allow network effects to pick up. This means that for each additional driver or rider joining the platform, it becomes better and better for the others joining next.
In Uber case, more drivers and riders have meant better pickup times, lower prices, better reviews of drivers and increasing revenues for the marketplace.
As Uber tapped and taps into inefficiencies created by the misallocation of supply and demand within the taxicab industry. The more efficiencies Uber gains, the more appealing it becomes and the more revenues it grows.
Uber expanded market opportunities
Another key element is about market expansion. Any successful two-sided marketplace will be able at a particular stage to expand market opportunities.
For Uber, in particular, the company taps into a few specific needs:
Taxy Industry inefficiencies where the supply of cubs is limited at all time
Urban population growth and the impossibility of cities to keep up with car spaces
The willingness of a growing number of people to rent on demand rather than own a car
When those needs are combined with a technological marketplace, it also generates several markets, that before didn’t exist.
For instance, since Uber inception, a new need for cars for rent to make additional income over the platform has sparked new businesses like HyreCar.
Uber revenue model and pricing models
Uber makes money via a service fee that drivers pay. This service fee varies from trip to trip, and it represents the difference between what riders pay and what drivers earn once removed tips, tolls, fees.
Uber covers several segments by offering different vehicles, with services like:
Uber Black
UberX
Uber Pool
Uber is also betting on other segments, such as:
Uber Eats
autonomous driving
electric scooters
Uber fees range from 20% – 25% of the total amount charged from the riders.
The fares are calculated based on a few elements:
A base rate
Rates for estimated time and distance of the route
The current demand for rides in the area
Among the pricing models used by Uber there are:
surge pricing
upfront pricing
route-based pricing
Those strategies have several aims. With surge pricing, for instance, Uber can calibrate the demand and offering of rides to allow riders to pay more if they don’t want to way for a driver.
And at the same time to allow drivers to earn more if willing to move to “hot areas” when there is a surge in pricing.
With upfront pricing instead, the company shows in advance the cost of a ride. As pointed out by Uber, riders feel confident taking trips when they have the information to make better decisions and drivers get more opportunities to earn.
Roud-pricing allows price adjustments on a route designed to expand access by making trips more affordable.
Uber dynamic pricing and surge pricing
[image error]Dynamic pricing is the practice of having multiple price points based on several factors, such as customers segments, peak times of service and time-based consumption that allow the company is applying dynamic pricing to expand its revenue generation.
Uber has used a particular kind of dynamic pricing called surge pricing. This strategy has allowed Uber to allow the matching of demand and supply of rides, and steadily repopulating its drivers’ population which has high churn rates.
It also works as a stimulus for drivers willing to make more money to move in certain areas.
For instance, in a classic case of surge pricing Uber signals to drivers what area is experiencing them. So that drivers can go in that area and earn more.
When prices are surging, you’ll see a multiplier to the standard rates on the map. For example, you might see surge at 1.8x or 2.5x. This is how much your base fare will be multiplied by, so a fare that is usually $10 would be $18 when it’s at 1.8x Surge. Uber’s fee percentage does not change during surge pricing.
At a visual level, users can recognize surge areas based on the change of color of certain neighborhoods on the map. Where areas that will go from orange to dark red going from standard pricing to multipliers:
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Source: uber.com
Uber financials
According to TechCrunch Uber recorded gross bookings of $12 billion, a six percent quarter-over-quarter increase and a 41 percent year-over-year increase in Q2 for 2018.
In Q2, Uber also recorded adjusted EBITDA losses of $404 million compared to $304 million in losses in Q1.
How will Uber make money in the future?
For the future Uber is betting on a few potential revenue streams:
electric scooters
bike-sharing
and autonomous vehicles
On July 2018, Lime, a company which mission is to “help people move around their cities affordably and conveniently while eliminating their carbon footprint” announced a Series C financing round of $335 million led by Alphabet’s Google Ventures which also involved Uber.
Interviewed on the deal Rachel Holt, Uber’s head of new modalities specified “Our investment and partnership in Lime is another step towards our vision of becoming a one-stop shop for all your transportation needs.“
As part of a plan to cover all the possible transportation needs of people in the future, Uber acquired the dockless bike startup Jump in April 2018, which aligns with the vision of becoming the top urban mobility platform in the globe. As specified on Uber’s blog:
we’re committed to bringing together multiple modes of transportation within the Uber app—so that you can choose the fastest or most affordable way to get where you’re going, whether that’s in an Uber, on a bike, on the subway, or more.
Among other vision, Uber also aims at “bringing safe, reliable self-driving transportation to everyone, everywhere.”
This is a bold claim, yet it would help Uber fix in one shot a critical element: automate rides and get rid of drivers.
Indeed, with its high-churn rate and difficulty in keeping up supply and demand, self-driving might make Uber business model way more sustainable.
Resources for your business:
What Is a Business Model? 30 Successful Types of Business Models You Need to Know
What Is a Business Model Canvas? Business Model Canvas Explained
Blitzscaling Business Model Innovation Canvas In A Nutshell
What Is a Value Proposition? Value Proposition Canvas Explained
What Is a Lean Startup Canvas? Lean Startup Canvas Explained
How to Write a One-Page Business Plan
What Is Business Development? The Complete Guide To Business Development
Handpicked popular case studies from the site:
The Power of Google Business Model in a Nutshell
How Does Google Make Money? It’s Not Just Advertising!
How Does DuckDuckGo Make Money? DuckDuckGo Business Model Explained
How Amazon Makes Money: Amazon Business Model in a Nutshell
How Does Netflix Make Money? Netflix Business Model Explained
How Does Spotify Make Money? Spotify Business Model In A Nutshell
The Trillion Dollar Company: Apple Business Model In A Nutshell
DuckDuckGo: The [Former] Solopreneur That Is Beating Google at Its Game
The post How Does Uber Make Money? Uber Business Model In A Nutshell appeared first on Four-Week MBA.
The Four-Week MBA Top Business Models For 2018
Back in December 2017, I had mixed feelings about what to do next in my life. On the one hand, I had been immersed for over a year in an entirely new adventure, taking care of the business development of a SaaS startup.
I had never had any experience in sales and distribution in my life before. I had running my solo project for a couple of years but I came from a completely different background.
Graduated as a lawyer in 2011, I then switched my focus toward business and corporate finance with an International MBA between LUISS Business School in Rome, Italy and University of San Diego, California.
By 2014 I had become a financial analyst and assistant controller for a real estate investment firm in San Diego. During my years in California, I managed to convert my professional profile entirely from law to finance. Yet I wasn’t satisfied with my career path.
Indeed, I understood I was taking a narrow path that might have probably led me toward roles such as Controller and CFO, in the long-run. While those are pretty lucrative roles, I imagined myself in those shoes and I didn’t like what I imagined.
Indeed, even though I enjoyed the strategic part of understanding companies by looking at their financials, I still wanted to be an entrepreneur and build my own business.
So without hesitation, I resigned, gave away an H1B Working Visa (those coming from outside the US know how valuable that is) and I just went back to Italy.
I figured that if I managed to put together a few info products about what I’ve learned during those years that would be enough to build a digital business, which generated passive income.
While I did that after only a couple of months from resigning, I was generating automatic income, with no marketing and just with organic reach. It wasn’t enough to be able to sustain me in the long-run.
Two years went by, and I’d managed to understand the several parts and bits of the digital marketing world. Yet I was far from the objectives I had set up for my business.
I realized that if I wanted to be an entrepreneur and business person in my life I needed to get well rounded also in two things which I had felt not worth my time: marketing and sales.
Fast forward; It took me over a year of thinking through it to realize that I needed to master sales, distribution, and marketing if I wanted to have any chance of long-term success for my business. So I set myself to gain some real-life experience on that.
That’s how I got in touch with WordLift in 2016, the company for which as of today (December 2018) I run the business development side.
I learned so many things in the last couple of years which confirmed what I always thought. There’s no better way to gain expertise than to be a practitioner, someone that works hard on execution but also takes the time to study the theoretical side of things.
That brings us back to that December 2017, when I was having those mixed feelings about what to do next. I was satisfied with what I had done so far, but something was missing.
I felt I lacked another critical element to becoming a better business person. I realized that to take a step forward I needed to understand how companies worked at their core.
I needed to understand how companies “thought,” and what made them successful. In short, I needed a framework to analyze any company quickly to extract their core values and have an holistic understanding of them.
That’s how I started to get passionate about the concept of “business modeling.”
It wasn’t new to me at all, yet at that stage, I wanted to gain a deep understanding of it. So I considered different options. I narrowed them down to three possibilities:
go back to business school
enroll in a Ph.D. program
do my own research
The first two options were quite appealing as I could tap into the resources of academic institutions to learn as much as possible about the topic.
However, I also didn’t want to leave my job, I didn’t want to get out again from the real world to immerse myself in a purely academic environment.
So I started pondering what would turn out to be the best option. I took my existing blog which in the meanwhile was almost dead and decided I would grow it with the sole intent of sharing all the research I was doing about business models.
In short, I could motivate myself to keep researching into the topic while I could experiment with an entrepreneurial project where I’d turn a dead blog in a publishing outlet.
Fast forward December 2018, this is how it turned out so far:
[image error]
While I’ve grown my blog, I’ve gained in the meanwhile a few other critical skills, from content marketing, publishing, and SEO.
Thus, I leveraged on my previous financial and business background, what I’ve learned throughout my experimentations with publishing and the sales and distribution skills I’ve learned on the job.
In the meanwhile, I’ll continue my research for 2019 (remember a Ph.D. lasts at least five years).
I want to share now which business models have turned out to be most interesting to you, my reader! Below the list.
Amazon has conquered the world with its cash machine business model and its ability to disrupt several industries. It started out as a library online, and it ended up as the everything store.
As privacy concerns grow and people get more aware of how Google works and makes money; that opens up new possibilities for DuckDuckGo, that while still a small search engine compared to Google, it might play a key role in the coming decade.
Netflix‘s founder Reed Hastings understood the importance of the Internet and the Internet TV back in the late 1990s.
Yet opposite to Microsoft which tried to build an internet TV network too yearly, Reed Hastings was patient enough to allow Moore’s Law (the capacity of technology to double about every two years in computing power) to pick up.
Indeed, when he started Netflix, he had to make it first an on-demand DVD company, by knowing it would only be a transition. Yet when they forecasted back in the 2000s they would become a streaming company in the coming five years, they were completely off.
So they made again the same forecast and once again in 2007 they were off. Yet when 2012 came Netflix was still off in its forecast. Why? Its streaming business had grown way faster than any expectation! Vision helped Netflix go through that period.
That is why you need to be in love with your business. A successful company is the fruit most of all of the execution. If I had to give a – personal – estimate of how much between idea, vision , and execution matter, I’d say 10% the idea, 40% the vision and 50% execution!
After a trip in Latin America, Blake Mycoskie realized how shoes were so precious in countries like Argentina where kids contracted many diseases due to the lack of shoes.
He came up with an innovative business model that mixed for profit with nonprofit. A model that would take part of its earnings and give back to others. He called it a one-for-one business model.
In short, it started with a simple yet powerful action: for each pair of shoes sold a pair would be given back to countries like Argentina where they needed it the most.
TOMS is a perfect example of how a business model can make a difference between a successful and thriving organization.
Today Google is among the FAANG companies, those tech giants – that so far – dominated the globe. While we don’t know for sure how long will those companies succeed in keeping their dominance, they’ve already changed the world as we knew it.
When Google came into existence it was not the first search engine. It was actually among the last entrants of the search industry, in a time where companies like AOL dominated the web, search was seen as a secondary feature of those web portals.
While Google was an incredible tool, 10x better than its competitors, its success wasn’t just due to its algorithms. It was primarily due to its distribution strategy and its innovative business model.
Indeed, Google closed a few initial deals with AOL, where it got such a massive exposure to grow exponentially in a few years time. Google copied part of another search engine business model, called Overture.
It also innovated in comparison to it by adding a bidding mechanism to keywords that also allowed to rank those paid text listings based on relevance, primarily measured via click through rates!
From the PayPal Mafia (the group of people that blitzscaled PayPal) entrepreneurs like Elon Musk, Peter Thiel and Reed Hoffman would later found other successful companies in Silicon Valley.
Sold to eBay for over a billion dollars PayPal represents one of the most interesting cases of how companies can scale fast by starting from a narrow niche. Indeed, when PayPal identified the power users it needed to dominate its niche it went after them with the maximum determination.
While growing a successful company is also a matter of luck, PayPal also enjoyed of a group of very smart people that made it a multi-billion company in a short span of time, by revolutionizing the payment industry.
Everyone knows of Steve Jobs’ heroic mission to bring Apple from a failing tech company to become again a world’s leader, with the iPod, iPad, iPhone (and maybe Apple Glasses in the future? this is pure speculation).
Apple has a smart business model based on a razor and blade strategy on the one hand. On the other hand what makes Apple unique is its ability to combine tech with luxury and locked-in ecosystem that have incentives for smart developers to build tools and apps people love!
Most people still associate Microsoft with the set of desktop tools that became a massive commercial success installed almost on any PC on earth. I’m referring to the Windows Office Package.
While a good chunk of Microsoft revenues still come from it, the company has changed dramatically over the years. Indeed, for a tech company to survive transformation it the key ingredient.
Microsoft today has a diversified business model that relies on several revenue streams. Just to mention a few of the companies and products run by Microsoft, there is Xbox in the gaming industry, Bing in the search industry, and LinkedIn in the social network industry!
Even though companies like Amazon are making more and more difficult for more traditional companies like Walmart to survive, the company has managed to pass through several generations still as one of the american conglomerates and it made over $495 billion in revenues for 2017, and its secret was cross-docking.
I defined Baidu the Google of China. I wasn’t referring just to the search engine but also to the way the company heavily invested in other ventures like self-driving cars and video-sharing platforms among others.
However, I also figured that Baidu innovated in search as much as Google has done.
Mark Zuckerberg has passed from the motto of “Move fast and break things” to “Move fast with stable infrastructure. The young Zuckerberg growing a company out of his dormitory prioritized scale over everything else.
It didn’t matter how much it messed things up as soon as it managed to survive and grow at super fast speed. Over the years though Facebook has also become a more mature company, which affected billion of pople around the globe.
Thus, Mark Zuckerberg realized he needed to change his motto to one that made it possible to move fast but also repair along the way the damages created by a relentless focus on growth.
Today Facebook is among the most profitable businesses in the world, with even higher profitability than Google. The duo Google–Facebook is the oligopoly of the digital advertising world. A third entrant might come soon, Amazon.
Hey, can you venmo me some money? Does it sound familiar? Venmo has become one of the fastest growing company, acquired by PayPal, it is now revolutionizing payments by adding a component of virality and network effects!
Twitter is one of those companies that everyone expect to fail anytime soon, yet it has proved, also thanks to its business model to get back on track each time.
I personally like Twitter as a communication tool, way more than I do of Facebook. Yet beside personal likes or dislikes, Twitter has an interesting business model worth exploring!
A few people are aware of the IKEA organizational structure. I suggest you give a look at it as it is one of the key components of its success from the side of keeping a large and mature organization successful.
From its firs video to the San Diego Zoo, uploaded by its founder, YouTube has come a long way. Now one of the most popular sites on earth, YouTube is perfectly integrated into Google (now Alphabet) operations!
You might be surprused to find out a few key elements of its business model and how YouTube is also experimenting with premium memberships programs.
What’s next for 2019?
A Ph.D. program lasts at least five years to a decade. So if we take that into account, I started my “real-life Ph.D.” only a year ago. So I’m still at the beginning of my trip.
The list I have down of companies I want to study, and the business models I want to understand is so long that I probably have enough to work for the next year at least.
Throughout this year I learned many things about business modeling. As any topic the more you learn, the wider your ignorane gets and you figure you still miss a lot.
One objective for next year is to keep studying and documenting here what I learn. But also to start producing some original tools. For instance, lately, I created the Blizscaling business model innovation canvas that I think is a great toolbox to determine whether a company has the crucial element in place to scale up.
More of those tools will probably come out in the coming year. Another element is to have professionals I think can add a lot of value to this community to contribute with their experience as a practitioner.
And a third and critical aspect will be about partnering up with academics and practitioners from the business modeling world to bring you insights that you will hardly find anywhere else.
The three key ingredients that will make you love this portal are simplicity, effectiveness, and insights you’ll get from these resources to help you become a better business person!
If you’re approaching the topic read this guide: 30 Successful Types of Business Models You Need to Know
The post The Four-Week MBA Top Business Models For 2018 appeared first on Four-Week MBA.
December 16, 2018
How Does HyreCar Make Money? HyreCar Business Model In A Nutshell
HyreCar is a peer-to-peer marketplace where owners of cars can rent their idle vehicles to drivers that want to make an additional income via ride-sharing services like Uber, and Lyft.
As a two-sided marketplace, HyreCar makes money by charging drivers for direct insurance and a 10% fee on the weekly rental expense. And by taking a 15% fee from owners weekly rental income.
HyreCar: how it works
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The basic premise of HyreCar is a peer-to-peer marketplace where owners of cars can easily rent them. Drivers can easily find a vehicle fully insured to start driving for Uber and Lyft and make some additional income.
The compelling part is that HyreCar tackles two segments of the mobility industry:
car-sharing
and ride-sharing
HyreCar key partners
At its core, as a two-sided marketplace which adds value to both sides of the market, also makes money from both sides of the transaction. In that respect HyreCar has two key partners:
cars’ owners
and drivers
However, I argue, that the whole market opportunity has been created thanks to the rise of the two-sided marketplace like Uber and Lyft.
That’s why it is like HyreCar has seized the opportunity and has created a marketplace on top of the need generated by existing marketplaces.
For instance, as we’ll see, when understanding its serviceable market HyreCar looked at local Google searches for terms like “rent a car for Uber” which pointed a clear need and intent of people to start earning additional income by renting a car and submitting it to either Uber/Lyft.
Cars’ owners
Car owners that want to amortize their cost of ownership can rent their car quite easily via HyreCar. Indeed, one of the main issues of car ownership is the fact that for most of the time it sits in one place (like the work parking lot, or home parking) without ever being used.
This implies an excess capacity of vehicles that make car sharing appealing for a few reasons:
passive Income: HyreCar allows a steady source of passive income resulting from a re-booking process
Insurance: the liability and insurance provided by HyreCar makes it riskless for the car owner to rent it
Drivers’ review process: HyreCar has a rigid and extensive background check process, besides matching t Drivers that also have passed the Uber and Lyft background checks. This makes owners more at ease with renting their car
Drivers
In general, via HyreCar drivers can find a vehicle that suits them the most, submit it to Uber/Lyft and start making additional income.
Thus, a few reasons why those drivers are attracted by HyreCar value proposition is:
Extra income: drivers can easily earn some extra money via ride-sharing marketplaces like Uber/Lyft
Pay-As-You-Go: drivers can rent a car weekly or for as long as they need it with no obligations or long-term contracts
Convenience: drivers can quickly get a car they need, at times also delivered to them within 48 hours
Transparency and Trust: owners are also screened and must pass a review process before being accepted to the platform
Ubers/Lyft marketplaces
One key long-term success factor for Uber/Lyft is to have a constant flow of drivers to make sure they can serve their users and offer competitive pricing compared to traditional mobility industries.
Therefore, HyreCar grows on top of marketplaces like Uber and Lyft which needs a continuous stream of drivers to succeed.
Indeed, one of the risks of failure for Uber and Lyft is the inability to keep drivers going back to the platform.
That’s also why Uber has used policies of dynamic pricing, like surge pricing, to adjust the demand and offer. Therefore, HyreCar taps into that need.
At the same time, it offers a good option for people that want to temporary make a part-time income from driving for either Uber and Lyft by reducing their “entrepreneurial risk.”
In fact, who drives for Uber and Lyft is not an employee, but rather an independent contractor that has maximum flexibility on when to operate.
HyreCar key business model ingredients
Let’s look now at the few pieces that make up the HyreCar business model and how they come together.
Fueling growth via insurance coverage arbitraging
A key component to HyreCar business model is its commercial auto policy. The two-sided nature of our platform means that we need to ensure both the Driver and the Owner.
The process follows these steps
Driver and Owner are provided an insurance ID card with driver’s name and the vehicle identification number twenty-four hours in advance of the commencement of the rental through the drop-off confirmation by the owner of the vehicle
An owner takes pictures of his or her vehicle before pressing the “Confirm Pick-up” button on the HyreCar mobile app
After the rental is completed, the Owner presses the “Confirm Drop-off” button on the HyreCar mobile app and the rental ends
American Business Insurance Services (“ABI”) handles all of back-end insurance generation and processing. The insurance is broken down in four driving periods:
Period 0 is when the Driver has picked a vehicle up from the Owner and is driving with the Uber or Lyft app turned-off
Period 1 is when the Driver has the Uber or Lyft app turned-on but has not yet accepted a fare
Period 2 is when the Driver has accepted a fare and is on the way to pick-up a passenger
Period 3 is when a passenger is in the vehicle
The HyreCar policy covers Period 0 or when the driver is not operating according to Uber and Lyft app. Indeed, from period 1 to 3 the insurance coverage falls on Uber/Lyft.
This insurance system is pretty ingenious for a couple of reasons.
First, usually, Uber’s drivers are covered at the moment in which they are active on the platform. This typically covers driving when picking up and dropping passengers off.
Thus, in certain period drivers might be uncovered. That happens because a regular insurance policy is not enough. Indeed, as drivers that operate via Uber/Lyft are considered “contractors,” they also need a commercial insurance policy.
In that scenario, HyreCar might take over what Uber doesn’t cover while at the same time stop covering drivers when Uber/Lyft instead covers them.
Second, HyreCar can save in insurance by only covering the period of inactivity on Uber/Lyft and leaving them the expense of ensuring riders when active on those platforms!
This commercial automobile policy might be a competitive advantage as so far HyreCar might be the only provider of this car-matching service.
In a sense, it is almost like HyreCar offers a unique insurance policy by making it nearly an operator in the insurance sector.
The one-man sales team approach
The sales team is another critical element for HyreCar success. Indeed, HyreCar noticed that customers (both drivers and owners) that were driven through the platform on a one-to-one basis were more inclined to keep using the platform and its services for more extended periods.
This made HyreCar implement a one-man sales team approach.
The sales team is divided into:
driver team (15 sales contractor, making about 30 calls a day to new leads)
and owner team (6 sales contractor in west coast, central and east US)
The marketplace over a marketplace business model
I like to call this business model type as a marketplace over a marketplace. Indeed, as new marketplaces like Uber and Lyft take over the world, they also open up new opportunities and create a whole new set of industries.
One example we already discussed in the search world is DuckDuckGo and how it is building an entire business based on the need of people to get out from Google data collecting search engine.
In this particular case, DuckDuckGo is leveraging on an intrinsic weakness of the Google business model (it can’t live without users’ data), by offering a private navigation which only matches keywords based on location (if the user chooses to share it) yet it throws away the data on the fly rather than keep collecting it for years to come.
HyreCar has built so far a business based on a need created by marketplaces like Uber and Lyft. Its peer-to-peer car-sharing marketplace allows car owners to rent their idle cars to ride-sharing service drivers.
The advantage of HyreCar marketplace is that part-time Drivers can quickly enter and exit the market by matching their need for an idle car with the owner need to rent it.
Leveraging the gap between ride-sharing and car-sharing
HyreCar leverages on the gap created by both car-sharing services (Car2go, ZipCar, and Turo) and ride-sharing marketplaces (Uber/Lyft).
On the one hand, HyreCar taps into the unexpressed market of idle cars, that is most of the time in a parking lot, which allows owners to amortize their cost of ownership.
While it taps into the drivers, need to make an additional income.
A seamless sign-up process to acquire drivers quickly
One key element to any two-sided marketplace success is a smooth sign-up process. In this respect, HyreCar has partnered up with Lyft to allow a sign-up of drivers through Lyft sign-up portal.
This integration makes Lyft constant demand for drivers satisfied while it allows drivers to find their vehicle within a day or so (this agreement has yet to be formalized). HyreCar is also entering in similar partnerships with other players.
HyreCar Revenue model
As a two-sided marketplace, HyreCar makes money via a fee charged to both sides. On the one hand, drivers pay a weekly rental rate, plus the direct insurance costs and a 10% fee to HyreCar. Owners get a weekly rental from which a 15% fee is subtracted.
To recap the revenues of HyreCar are broken down in:
10% fee from drivers on the weekly rental price
direct insurance paid by drivers
a 15% fee from owners weekly rental income
A practical example is given by an average weekly rental of $200 and a total gross billings of $290 it makes $170 to the car’s owner and $120 to HyreCar. Below a breakdown:
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To summarize, a driver picks up a car and pays a weekly rental of $200, plus direct insurance of $70 and a 10% fee on the weekly rental of $20. This makes the total gross billing in $290.
Of those $290, $170 is given to the car’s owner (the weekly rental rate of $200 minus the 15% fee to HyreCar). That’s how HyreCar makes $120 in revenues from a single transaction.
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For instance, in 2018 the total gross billings amounted at almost four and a half million, while the revenues for HyreCar amounted at over $1.7 million.
How did HyreCar figure its initial target market?
As pointed out in HyreCar financial prospectus they analyzed a set of keywords to determine an initial population that could be reached by the service.
When launching a marketplace or in general a service it is important to at least try to identify a TAM, SAM, and SOM.
In 2016 HyreCar identified that market in customer demographics with the Google search results by creating a Driver/Owner affinity population of over 25 million potential customers, with the bulk of the 25 million concentrated in 16 core geographic locations.
For instance, they realized that 400,000 people in Los Angeles googled keywords like, “rent a car for Uber,” “Uber,” and “Uber Leasing.”
Key takeaway and lessons from HyreCar business model
HyreCar growth is highly dependent from its ability to tap into other marketplace lack of drivers, and its ability to keep the dominance on a market that so far seems to have a single player.
A few lessons from its business model are:
when new players enter a market, they also expand the market itself by generating needs that before didn’t exist. For instance, in this case, HyreCar saw three primary needs. First, the need by ride-sharing marketplaces for drivers. Second, the need for car owners to amortize their cost of ownership. Third, a lack of commercial insurance coverage from companies like Uber/Lyft which might make the ride for drivers riskier
another lesson from HyreCar business model is its one-man sales team approach. Where they try to create a one to one relationship with both drivers and owners. When they implemented this strategy, they almost doubled their revenue a month over a month back in 2016. That is why they rolled it out companywide
leverage on simple market researches to understand your target audience. It is easy to get bogged down in sophisticated analyses of TAM. But HyreCar simply confirmed its feeling by looking at local Google searches such as “rent a car for Uber” to realize there was an existing demand for those services
another aspect is tied to two-sided marketplaces in general. If you can design a seamless customer experience it becomes easier to collect revenues from both sides of the transactions with minimum effort over time
a last and important lesson from HyreCar business model is its partnerships with other marketplaces to create a seamless sign-up process and integrations, where it becomes easy for drivers to find a car while they are signed in to other marketplaces like Lyft. This kind of approach helps to hack the growth of the most important side of the marketplace, in this case, the drivers’ side
What other lessons did you learn?
Resources for your business:
What Is a Business Model? 30 Successful Types of Business Models You Need to Know
What Is a Business Model Canvas? Business Model Canvas Explained
Blitzscaling Business Model Innovation Canvas In A Nutshell
What Is a Value Proposition? Value Proposition Canvas Explained
What Is a Lean Startup Canvas? Lean Startup Canvas Explained
How to Write a One-Page Business Plan
What Is Business Development? The Complete Guide To Business Development
Handpicked popular case studies from the site:
The Power of Google Business Model in a Nutshell
How Does Google Make Money? It’s Not Just Advertising!
How Does DuckDuckGo Make Money? DuckDuckGo Business Model Explained
How Amazon Makes Money: Amazon Business Model in a Nutshell
How Does Netflix Make Money? Netflix Business Model Explained
How Does Spotify Make Money? Spotify Business Model In A Nutshell
The Trillion Dollar Company: Apple Business Model In A Nutshell
DuckDuckGo: The [Former] Solopreneur That Is Beating Google at Its Game
The post How Does HyreCar Make Money? HyreCar Business Model In A Nutshell appeared first on Four-Week MBA.
December 15, 2018
What Is The Total Addressable Market And How To Assess It
When launching or running a business, at the question “who’s your target?” it often happens to hear answers like “everyone can use my product or service.”
This implies a complete misunderstanding of the market. This can be bad for several reasons.
First, it might make it harder to prioritize and focus on a few key partners who might help the business snowball and scale. For instance, when PayPal launched as pointed out by Reed Hoffman in Blitzscaling the company had to shift its focus four times in a short period.
When they identified their power users on eBay, they focused and prioritized on that niche market. Thus, PayPal first dominated that niche and then move forward.
Second, if you need external resources, such as lending and financing being able to present the total addressable market (TAM) is a crucial element to make the value proposition for those investing in your business compelling enough.
For that matter, a few crucial questions, such as who needs your service, how much can I charge for it and what players are already in that market helps to find a few elements to compute the TAM.
To evaluate a business opportunity, you need to look into three metrics:
TAM or total addressable market
SAM or serviceable addressable market
SOM or serviceable obtainable market
Let’s start from a practical and straightforward example. Imagine the scenario you’re opening a barber shop in Rome. Now your TAM might be any man in the world with a beard. However, of those how many can you reach and service?
It would also be great to say that your total serviceable addressable market is those men’s beards. However, this is not realistic. Instead, to be realistic, you might start from the neighborhood where your barber shop will be located.
This means that on a population of a hypothetical thousand people in the neighborhood, only 50% are men and of those men, only 50% have a beard.
This means your total serviceable market is now only two-hundred fifty men (a thousand divided by two, twice). Yet, you’re not the only barbershop in the neighborhood. It seems like another person had your same idea, and her barber shop serves already half of those men’s beards.
This means that your potential share of the market might be 50% of the serviceable market, or a hundred and twenty-five people. This is your SOM.
Although this is a simplified example, that is a good starting point to understand the difference between TAM, SAM, and SOM. You don’t need to perform complicated analyses to start understanding those concepts. All you need is to start thinking in realistic terms who’s that you’re trying to serve!
Resources for your business:
What Is a Business Model? 30 Successful Types of Business Models You Need to Know
What Is a Business Model Canvas? Business Model Canvas Explained
Blitzscaling Business Model Innovation Canvas In A Nutshell
What Is a Value Proposition? Value Proposition Canvas Explained
What Is a Lean Startup Canvas? Lean Startup Canvas Explained
How to Write a One-Page Business Plan
What Is Business Development? The Complete Guide To Business Development
What is SEO Hacking? How to Steal Featured Snippets with These SEO Hacks
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The Framework To Build A Successful Two Sided Marketplace
In an essay entitled “All Markets Are Not Created Equal: 10 Factors To Consider When Evaluating Digital Marketplaces” Bill Gurley, general partner at Benchmark and early investor in Uber pointed out:
A true marketplace needs natural pull on both the consumer and supplier side of the market. Aggregating suppliers is a necessary, but insufficient step on its own. You must also organically aggregate demand. With each step, it should get easier to acquire the incremental consumer AS WELL AS the incremental supplier. Highly liquid marketplaces naturally “tip” towards becoming a clearinghouse where neither the consumer nor the supplier would favor an alternative. That only happens if your momentum is increasing, and both consumers and suppliers are sensing an increasing importance of your place in the world. Much easier said than done.
For that matter, he identified ten key factors to take into account when building up a two-sided marketplace. You find them listed below:
The new experience test
Does it offer a wholly unique experience?
For this matter, it is critical that the two-sided marketplace offers a new experience compared to the established companies operating in a particular industry and marketplace.
As Bill Gurley points out, you need to create that “wow” moment that makes your platform unique. GrubHub business model is an example of that kind of experience.
The economic advantage test
Does it offer an economic advantage to both sides of the transaction?
When Airbnb disrupted the hospitality industry, it did so by creating an economic advantage for its both key partners: hosts and guests. Hosts could make additional income out of the platform.
Additional income which just wasn’t there before, as it was way harder for a host to start renting a room just like a hotel would do. On the other hand, guests could benefit from better experiences and prices.
Airbnb business model is a perfect example of the economic advantage created compared to traditional players.
The technological advantage test
Can technology create an obvious market advantage?
In this respect, technology must be a key ingredient for the marketplace success.
Industries where there is a complete lack of transparency in prices and availability of data, technology can play a crucial role in making those processes available and visible.
One example that I like in this case is Google AdWords (now called Google Ads). Google took a market like advertising based on massive budgets managed by accounts, with a lack of transparency and trackability of actual results from those ad campaigns.
Google transformed it into a giant marketplace. In this marketplace, businesses bid on a keyword where they know exactly the price and clicks they will get from those campaigns.
Another critical element of the Google business model was the introduction of paid ads also based on relevance when technology creates this kind of advantage that is when network effects are triggered.
The market fragmentation test
Is there a fragmented supply base?
In this case, if there is a fragmented supply, this means a higher chance of succeeding for a marketplace.
As it might encounter less resistance from the fragmented suppliers and even if they might resist the entrance of the two-sided marketplace, it will be hard in any case for the fragmented supply to stop its advance.
The suppliers’ sign-up friction test
Is it easy for suppliers to sign-up?
When launching a two-sided marketplace the chicken or the egg problem can be tackled by creating first enough supply to make the platform compelling enough for the demand side.
However, the process of acquiring suppliers need to be frictionless. For instance, in some marketplace which might require the substantial local presence or multiple touch points with suppliers, this might slow down the process of aggregating supply.
The TAM test
Is the total available market big enough?
When building up a marketplace understanding what’s the potential of it starts from looking at its TAM or total available market. Indeed, not only a small TAM might reduce the likelihood of success of the marketplace.
It might also make it less compelling to investors. As pointed out in Blitzscaling by Reed Hoffman, investors want to see a TAM of billions of dollars.
The market expansion test
Can the marketplace features and enhancements expand the market?
When a marketplace becomes widely adopted, its features and enhancements can expand market opportunities for entire industries.
For instance, Airbnb trying to design the whole experience of its users, from the arrival to end of the trip (thus not just the stay) has expanded the entire set of services offered within the same industry.
The frequency test
Is the marketplace frequently relying on the marketplace?
Booking a ride on Uber is a utility. Something that people might deal with so often that allows network effects and word-of-mouth easily.
Indeed, one of the reasons a marketplace might lose traction and thus might struggle to gain enough brand awareness is due to infrequent transactions.
The payment flow test
Is the marketplace perceived as a cost center or profit center by its suppliers?
According to the way the payment flow is designed it is easy to be perceived as a cost center rather than a profit center by the suppliers on the marketplace.
For instance, in the case in which the supplier gains revenues net of fee right away from the platform, this means that the marketplace is itself a critical element for the supplier bottom line.
In the opposite scenario, the marketplace might be perceived as a cost center, which makes it less appealing in the long run.
The network effects test
Is each additional user making the overall service better for the next users joining the platform?
Network effects are a vital ingredient for any company’s success; this applies even more to marketplaces.
Network effects usually happen when each additional user makes the platform better for those joining next.
Did your marketplace pass all the tests?
Resources for your business:
What Is a Business Model? 30 Successful Types of Business Models You Need to Know
What Is a Business Model Canvas? Business Model Canvas Explained
Blitzscaling Business Model Innovation Canvas In A Nutshell
What Is a Value Proposition? Value Proposition Canvas Explained
What Is a Lean Startup Canvas? Lean Startup Canvas Explained
How to Write a One-Page Business Plan
What Is Business Development? The Complete Guide To Business Development
What is SEO Hacking? How to Steal Featured Snippets with These SEO Hacks
The post The Framework To Build A Successful Two Sided Marketplace appeared first on Four-Week MBA.
What Is OKR? The Goal Setting System To Scale Up Your Business
Back in the 1970s, Intel was among the most respected and admired companies in Silicon Valley. During that time Intel’s CEO, Andy Grove, was the man who managed to drive organizational change.
Andy Grove did that via a goal setting process called OKRs or objectives and key results. Where the objective is the direction, toward which the organization needs to be in the medium term.
And the key results are milestones, things that allow the company to get there. Those key results need to be easily trackable, understandable and shared across the company.
In its purest form OKRs consists primarily of four superpowers:
Focus and commit to priorities: this superpower focuses on making clear what matter and what doesn’t. More precisely it allows whole teams and departments to decide where the focus is and dispel any confusion
Align and connect for teamwork: one essential ingredient of the OKRs is its transparency and the fact that it needs to be openly shared across the organization, from the CEO down to each team and member of the organization. OKRs is not a siloed process but rather a transparent goal setting tool
Track for accountability: OKRs are data-driven. It doesn’t stress though on a countless number of metrics that help to increase the level of noise. OKRs instead focuses on a few critical metrics to measure the impact on the business
Stretch for amazing: Objectives set in OKRs aren’t conservative, those are aggressive, hard yet possible and attainable. From this balance, OKRs brings the organization forward
Those superpowers are kept together by continuous improvement and corporate culture.
How is OKRs different from MBOs?
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For those that know Management by Objectives or MBO, it might be easy to confuse it with OKRs. However, there are a few key differences. At its core, the MBOs focused on what while it was primarily top-down and risk-averse.
By converse, OKRs focuses on the “what” (direction) and “how” (key results). Rather than an annual review process which might make it too complicated and formal OKRs follow a quarterly or monthly schedule which is public and transparent and usually bottom-up.
Where MBOs is risk-averse, OKRs is aggressive and aspirational.
OKRs objectives have a few key elements such as:
ambitious
qualitative
time bound
actionable by the team
While OKRs key results are primarily:
measurable and quantifiable
make the objective achievable
lead to objective grading
difficult but not impossible
Suggested reading:
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Resources for your business:
What Is a Business Model? 30 Successful Types of Business Models You Need to Know
What Is a Business Model Canvas? Business Model Canvas Explained
Blitzscaling Business Model Innovation Canvas In A Nutshell
What Is a Value Proposition? Value Proposition Canvas Explained
What Is a Lean Startup Canvas? Lean Startup Canvas Explained
How to Write a One-Page Business Plan
What Is Business Development? The Complete Guide To Business Development
What is SEO Hacking? How to Steal Featured Snippets with These SEO Hacks
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The Power of Google Business Model in a Nutshell
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