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Business Models

Netflix Business Model: Streaming is the Future

As absurd it may sound, but the cable TV is being slowly pushed towards obsolesce. Cable TV, which was considered a phenomenon, is being replaced by Netflix. It started out in 1997 when Reed Hastings and Marc Rudolph put it out as a rental for DVDs online. Over the course of years, the Netflix business model evolved, and now you can stream movies and TV shows on Netflix.

As of now, Netflix outranks cable TV in the United States of America. This particular statistic is evidence of the gradual demise of cable TV. You could say that Netflix was the last nail in the coffin of the beloved cable TV we once loved.

netflix business model

In the recent years, the subscribers of Netflix have grown exponentially. The subscriber base is so large that it accounts for more than a third of the entire traffic on the Internet during peak hours. The success of Netflix has everyone talking. Not only did they earn US$ 1.21 billion in 2018 fiscal year, but they also generated US$ 15.8 billion in the same year. Critics and users all want the answer to this golden question: how does Netflix make so much money?

Before we can answer that question, we need to give you important insight on how the Netflix business model operates. The success of Netflix is rooted in its business model.

How does the Netflix Business Model Operate?

Netflix is not only home to movies and TV shows, but it also has documentaries and other videos-on-demand. It uses a subscription model to earn money. The customers pay a monthly subscription to stream different kinds of visual content hosted by Netflix. Moreover, the US entertainment giant provides DVD rentals of movies and shows. They supply the DVD to their customers who need them.

The quality of the content depends on the type of subscription that a user pays for. The content is available in either SD, HD, or Ultra HD.

The Netflix Business Model

Netflix business model is an exciting prospect that has evolved over the years. Now that they have established their dominance over other streaming services, it is safe to say that their research and development has paid off.

The Target Audience of Netflix

Netflix currently leads as the largest internet television network with over 100million subscribers. They have subscribers in over 190 countries who stream 125 million hours of movies and TV shows in one day.

Netflix targets customers regardless of their gender. Moreover, their customers are between the ages of 17 to 60. Furthermore, most customers belong to households that have annual income of $30,000 or greater. If you study the statistics, you will realize that the subscribers belong to different lifestyles. This disparity shows that Netflix uses psychographics, not demographics, when targeting prospective customers.

There are three types of people that Netflix is targeting with their product. They are:

  1. Users that are too busy to go out and shop for movies and shows
  2. Consumers that love movies and who frequently rent movies
  3. Users that want the best bang for their buck

What Value Does Netflix provide to its Customers?

Netflix has been able to climb the ladders of success, all thanks to its huge database of movies, TV shows, documentaries etc. Moreover, to add more value to its service, Netflix has incorporated a smart suggestion algorithm to its streaming service that suggests new movies and shows according to the likes and watching habits of the user. It is one of the best suggestion algorithms that provides personalized suggestions.

Furthermore, Netflix is well-known for their no advertisement policy. No ads mean that the users can enjoy their favorite shows and movies without any disturbance. This makes Netflix a great option if you love binge watching.

netflix business model

Netflix has a wide array of supported devices. They currently have the best range of supported devices that includes PCs, TVs, mobile phones, and video gaming consoles. Last but not the least, Netflix promotes binge watching by releasing entire season of shows instead of weekly episodes. The viewers no longer have to wait days before they could see another episode of their favorite show. With Netflix, the users can view the entire season of shows in one sitting.

How Does Netflix Business Model Make Money?

Subscriptions fees is the main source of revenue for the US streaming service. Subscribers pay Netflix to get access to the huge database of movies and TV shows. The subscription fees pay for the expenses that are incurred by the company.

As Netflix does not host advertisements, subscription is the only significant source of income. The streaming service offers three different plans to it users. Each plan offers something different and has a different monthly price tag attached to it. The three plans are:

  • Basic – the content can only be streamed in SD
  • Standard – the content can be streamed in HD
  • Premium – the content can be streamed in Ultra HD
netflix business model

The subscription fees of each plan varies from country to country. The DVD rental service operates on a similar model. The monthly subscription in this case depends on the number of discs that are rented at a time and rented for the month. The online subscription and the DVD rental services are different and cannot be combined together for a better deal.

Expenses That Are Incurred By Netflix

While Netflix has been making loads of money in every fiscal year, most of the money that is made is reapplied in the business to pay for various expenditures incurred over the fiscal year. These costs include licensing cost of movies and TV shows, production cost of Netflix original titles, marketing, research and development, technology expense and other costs.

These expenses eat a huge chunk of the profits that are made by the streaming service. This is one of the reasons why the executives at Netflix are contemplating whether they should introduce advertisements. For example, they spent about US$ 8 billion in 2018 for content generation.

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Business Models

Craigslist Business Model: The Go to Website for Classifieds

When you mention classifieds to any American, the first thing that comes to their mind is Craigslist. Craigslist took off amidst the dot com bubble. What started in 1995 as an email distribution site, it has come a long way since then. Moreover, the Craigslist business model grew into a lucrative website that now handles around 50 billion views each day. So, you can literally say that most Americans resort to Craigslist when they need to buy or sell anything.

During the dot com bubble, Craigslist started off as a not-for-profit organization. However, when founders saw the scope of their business entity, they moved to a for profit model in 1999. In its initial days, Craigslist depended on word of mouth marketing. During the early years, digital marketing was not as strong as it is today.

Nowadays, Craigslist is synonymous to online classifieds. Furthermore, Craigslist paved way for different online classifieds around the world. Craigslist is very popular in the States and has no competition over there.

To learn how Craigslist makes money, we need to understand the entire business model of the classifieds company.

What is Craigslist in a nutshell?

Craigslist is an online classified website that is region-specific. Moreover, the website has separate web pages assigned for different categories of classifieds such as jobs, services, housing, gigs, buying and selling, forums and many more.

craigslist business model

Most of the advertisements that are put on Craigslist are free. Users can go on Craigslist and put up an ad in the respective category that adheres to the needs of their classified. However, depending on the region and the type of classified, you might need to pay to put an advertisement.

How Does the Craigslist Business Model Work?

Being the pioneers in the field of online classifieds, Craigslist works by listing different advertisements in their respective categories. Advertisements are categorized to avoid any confusion and to make sure the viewer can easily navigate all the relevant listings in one place. Also, the advertisements are listed according to their region.

Online classifieds have transformed over the ages. Classifieds can still be found in newspapers. However, there are more reasons now to switch to online classifieds instead of the ones included in newspapers. Advertisements that are uploaded on Craigslist have a longer life when compared to the classifieds in a newspaper. Most important of all, advertisements uploaded on Craigslist are usually free of cost. The little to no cost involved in uploading a classified is the biggest reason why Craigslist was so quickly adopted back in the days.

craigslist business model

The best part about Craigslist classifieds is that they are available online for a longer duration. Moreover, they can easily be searched through Google or their own built-in search engine. The region specific classifieds make it easier for the user. They no longer need to sort listings to find the ones that are in their region.

Lastly, the ads that you put on Craigslist can be easily modified. Unlike the ones that are put in newspapers, you can easily navigate to your listing and make the necessary changes.

How Does The Craigslist Business Model Make Money?

A question that bothers many users is that how does Craigslist make any money when they do not charge money for any classifieds? This question will be shortly answered as we probe deeper in their business model in the next few paragraphs.

The reason why Craigslist has been able to stay afloat over the years is because they have a solid revenue model. Their revenue model has helped them to grow as a unit and this is the reason why they have been able to sustain themselves over the years.

The idea to stop spam and the introduction of paid advertisements

A certain business practice was included by Craigslist in their business model to avoid spam listings. This inclusion was not part of the proposed revenue model in the initial days. However, the successful run of this strategy meant that it was quickly incorporated in the revenue model.

Craigslist started to charge fees for putting up ads in competitive categories. Categories such as jobs used to see a lot of spam listings added to them. To fight the spam, they started charging money to put listings in some categories. This fee varied from region to region. Moreover, this fee was only applicable to categories that saw thousands of listings added to them daily.

For example, customers were expected to pay $25 for putting job listings in San Francisco. Not only this helped combat spam, but it also helped to pay for the running cost of the website. This particular step proved to be lucrative for the founders and they introduced this scheme in other popular categories too.

Learn about Recommerce here.

You can refer to the image below to see the cost involved for putting up certain advertisements in different categories. Moreover, there is a repost cost involved in Craigslist as well. This repost cost is only included in the categories that require you to pay for a classified. Lastly, the reposting cost is lower than the posting cost.

craigslist business model

What is the net worth of Craigslist Business Model?

Craigslist is a private entity which has never relied on any investor to raise money for their corporation. Hence, we only have an estimated net worth of this online classifieds website. Craigslist had about $700 million worth of revenue with a profit margin of 80% in year 2016. Keeping the statistics of the year 2016 in mind, the estimate net worth of Craigslist is about $3 billion.

craigslist business model

It currently sits as the most successful and profitable online classifieds website. The reason for its success is the employment of the ‘network first, profit later’ strategy. The website was completely free for users in its early years. They only added a paid advertisement option when Craigslist got popular among the consumers.

Conclusion

Craigslist business model enjoys distinction as the pioneer online classifieds website. The region-specific listings with different categories for various classifieds helped to gain much needed approval from its consumers. After allowing the consumers to use their product for free, they introduced paid advertisements in popular listings. These paid advertisements are their biggest source of revenue.  

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Business Models

PayPal Business Model and the Crucial Service It Provides

In this digital age, online payments have been made easy. You can use various apps to complete different transactions. The path to online payments was paved by PayPal when it was founded in 1998. It started out as Confinity in 1998, but then has evolved since then. The PayPal business model has grown robust with passing time. PayPal allows online transfers which makes for easier and electronic transactions.

PayPal processes payments for various online vendors and users. The company charges a fee for all the transactions that are processed for respective users. It used to be extremely cumbersome to send money abroad in pre-PayPal days. Banks used to take at least a week to process money transfers. The inception of PayPal revolutionized the money transfer services. The American outfit coined the term which is now known as ‘online money transfers’.

paypal business model

PayPal and its business model has expanded to about 202 countries worldwide. Moreover, they are currently serving 197 million users from different parts of the world. The number of users are growing with every passing day as outsourcing and freelancing is on the rise.

The ever-increasing customer base has elevated PayPal to 222nd on the Fortune 500 list of 2018. The company is expected to see more growth in future years.

PayPal and Its Many Uses

PayPal started out as a simple online payment tool. However, it has evolved over the years. It is a robust financial tool that offers various monetary services to its users. Here are the services that you can use:

PayPal Business Model and Bank Cards

Save your Debit and Credit cards on PayPal so that you can go around without cards – PayPal allows the users to save the details of their cards on their PayPal account. The users can then process various payments directly through the PayPal app. You no longer need to worry about forgetting your cards at home. Your cards will be with you at all times as long as you have your smartphone with you. The app works as a digital wallet.

One Touch on PayPal

Complete transactions on website with one click – PayPal has baked a new feature in their app which is known as ‘One Touch’. The feature helps to save time for the users as they are no longer required to enter PayPal login details on every website. Your login details are saved on your account and you can check out at any website with one click.

Send and Receive Money through PayPal Business Model

Send and receive money from bank accounts and PayPal accounts – The financial service allows the users to send or receive money in over 202 countries. Furthermore, PayPal allows you to keep the money in your PayPal account in about 25 different currencies.

Payments made Easy

paypal business model

Receive payments – PayPal business model took off when they included it as a payment gateway on eBay. PayPal helped to grow ecommerce.

Introduction of Debit Card in PayPal Business Model

PayPal allows its users to apply for debit cards. These debit cards work the same way as the ones that are issued by different banks.

PayPal Credit (Bill Me Later)

You can take a credit of $99 from PayPal which is interest free if you pay it in full under six months.

PayPal Business Solutions

The app allows you to set up your business online with help of PayPal. Furthermore, you can acquire a working capital loan from them. The loan can be payable daily.

How does PayPal Business Model Make Money?

PayPal is responsible for starting a revolution in fin-tech sector. The financial company may not be a bank, but it offers about all services that you may expect from one.

paypal business model

eBay acquired PayPal in 2002 for a whopping $1.5 billion. The ecommerce giant made a crucial acquisition back in the early days of PayPal. While PayPal is no longer a subsidiary of the American ecommerce giant, but the inclusion of PayPal as a payment option helped in the promotion of PayPal.

PayPal paved the way for the likes of Paytm and other payment banks.

Sources of Revenue for PayPal Business Model

Transaction charges

PayPal has two type of user accounts – personal and business. Personal accounts are levied a transaction fee when they make a payment through PayPal.

Moreover, the business accounts are levied a fee of 2.9% plus $0.3 USD of the total amount of the transaction. This fee is reduced as the value of transaction increases. Users do not pay any withdrawal fees. However, in cases where users need to draw money through a check, they will be charged $1.5 USD.

Payments from Around the World

Users are levied charges when they receive international payments. Moreover, they need to pay conversion charges as well. These charges also increase international payment charge.

PayPal Business Model: Business Account Charges

You can register for a business account on PayPal for free. However, for extra features, you need to pay for a subscription. The Payments Pro business account costs $30 USD monthly and provides extra features such as customized check out pages.

P2P Payments

Users can establish custom links to receive payments. PayPal charges the business account rates in USA when users withdraw money from custom links.

PayPal Business Model: Interest

The users keep their money with PayPal. PayPal invests the balance in liquid investments. These investments incur interest. The company generates revenue from the money deposited by users.

Integration of Payflow in the PayPal Business Model

PayPal was initially used as a payment gateway by eBay. Times have changed and PayPal has developed their own. Users with a business account can integrate it on their websites.

paypal business model

There are two types of plans that users can subscribe to. The free plan has a page hosted by PayPal that allows the consumers to enter their payment details to complete transactions on respective websites. The premium version that comes at $25 monthly subscription allows the users to customize their check out page.

Users pay $0.1 USD to PayPal gateway charge to use this service, regardless of their plan.

Conclusion

PayPal started out as a fin-tech product in 1998 and has grown exponentially over the years. Now, it offers all the financial services that you expect from a bank. Moreover, they use various sources to generate revenue. The biggest sources of revenue are the fees that they charge and the interest they receive from deposited money.

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Business Models

Learn About The Franchise Business Model

Fast food chains grew all over the world, thanks to a phenomenon: the franchise business model. We all know and love McDonald’s. It is a common household name all round the world. McDonald’s is the largest food chain in the world. It has about 37,000 outlets in more than 115 countries. Their global presence and popularity is possible because of franchisees around the world.

Franchisees are companies that are in contract with a franchise to sell their goods while abiding to their established standards. The franchise business model increased the reach of McDonald’s and similar food chains. This newly established reach meant that their customer base increased and so did sales in the long run.

franchise business model

These franchisees use the name of McDonald’s to sell their products. However, they are not owned by McDonald’s. They can sell the products of McDonald’s as long as they maintain the standards set by the parent company.

This might sound astonishing, but around 80% of all restaurants and food chains are franchises of their respective parent companies. The success of McDonald’s and the wide adoption of this business model shows that the franchise business model is lucrative.

Let’s start with the basics and inform you about things such as franchise.

What is A Franchise in A Franchise Business Model?

To understand what a franchise is, it is necessary to understand franchisor and franchisee. We will use McDonald’s again as an example. McDonald’s is an American fast food company. However, you see their branches in different parts of the world. The owners of these branches are the franchisee, and McDonald’s is the franchisor.

Hence, a franchise is a contract agreed between a franchiser, who is the owner of the brand, and franchisee. A franchisee can be an individual or a corporate company that agrees to the set standards of the franchiser so that they can use the knowledge, products, trademarks and other proprietary things of the franchiser to sell their products in a certain region.

To make it sound simple, a franchise allows the franchisee to use the following things:

  • Use the franchisor’s brand name
  • Use the trademarks and patents of the brand
  • Operating knowledge
  • Marketing strategies of the franchisor
  • Software and other IT systems of the franchisor
  • Proprietary knowledge of the brand

Hence, this leaves us with an important question. How do they work?

How does the Franchise Business Model Work?

Like we mentioned before, franchise is an agreement between a franchisor and franchisee.

A franchisor is the brand that is looking to expand their business without making huge investments and with minimal involvement of their own.

Also, a franchisee is an individual or a corporate company that is willing to buy the rights to sell the products of a brand in a region. Moreover, the rights allow them to use proprietary material and marketing campaigns of the franchiser.

A franchisee uses the demand and goodwill of the brand to sell products of the franchiser to make profit. A franchisee is not an entrepreneur as they do not work on a new idea.

How do they operate then?

The operating model of a franchise is rather simple. The franchise agreement makes the franchisee eligible to use proprietary information and sell products under the name of the franchisor. The services are rendered under the name of the franchising brand.

There is a licensing cost that needs to be paid by the franchisee. A franchisee cannot operate without paying this fee. This fee depends on the demand and popularity of the franchiser. Furthermore, aspects such as the reach of the brand, their marketing strategies and scale of the brand are key factors that determine the licensing fee.

franchise business model

However, the licensing fee is not the only fee that needs to be paid. The franchisee is also required by the agreement to pay an ongoing royalty fee to the brand. This royalty fee is a percentage of the gross sales made by the franchisee. This percentage is decided when the franchise agreement is being penned down.

In addition, a franchisee is obligated to follow all the conditions mentioned in the franchise agreement. Moreover, they need to use the operation manuals that are provided by the brands. The franchisor provide special on-field training to make sure that the quality of service is up to the mark. This training may be provided through different means.

Lastly, the franchisee is expected to maintain the quality of service, price, product, discounts etc. that are introduced by the brand.

What Does the Brand Do in A Franchise Business Model?

The franchise business model sustains itself on the demand and popularity of the brand. A franchiser works hard enough to create demand and popularity of the brand so that it can be further franchised to others.

Franchisees help the brands to expand their business. Moreover, they also increase the revenue of the parent company. On the other hand, the franchisee uses the demand of the franchisor to make sales. It is easier to sustain a business that has a set demand and supply.

Lastly, the brands are responsible for marketing the products that are sold by franchisees.

What Makes Franchising Business Model Better than A New Business?

You may often hear that buying a franchise might be a safer investment than starting a business from scratch.

The market already exists

It is easy to sell things that have an established market and demand for them. The franchisee do not need to spend time and other resources in creating marketing strategies to sell their products. It is the brand’s job to take care of those things.

In addition to that, if there is definite demand of a service, it is easier to get sales.

Only Need to Follow an Operational Procedure

Franchisees are expected to follow standard protocols of operation that are regulated by the brand. No research and development is expected from the franchisee. They just need to follow the set rules to make profit.

There is less risk involved

Franchise of an Apple store

Franchising involves less risk because of an already established market for those products. You already have the list of things that need to be taken care of.

Conclusion

Franchising is the act of buying rights from a brand to sell their products in a certain region. It is a model that involves two parties: franchisors and franchisees.

McDonald’s is an example of the franchise business model.

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Quora Business Model: Answers for all your Questions!

Quora came into existence when former Facebook employees, Adam D’Angelo and Charlie Cheever, set out to create a question-and-answer website in 2009. Hence, the Quora business model was born with the website. Quora was initially available through its website only, but iOS and Android apps were later introduced.

The content on Quora is created and edited by the users of the website. Questions are asked by users who need help with a certain topic. The website took off because the answers usually came from people who were considered leaders in their field.

Moreover, the free access to the questions and answers made it a viable source for all users. You only needed a Quora account to start asking questions and answering them. Quora has created a community that has supported itself over the period of years. Furthermore, Quora is growing at a blazing rate over the years.

The idea behind Quora was to build a platform that would include high quality answers to questions that are asked by people around the world. As of now, the platform is doing well in delivering quality content to its users.

The question-and-answer portal has an estimated value of $8 billion. Similar to other social media networks such as Snapchat and Facebook, Quora uses advertisements to generate revenue. Targeted ads are shown to users so that they are helpful for users and the company paying for the ads.

The Idea behind Quora

The age old question associated with many successful ventures is: how do they make money? The answer to this question is rather simple. You need to create a solution for a problem that exists. It could be a problem that has not been addressed yet. It is all about seizing the opportunity.

Quora saw the need for a portal that would allow users to ask and answer questions. Hence, the idea was brought to life. The content on Quora is entirely curated by its users. Quora wants to focus on creating a knowledge base that would be useful for all kinds of people. The company focuses on providing features that would sustain the quality of content and provide better user experience.

Some of the features that have been introduced in the past include merged questions, wikidata references, translations of questions and answers etc. These features were added with the sole aim to drive up user engagement.

Here are some interesting facts about the company that is based in Mountain View, California: Quora sees around 300 million active users on a monthly basis. Also, the Q&A portal hosts about 400,000 topics online. Around 40% of the total traffic on Quora comes from mobile users. Lastly, as per March 2017, 13,304,529 questions were asked on Quora.

Quora Business Model in Early Days

Unlike most startup ventures, Quora was making no money in its initial days. This is something common with most startups. The company sustained itself and kept it afloat by using the capital it had raised through four rounds of funding.

quora business model
Funding received by Quora

Even when the company was not generating revenue, the valuation kept increasing. It was valued at $1.8 billion after they successfully secured the series D funding worth $85 million.

How Does Quora Business Model Make Money?

In April 2016, Quora started testing advertisements on selected questions. The motivation was to see how the users would react to the introduction of advertisements and how it would affect the user experience. After a successful run of tests, advertisements were embedded in the UI of the app and website.

quora business model
Advertisements on Quora

Moreover, the number of ads on Quora have grown in recent years. The ads are not intrusive, but it is clear that the number of ads on the Q&A website have certainly grown.

Unlike other companies, Quora wants to use targeted advertising to provide greater value to its user base and customers. Quora has found ways to integrate ads into its ecosystem that they often do not feel like ads anymore.

Too many ads are known to affect user experience. Hence, it is key to integrate ads in a manner that is easy on the eyes of the users. Most users are content with the use of advertisements. Users only hate them when it feels like the ads are being shove down the throat. So, it is necessary to find the right balance. Quora has a done a great job in incorporating ads in its business model.

Ads can be found on various pages of the website. You can find them on the home page. Also, you can find ads in the forums. The ads are strategically placed around the whole social media network. Different ad spaces on the website carry a different rent price as well.

What Are the Chances of Sponsored Posts Plaguing Growth of Quora Business Model?

If we think about this closely, this is a rather valid questions. It is common to see different sponsored posts as you scroll through your feed. These sponsored posts are shown to users on the basis of their interests and activities.

quora business model
Sponsored post on Quora

While these sponsored posts are targeted to the users for maximum benefit, there are good chances that these sponsored posts may not contain answers that a user might be looking for. This could significantly affect the effectiveness of Quora as a credible questions-and-answers social networking platform.

The team at Quora has made it clear on several occasions that they are motivated to provide the best possible user experience to the Quora community. They want to stay true to their initial idea of a free-to-use Q&A portal that could help millions of people around the world.

Hence, any changes to their current revenue model would challenge the mission of the company. Quora does not want to put out sponsored content for its users. Instead, they want to promote content that is helpful for the users.

Conclusion

Quora is a Q&A portal that was created by Adam D’Angelo and Charles Cheever in 2009. Moreover, this portal took off for its community and high quality answers from experienced individuals.

The company saw massive growth rates over the year. Also, it still sits with an estimated value of $8 billion. They make their revenue through targeted advertisements. Furthermore, Quora focuses more on providing user satisfaction over advertisement-based revenue model.

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Business Models

Instagram Business Model: The Best in the Market

Instagram started out as a free social media platform back in 2010. Kevin Systrom and Mike Krieger worked together to put out a social media app that focused on sharing images and videos among your network. Hence, Instagram business model and the app was created. Instagram took off because of its unique operating model and millions of users flocked to the image sharing app.

As of now, Instagram is owned by Facebook and is one of the largest social media platform that has a strong celebrity and brand presence. Moreover, unlike other acquisitions of Facebook, Instagram is developed and grown independent of other apps. The developers of Instagram only work on its own app.

instagram business model

The idea of Instagram was a simple and easy to capture pictures and share it with your friends and family. Over the course of years, it has stayed true to its initial idea. Furthermore, they have introduced new features to bring more value to the users of the app.

Instagram’s revenue model is similar to Facebook. The advertisement model from Facebook is also applied on Instagram. This is the reason why you may see similar ads on both apps. If your Instagram account is linked with Facebook, you can also receive suggestions for new accounts in addition to targeted ads.

The Instagram Business Model

Access to good cameras on smartphones has increased the amount of pictures that are taken every day and shared on social media. The user friendly interface of Instagram has made it a popular choice for users who like to tell stories through their pictures and videos. Moreover, the ability to edit pictures in the app is convenient too.

The idea of Instagram is to make sharing pictures easy so that more people are willing to do it. This ease of use attracts more users. In return, Instagram makes more money when the number of users increase. We will talk more about the revenue generation later.

instagram business model

Furthermore, the rate of image sharing has increased exponentially. Different brands and marketing strategists understand the importance of this paradigm shift. Hence, social media platforms like Instagram has rose in popularity. Due to a host of features and great UI experience, Instagram enjoys the spot of being the best image sharing social network.

Over the course of years, the business model of Instagram has stayed the same. However, they have changed algorithms that are responsible for the monetization of the app and users’ activity. Like other social media platforms such as Snapchat, WhatsApp and Facebook etc., you need to first sign up for an account. Making an account on Instagram is easy and free.

Features

The Instagram account allows you to upload pictures and videos, upload ‘Stories’ – pictures and videos that disappear after 24 hours, edit and add filters to your content, follow other accounts, and have a live session with your followers.

How does the Instagram Business Model make money?

instagram business model

In its early stages, Instagram was not making money. In late 2013, they introduced advertisements to their business model to monetize the activities of users. This revenue model was further revamped to show targeted ads to their users.

The company used your search history and different activities on thee app to show ads that would interest you. Aspects such as the accounts you follow, the accounts that your followers’ follow, and the posts that you like in the Explore section etc. help the algorithm to decide the best ad to show to the user.

Targeted ads are more likely to turn prospective customers into real customers. The return on investment is greater and targeted ads bring in more money for Instagram. Most of the new features had advertisements built into them.

These targeted ads were shown to users through sponsored posts in between their usual feed. They were first introduced in November 2013 to users in US. It was later introduced to UK users in September 2014 before it was finally baked into the stable build of the app.

Feature updates

instagram business model

Instagram introduced advertisements on October 3, 2013. Then 2 months later, Instagram added Direct, a feature that allowed its users to send pictures to only selected users. You could choose the people who would receive that picture.

A major feature was added on August 2, 2016, when Instagram introduced Stories, a feature that was blatantly copied off Snapchat. Just like Snapchat, you could post pictures and videos that disappeared after 24 hours.

Furthermore, on November 21, 2016, Instagram added a live feature that allowed the users to communicate with their followers on a live video chat for up to an hour.

Next year, Instagram allowed a carousel to its post that made it possible to add up to 10 photos or videos in one post. This made it easier for businesses to put more pictures of their products.

In 2018 and 2019, Instagram launched two business oriented features. Businesses could now tag their products in their posts. This made it easier for users to find details about products they liked.  Moreover, the checkout feature allowed the users to buy products directly on Instagram. Hence, the users were now no longer redirected to third party websites to complete sales.

Instagram Business Model Makes Most Money from Sponsored Posts

Yes, you read that right. Just like Facebook, a huge chunk of the entire revenue of Instagram is generated from sponsored posts. These posts are hidden around the feed with a call to action button right next to them.

Advertisements on a carousel

Moreover, the carousel lets the brands use pictures to tell exciting stories about products. Brands have been successfully using this feature to promote their products.

Stories

Also, there are advertisements in between the stories of different users. These are targeted ads that make money for the social media outlet.

Ads from Facebook on Instagram

Furthermore, brands can share the same ads on Facebook and Instagram. This is possible even if the advertising company does not have an account on Instagram.

Conclusion

Instagram enjoys the distinction of being the most popular image sharing social media platform. Furthermore, the number of users have been growing every year, thanks to the introduction of interesting features.

Instagram makes its money through targeted ads that show up as sponsored posts and in between stories.

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Business Models

Learn How Giphy Works: GIFs are Only a Search Away

It is hard to believe how GIFs have become so famous. They are used by millennials everywhere: in their WhatsApp chats, Facebook posts, Snapchat and Instagram stories etc. You can search GIFs online. However, looking for GIFs on Google can be a long process. Hence, a dedicated search engine for GIFs was born, Giphy. Giphy works as a search engine so that you can find the GIFs you have been looking for. You could call it the Google of the GIF world.

giphy works

Giphy currently hosts more than 150 million active users. Moreover, venture capitalists value the GIF search engine at $600 million. Even with these great stats, you could say they Giphy is still in the growing stages. As of now, it does not generate any revenue. The company has no monetizing features as of yet.

The business model of Giphy is different from other companies. It differs from its competitors. A different business model means that Giphy can use various new revenue generation ideas with their search engine.

Why are GIFs so popular?

Various studies have shown that humans are more intrigued by visuals. You can tell a more convincing story through visuals. Videos can be a good way to tell a vivid tale. However, videos can be long and that can put off many people from watching them. Moreover, it requires a lot of effort to make quality video content that is appealing. However, you may not always have the resources to do that.

giphy works

Adding texts to a visual is another good option. However, how cool would it be if you could have short moving pictures and texts to tell your story? This is where GIFs come in. GIFs are funny clips or sequence of images that deliver a specific emotion or story. They are compiled together with short, looped animations.

How Does Giphy Works?

GIFs are more common nowadays because of their integrations in different social media platforms such as Reddit, WhatsApp, Messenger, Instagram etc. Moreover, they are also used on Tumblr for reactions and replies on threads.

Giphy was created to be a search engine that could be used to look up for different GIFs. It was started out in 2013 when founders, Alex Chung and Jace Cooke, gathered fifteen thousand GIFs for their search engine. They started by providing a humble figure of 15,000 in the beginning days. Now, Giphy works by providing more than 1 billion GIFs to over 100 million users around the world.

According to statistics, these 100 million users have collectively watched these GIFs for 2 million hours. The stats are rather astonishing. Moreover, these stats show the popularity of GIFs in today’s world.

Facebook Integration and the Impact

The year 2016 proved to be a crucial year for Giphy and the whole GIFs community. Facebook integrated the use of GIFs in its social media platform. Now, users could use GIFs to reply to comments. They could also use them in chats on Messengers. Facebook is the biggest social media network and it has a huge user base.

giphy works

This integration brought more active users to Giphy and the GIF community grew as a consequence. Moreover, the popularity of GIFs increased when the meme community adopted it as a means of transmission.

A lot of the traffic on Giphy is of people who are looking for different memes. In a basic sense, Giphy seems like a search engine that only lets you search GIFs that you could share. However, this has changed with the course of time and is no longer true. Giphy works by providing more than just GIFs.

The website has evolved to provide more features such as video to GIF converter, GIF keyboard and other enterprise tools for media companies. These enterprise tools can be used to turn content into GIFs. Due to the popularity of GIFs, many media outlets have jumped on this bandwagon.

Giphy works on a different operating model

Giphy takes pride in being different than other search engines that are available to use. It allows us to open the GIF directly on the Giphy website. Unlike other search engines, it does not redirect to any third party site.

GIFs found on Giphy can be shared, downloaded, or embedded from the interface provided by Giphy itself. You could say that Giphy is your one stop for all GIF needs.

Does the Way Giphy Works Make Money For It?

giphy works

It has been mentioned above that Giphy does not generate revenue from its enterprise. This is true. The reason is that Giphy is a search engine. It does not own any of the GIFs it queries from the internet. Moreover, another reason for no revenue is that they have not monetized their services as of yet.

Imgur, a competitor of Giphy, makes money by promoted posts. However, Giphy does not plan to follow in the tracks of its rival, Imgur. Another reason why Giphy does not follow Imgur to make revenue is that Imgur and Giphy have different operating models.

Imgur is an image hosting website that also hosts GIFs. Giphy on the other hand is just a search engine. Hence, it cannot make money by licensing or selling the GIFs.

However, they can make money by following what Google does. They can have sponsored results in their search queries to earn money. Sponsored results could be sold to third parties to make money.

Giphy is popular among different IM applications and is already integrated in the likes of WhatsApp and Messenger. Hence, their current associations will make it easier to find clients as well.

Furthermore, Giphy has collaborated with differen brands and artists in the past to bring more attention to their company and the GIF community. These partnerships could be fruitful for them if they decided to bring advertisements in their search results.

Conclusion

Giphy was founded in 2013 as a GIF search engine. It started off with 15,000 GIFs. The number of GIFs has grown over 1 billion since its inception.

Furthermore, they are famous among users because they allow them to reply and show different reactions.

Also, Giphy does not make money from the services it provides.  

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Business Models

Payments Bank and The Convenience They Bring

The banking sector is expanding in India. Payments Bank is a new banking concept that is being introduced by Reserve Bank of India. India plans on digitizing different sectors. This is one of their baby steps towards a digital India.

The idea of payments bank is to provide banking services in regions where banks are not available. These services are provided by non-banking sectors that work in coordination with partner banks to fulfill the services. This particular idea allows access of financial services in areas where conventional banks are hard to operate.

Payments Bank: What are they?

Payments bank are a new addition to current banks. They operate at a smaller scale than a bank and eliminate credit risk. They have been brought to life by the Reserve Bank of India. These banks have all the workings of a conventional bank, except for they cannot hand out loans or issue credit cards to its customers.

Payments bank do not have physical branches, they depend on virtual presence (through mobile app and website).

How do these banks function?

Payments bank is not a commercial bank. Instead, they are registered public companies established under Companies Act, 2013. Moreover, a license needs to be received under Section 22 of the Banking Regulation Act, 1949. Lastly, payments bank need a special permit from Reserve Bank of India so that they can start operations.

These banks can provide these services to its customers:

  • Payments bank are allowed to accept deposits up to 1 lakh Indian Rupees. The banks pay interest on the money that is deposited by consumers
  • They can provide remittance services
  • Make mobile payments
  • Transfer funds to different accounts and banks
  • ATM and debit cards can be issued to its customers
  • Forex cards can also be issued to travelling customers
  • Net-banking services
  • They can also sell insurance and mutual funds to their customers

However, they have some limitations as well.

  • They cannot issue loans to their customers
  • They cannot issue credit cards

How did the idea of payments bank come about?

payments bank

The government of India wants to digitize the workings of the whole country. Digital banking is the first step towards a digital India. Digital banks help to reach areas which do not have the services of a conventional bank. The payments bank defeat the need of a physical branch and provide almost all the services of a conventional bank.

The idea flourished because it allowed to render financial services to low-income areas, laborers, small-scale businesses and other individuals. The physical limit of a usual bank is overcome with a payments bank.

About 41 private companies applied to obtain a license to operate a payments bank. The Reserve Bank of India gave approved only 11 permits. The reason for such a low approval rate is because the Reserve Bank of India was looking for companies that had a decent network and had great reach. Hence, the Reserve Bank of India handed out the licenses to mobile telecommunication companies, supermarkets, and prepaid eWallets etc.

This was done so that the individuals who do not have access to financial services can use payment banks. Before the license could be approved by RBI, these conditions had to be met by the private companies. These companies had to:

  • Invest at least more than 100 crore Indian Rupees in the bank
  • At least 25% of the branches must be in rural areas where there are no conventional bank branches
  • The stake of the promoter must be at least 40% during the first 5 years

How does the business model make money for payments bank?

payments bank

Payments bank cannot lend money to companies and customers. Hence, they cannot make money by lending money either. However, there are different channels that help to generate revenue.

Arbitrage of Interest

Payments bank usually give an interest rate lower than conventional government and private banks. The money deposited to payments bank is then invested to get better interest rates from other financial services. This difference in interest rates help payments bank to make profit over the money that is deposited in the escrow accounts of partner banks.

For example, a payments bank may offer 8% interest on the deposited amount to its customers. A conventional bank may give an interest rate of 10%. The 2% difference in interest rate is the profit for the payment banks.

Fees on Transactions

Different payments bank charge different fees on processing transactions. This fees is usually a percentage of the total withdrawal amount. The customers bear the fees when they transact money. Moreover, other similar services have different charges associated to them as well.

Selling products of other companies

While they cannot directly lend money to its consumers, they can sell loan offers of other banks instead. Moreover, they sell other things such as insurance, investment plan, and mutual funds etc. to make money.

payments bank

Payment banks get commission for selling these products.

More commissions for payment banks

They get commissions from transactions that are made at different point of sale booths and resultant merchant discount rate (MDR).

Are Payments Bank different than eWallets?

In simpler words, yes. Payment banks are nothing like eWallets. They are the whole deal and offer many banking services. Most important of all, they provide you interest on the money that you have deposited.

eWallets only help you to ease the process of completing transactions. They help you to go card-less and cashless. The money is deposited into escrow accounts until it is used by the customer.

An Example of Payment Bank

Paytm is one of the many payment banks that are operating in India currently. Paytm has an eWallet for its customers as well.

payments bank

Conclusion

Payments Bank are the way forward for a digital India. India is a big country and the physical limitations stop commercial banks to operate in far way lands. Reserve Bank of India handed out permits to companies with great networks and reach to set up payments bank in the country.

Moreover, they provide all the services of a commercial bank except for loans and issuance of credit cards. Furthermore, they generate revenue by arbitrage of interest, commissions and charges on different transactions.

Payment banks and eWallets are different. Paytm is an example of a payment banks in India.

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Business Models

Tinder Business Model: It’s a Match-Made in Heaven!

Tinder is one of the most famous dating apps available on the market. Download the app, swipe, get matches, and go on a date. The dating app has streamlined the process and has made it easier to date new people. Tinder business model has been the talk of the town. The business model has been very effective and the company has grown in the past few years.

Furthermore, Tinder has added new features over the course of its existence. Some of these features are paid. These paid features help to generate revenue for the company.

The Tinder Business Model

The dating app was launched in 2012 by the American company, InterActivCorp (IAC). IAC owns other dating websites as well. The likes of OkCupid, Meetic, PlentyOfFish, and Match etc. are owned by IAC. Moreover, they also own Vimeo, Investopedia, Ask.com, and dictionary.com as well. They currently control over 150 brands associated to internet and media.

The idea of Tinder was to ease the process of creating friendships and relationships with new people. Tinder is popular among the populace because of its unique selling point that is it connects strangers together. Instead of connecting you to people you already know, the app tries you to connect to new people.

This particular idea was fresh to the market at that time. This is the reason why so many new users flocked to use this dating app at that time. The unique business idea of Tinder helped it to win the ‘Best New Startup of 2013’ Crunchie Award, given by TechCrunch.

Learn How Tinder Works

Like other social media platforms, Tinder uses location to send a host of profiles to a user. The user then goes through the profiles and swipes on them. If two users swipe right on each other, it is a match. These two users can then chat with each other.

There are many different aspects that work together to give good user experience to its consumers. Here are some aspects:

Profiles of Users

tinder business model

Anyone over the legal age of 18 can make a profile on Tinder. You can either choose to sign up using your Facebook Account or your mobile number. If you use your Facebook account, Tinder uses your uploaded pictures, basic information, interests, educational and work details to make a profile. In short, Tinder sets up your profile.

It chooses the best pictures from your Facebook account to add it to your profile. These pictures are selected by being ran through an algorithm that decides which pictures would get you the most matches.

If you use your mobile number to sign up, then you need to add all the details to your profile yourself. You can always edit these details whenever you want.

Profiles are one of the key elements of the business model of Tinder.

Location-Based Results

tinder business models

When you create a profile, you are asked to determine a radius. This determines the profiles that are shown to you. Profiles that are within your radius are shown to you.

Swipe: Another Important Aspect of Tinder Business Model

The whole idea of Tinder is based on swipes. If you like a profile, you swipe right on them. If you do not like a profile, you swipe left on them. When two users have swiped right on each other, they are matched by Tinder. This introduces the next feature which is match.

Tinder was the first application to use swipe gestures in this way.

Match

tinder business models

Like mentioned above, two users can finally communicate with each other if they have both liked each other. This allows the users to use the chat interface of Tinder to get to know each other better. You need to get a match before you can start chatting with another Tinder profile.

Super Like: New Addition to Tinder Business Model

Super like was introduced to the app on October 1, 2015. Before first of October of 2015, you could either swipe right or left. Super like was introduced to increase swipe gestures. The idea of a super like is to show emphasis that a profile is greatly interested in you.

Courtesy: Business Insider

Users can either click on the blue star or swipe up on a profile to use super like. All free users get one super like for a day. Super likes do not roll over. When you super like a profile, your profile glows with a blue outline to the other user that you super liked. The blue glow shows that you super liked the other profile.

According to Tinder, your chances of getting matched with a profile increases by three times when you super like them. The effectiveness of a super like is unknown as of yet. Some users have reported that it helps while some users think it does not make much difference.

If you run out of super likes, you can buy them as well.

Tinder Business Model and Revenue

While Tinder started out as a free dating app, the introduction of Super Like was their first step towards built-in micro transactions in the app.

Furthermore, in 2015, Tinder switched to a freemium model. They started to charge fees for location changes and other features. All of the extra features were then later reintroduced as Tinder Plus. It was a paid subscription that brought extra features to its users.

Subscribers of Tinder Plus get access to unlimited swipes, passport (the ability to change your location without moving), 5 super likes, rewind (undo your last swipe), and 1 boost every month.

The subscription fee of Tinder Plus depends on the age and region of the user.

Tinder Business Model: Tinder Gold

Tinder Gold has all the features of Tinder Plus. It has one more extra feature that sets it apart from Tinder Plus. It has a feature known as ‘Likes You’. This tab shows the profiles that you have swiped right on you. Except for Tinder Gold, you cannot tell which profile has swiped on your profile.

tinder business model

This feature allows you to swipe right on the profile that has already liked your profile.

Tinder Gold subscription is more expensive than Tinder Plus.

Sponsored Profiles in Tinder Business Model

Just like Snapchat and its advertisements, Tinder has sponsored profiles which are literally ads between stack of profiles. These ads generate revenue.

Conclusion

Tinder has a freemium model. You can pay to get extra features. Tinder generates revenue from the subscriptions from its users. Moreover, the ads also help to generate revenue.

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Business Models

Pinterest Business Model: Pin Your Favorite Images!

Pinterest is a famous social media network that is making the rounds. It is currently valued at $11 billion and this has been possible because of its popularity and the Pinterest business model.

Unlike other social media networks, it does not primarily connect two individuals together. It is all about images. You can ‘pin’ your favorite image. This allows you to create a visual bookmark that you can use to visit the source website that hosts that particular image.  

Pinterest does not target a certain demographic. It caters to all kinds of people who want to keep a record of images or just like collecting images for fun. Designers and other creative artists gravitate more towards this social networking website. Nonetheless, this website is open to all kinds of users to make the best use of it.

You can tell that Pinterest has done a lot of strategic planning when it comes to their business model. They work on the network effect to increase the traffic to their website. Their revenue model is based on advertisements. The majority of the revenue comes from the ads.  

Pinterest started in 2010 and has grown ever since then. Over the years, they have introduced new features. One such feature was the ‘promoted pins’ that was added in 2013. It was in the beta stage at that time.

Pinterest: What is it?

You would not believe it, but Pinterest was the fastest growing social networking platform at one time. Moreover, it was also highly valued by various investors around the world. The idea of Pinterest is to provide a platform to its users so that they can ‘pin’ their favorite images and share them with other people online.

The images and content are shared in the form of pins. These pins act as bookmarks that redirect you to their source. You can share your pins with likeminded individuals on Pinterest.

pinterest business model

Pinterest does not limit any certain type of users. It is open to anyone who can make good use of their platform. The ability to save your favorite pictures or designs in one place is very convenient for most people.

These aspects contribute to the rising popularity of Pinterest. It currently has over 100 million active users who pin and share images related to architectures, buildings, clothing lines, products, tutorials, scenic views, and fan art etc. You can find all types of images on Pinterest.

How to Use Pinterest?

Who better to teach the purpose of this website, then Pinterest itself? Pinterest has added a video on YouTube that is all about what it offers to its users. Have a look:

Pinterest

The Pinterest Business Model

Pinterest started off by creating a social web catalog for its users. This also acted as the motivation for the business model of the social media platform. They started off with this business model in 2010 and have stuck with it ever since.

pinterest business model
This is what Pinterest looked like back in 2010

The business model took off and the website started to be recognized as a social media platform because of the public pins and pinboards introduced by the company. The public pins and pinboards could be re-pinned according to the likes of the consumers.

However, the current business model has since evolved and now includes a host of different elements such as e-commerce, catalogs, content, and social networking. Just like Snapchat, Pinterest generates revenue on the basis of advertisements.

Pinterest makes money when different users visit its website. Their revenue model can be further refined to make profits. However, for now, it seems like they want to take things slow and not rush into things.

Important Elements of the Pinterest Business Model

The Pins

The entire idea of Pinterest as a social media platform revolves around pins. The social media platform is built as a catalog. You ‘pin’ images to save and share them. If you have an account of Pinterest, you can use the browser extension to pin things you like on the web. Moreover, you could also pin them by uploading those images on your Pinterest account.

Pinboards

Pinterest users can gather similar pins together and post them on a pinboard. A pinboard acts as a collection of pictures that have the same aspects. For example, a user who loves architectural marvel will include images of architectural masterpieces under one pinboard and call it ‘Architectural Marvels’.

The best thing about pinboards is that you can have private and public pinboards. If you wish to gather images for a personal project, you can create a private pinboard for your own collection. Pinboards help to organize a collection of images.

Pins and pinboards that are public can be re-pinned by other Pinterest users. Public pins are more likely to be retained by search engines than anything else shared or posted on Twitter or Facebook.

You can buy pins!

Pinterest allows you to buy different things from pins without redirecting to the seller’s website. Pinterest follows the Facebook approach and has an integrated buy button that makes the process seamless.

The best thing about this feature is that Pinterest does not charge the user or the seller to use this feature. This feature was built into the social media platform to elevate the user experience of end users.

However, you can only use this feature if the merchant’s use any of the three: BigCommerce, Salesforce Commerce Cloud or Shopify.

pinterest business model

Promoted Pins Make Money for Pinterest Business Model

Till date, this is the only major moneymaking feature of Pinterest. Different sponsors and advertisers put up paid advertisements as pins. These promoted pins sit among the usual pins, but can be easily identified.

Promoted pins are target ads that depend on the search habit of the Pinterest user.  

pinterest business model

How does the Pinterest Business Model Make Money?

It should not shock you that Pinterest was not generating any revenue up until 2013 when they introduced promoted pins. These promoted pins were used to put up advertisements on Pinterest. These advertisements helped to generate revenue for this social media company.

Conclusion

Pinterest is built around pins and pinboards. You can pin different images on the website for your own personal collection or share it with other users. The company makes money through targeted ads that are portrayed as promoted pins.