There is always a lot of buzz around innovative businesses on the web. Various investors and startups prefer different variations of models:
- Incubators such as Rocket Internet prefer businesses where the customer need has been validated in the US and where they shift the geographic focus to Europe
- Then there are business models which worked in an offline world and get shifted to the web as more and more consumers, time and ecomomic activity is on the web. Examples here are mobile payments, ecommerce or advertisements
- Lastly there are businesses and innovations which are true, radical innovations such as a search engine or Bittorrent
A business in its entirety is more complex, though, and there is good literature on how to assess and decompose business models. Alexander Osterwalder’s Business Modell Generation for example is in one of the best recent books on this topic.
In a nutshell the book argues, that you can look at a business as a combination of the following components:
Approaches to creating a good value proposition
The difficult part is often the value proposition. From my experience, consumer businesses usually cater to at least one but usually a combination of the following use cases:
- After Sales & Loyalty
- Sharing / Peer-to-Peer
Discovery helps to find something. This is usually achieved in two ways:
- Algorithmic search, where a ranking algorithm determines the relevancy of an object to the search. Google, Bing or Wolfram Alpha are good examples of business built on this
- Curated search, here the content is hand selected by individuals. Early Yahoo was good example of curated search until the growth of web content outgrew the ability of Yahoo to curate. Other examples would be reddit or StumbleUpon
Transaction means to exchange goods or services e.g. through e-Commerce stores or market places. Also I would put payment providers into this category. Examples are Amazon, Ebay or Paypal for the respective sub-segments
After Sales & Loyalty
Here the focus is to recommend further products, provide re-targeting ads for aborted shopping sessions and generally customer care.
Written content is provided in the form of news sites and blogs. But are also use cases for (streaming) media, such as Spotify or Netflix and crowd sourcing content platforms such as Soundcloud or Youtube
Sharing / P2P
These are the traditional p2p file sharing networks started by Napster in the late 90s or Bittorrent. In my eyes more modern forms of this are social networks such as Facebook or Pinterest where you share status updates or other interesting things found on the web.
Interestingly, when you look at most businesses they combine several of the use cases.
A P2P / sharing use case for example gets more interesting when you also have content and methods for discovery. Another example would be content which can be helped to provide information around products like the reviews of products on Amazon.
Most great startups that we admire really nailed one of these use cases and combine it with several other ones where they either partner with the best solution out there or achieve similar functionality to other sites without being extremely superior. The reason for this is that you simply can’t do everything in an excellent way. My favorite example for a failed attempt to do everything is when Apple tried to introduce Ping as a music social network as opposed to Spotify which clearly differentiated on superior content and chose to partner with the leading social network Facebook.