04. Business Models

Business Models

A business model describes how a business creates, delivers, and captures value. You can create a business model canvas, which captures a number of different components that will impact your ability to create and bring a product to market, including things you need to build the product and their associated costs, the value prop for your product, and getting your product to your customers and the associated revenue streams.

A business model does which of the following:

Describes how value is created

Describes how value is delivered

Describes how value is captured

Models out how the business will perform

SOLUTION:

• Describes how value is created
• Describes how value is delivered
• Describes how value is captured

Business Model Canvas Walkthrough

The business model canvas includes the following components:

• Key Partners - help build or deliver the product to users
• Key Activities - what you need to do to build and deliver the product
• Key Resources - things that you need to build the product
• Cost Structure - cost of building the product
• Value prop - why people would want your product
• Customer Relationships - how you build relationships
• Channel - how you get the product to customers
• Customer Segments - different types of customers
• Revenue Streams - how you get money from customers

QUESTION:

Netflix Business Model Canvas

Describe Netflix’s Value Prop

ANSWER:

Thanks for your response. Netflix’s value prop includes things like stream content anywhere, no ads, and the ability to watch content offline.

QUIZ QUESTION::

Match items for Netflix into the correct components

ANSWER CHOICES:

Key Resources

Cost Structure

Key Partners

Key Partners

Key Activities

Key Activities

Key Resources

Cost Structure

Item	Component
ISPs
Content Creation
Licensing agreements
Recommendation Algo
Software development
Movie Studios
Payroll
Content Procurement

SOLUTION:

Item	Component
Licensing agreements	Key Resources
Recommendation Algo	Key Resources
Content Creation	Cost Structure
Payroll	Cost Structure
ISPs	Key Partners
Movie Studios	Key Partners
ISPs	Key Partners
Movie Studios	Key Partners
Software development	Key Activities
Content Procurement	Key Activities
Software development	Key Activities
Content Procurement	Key Activities
Licensing agreements	Key Resources
Recommendation Algo	Key Resources
Content Creation	Cost Structure
Payroll	Cost Structure

QUIZ QUESTION::

Match items for Netflix into the correct components

ANSWER CHOICES:

Revenue Stream

Customer Segment

Channels

Customer Segment

Customer Segment

Channels

Customer Relationships

Item	Component
Rating system
App store
Adults
Subscriptions
Children
Teenagers
Built-in TV app

SOLUTION:

Item	Component
Subscriptions	Revenue Stream
Adults	Customer Segment
Children	Customer Segment
Teenagers	Customer Segment
App store	Channels
Built-in TV app	Channels
Adults	Customer Segment
Children	Customer Segment
Teenagers	Customer Segment
Adults	Customer Segment
Children	Customer Segment
Teenagers	Customer Segment
App store	Channels
Built-in TV app	Channels
Rating system	Customer Relationships

There’s lots of different revenue models, but some of the most common are:

• Ads
• Purchase / Licensing
• Pay per use
• Subscription
• Freemium

True or false: Products must have a single revenue model

True

False

SOLUTION:

False

QUIZ QUESTION::

Match each revenue source with its model

ANSWER CHOICES:

Ads

Licensing

Freemium

Subscription

Pay per use

Revenue source	Revenue model
Revenue from third parties for showing targeted advertisements
Revenue from a single moment when a user purchases the right to use the product
Revenue whenever the user uses the product based on how much of the product was used
Revenue from a user on a continuous basis in exchange for ongoing access to the product
Access to limited parts of the product at no cost, with other parts of the product requiring revenue

SOLUTION:

Revenue source	Revenue model
Revenue from third parties for showing targeted advertisements	Ads
Revenue from a single moment when a user purchases the right to use the product	Licensing
Access to limited parts of the product at no cost, with other parts of the product requiring revenue	Freemium
Revenue from a user on a continuous basis in exchange for ongoing access to the product	Subscription
Revenue whenever the user uses the product based on how much of the product was used	Pay per use

The business model canvas is a powerful tool to understand all the components that go into creating a product, understanding its value, and how to get it to your customers.

There are also a variety of different revenue models that you can consider when creating a product. It’s important to understand how users perceive the value of your product and how they interact with your product when creating your revenue model.

Further readings

• Business Model Canvas Examples

• 10 Most Popular Startup Revenue Models