Nowadays there’s many more ways to make money on the internet than a simple webshop. As discussed in class, you can adopt a subscription model, an advertising model, a utility model (the cloud, like Dropbox), or one of many other options. Often the combination of several models is what leads to the biggest successes.
Since a decade, the ‘freemium’ model is the dominant business model among internet start-ups and app developers (Kumar, 2014). The term is mostly used to describe the combination of advertising and subscription models. Think of Spotify, which is free as long as you listen to the ads, or is without adds as long as you pay. LinkedIn is another company that offers additional benefits when the customer pays (a ‘premium’ membership). In the world of game applications, a successful app is not where one hás to pay, but where one cán pay. This refers to the in-app purchases, which is responsible for over 65% of iOs and Android appstores’ revenue (Valadares, 2011)!
So why are not all games that offer this model successful? When looking at my own mobile gaming behaviour, most apps are deleted within one month. I get tired of them or I have to pay for the next level and for these kind of reasons I just stop playing. Accept for one app that has been on my phone for over two years now: Candy Crush Saga. I would not usually describe myself as an addict, so that raised questions about my own behaviour: why is Candy Crush Saga so addictive – especially on the long term?
Many psychologists name several factors that contribute to Candy Crush’s success. First, people are responsive to the ‘sweetness’ of the game. Second, the fact that a user can only play for about half an hour, makes sure the user is still fond of the game on the long term (Dockterman, 2013).
But the success is not just about psychological factors. The integration with Facebook is probably the key factor of the game. First of all, this set up provides a cross-platform usage of the application, as this account can be opened on phone, tablet and computer. Another advantage is the communication to other Facebook friends, using Facebook’s network effects. The technology in the app shows users at what level their friends are. As competitive as people are, this makes them even want to play more. As it turns out, it might be a part psychological factor after all.
Another smart move of King, yet other developers do this too, is to increase switching costs for users. The in-app purchases can only be done with ‘golden bars’, Candy Crush’s currency. When users still have golden bars on their account, the human urge (yet another psychological flavour to this) is to continue playing, and so a virtual circle begins.
Many other factors can be described about this success within the mobile gaming industry, but I decided to stick to these few to stress my point. The IT departments are important, but not solely responsible for making a good social game. Users are people, and marketing and psychology need to be integrated into the information strategy to make sure the game is successful on the long term.
Dockterman, E. (2013) ‘Candy Crush Saga: The science behind our addiction’. Accessed at 27 September 2015 through http://business.time.com/2013/11/15/candy-crush-saga-the-science-behind-our-addiction/
Kumar, V. (2014) ‘Making Freemium Work’, Harvard Business Review, Mei 2014: 27-29
Valadares, J. (2011) ‘Mobile Freemium Games: Women Thrifty, Men Binge’. Accessed at 27 September 2015 through http://www.flurry.com/bid/72755/Mobile-Freemium-Games-Women-Thrifty-Men-Binge#.VPWucvmG-So
The Internet strongly disrupted both the music and education industries, giving rise to new companies with innovative business models, and forcing old companies to rethink their own in order to survive their new competitive landscape. In this article we discuss and compare the business models of Spotify and Coursera with the goal of showing the effects of IT in shaping global business.
Spotify’s Business Model
In 2006, the music-streaming platform Spotify was launched in response to the changing landscape produced by information technologies. Today Spotify is one of the leading music streaming platforms and counts with over 75 million active users1.
Spotify serves two different customer segments; on one-hand music fans, and on the other advertisers2. Spotify’s value proposition to music fans is “get all the music you want, whenever you want it”2. To fulfill its promise, Spotify requires massive Data Centers and Cloud Services3. Data is another key resource for Spotify, since it uses all data collected on user listening habits to develop “taste profiles” to deliver the “right music listening experience”4.
Spotify builds relationships with key partners in order to provide its services. First, with music labels, which allow access to their catalogues; royalty payments to these partners are one of Spotify’s main cost drivers. Second, with brands such as Facebook, which serve as channels to reach their customers 2.
Spotify uses a freemium revenue model1. Users that opt for the free version are financed by brands, which in exchange are allowed to advertise to users using several ad-formats. Premium users pay 9.99 euros for unlimited music streaming.
Coursera’s Business Model
Coursera also serves two customer segments; first students and second employers and universities5. It provides value to students by providing access to top-quality education from prestigious universities, and to companies and universities by sharing the data and insights it collects from students. It builds strong customer relationships with students by providing personalized services like course recommendations, and promoting interaction within its online communities.
A key success factor for Coursera is developing relationships with key partners such as Universities, which deliver the content that attracts users to the platform. Similarly to Spotify, fees to universities and are a large cost driver for Coursera. Coursera primarily communication channel is its own platform.
Similarly to Spotify Coursera uses a freemium revenue model. Users can attend to courses for free, but if they wish to get a verified certificate they need to pay. Coursera also makes revenue by selling companies and universities the data it collects.
Comparison between both business models
The following table provides a comparison between the strengths and weaknesses of the business model of each platform.
Both platforms have several similarities when it comes to strengths; differences lay mainly in their weaknesses. Both companies are extremely good at providing valuable content for free, using data to engage users, and they have both build strong partnerships with well-established brands.
Authors (BIM2015 – Team 6):
- Stéphanie Visser – 407153
- Job Deibel – 407756
- Dirk Breeuwer – 329445
- Colin van Lieshout – 414788
- Jord Sips – 421144
- Spotify, (2013). Spotify Explained. [online] Available at: http://www.Spotifyartists.com/Spotify-explained/ [Accessed 12 Sep. 2015].
- Chaffey, D. (2015). How Spotify built a $5 billion business with more than 50 million subscribers. [online] smartinsights.com. Available at: http://www.smartinsights.com/digital-marketing-strategy/online- business-revenue-models/Spotify-case-study/ [Accessed 12 Sep. 2015].
- Garcia, D. (2013). Spotify: Data center & Backend buildout. [online] Slideshare.net. Available at: http:// http://www.slideshare.net/davidpoblador/Spotify-bcn2013slideshare [Accessed 12 Sep. 2015].
- Heath, A. (2015). Spotify is getting unbelievably good at picking music â€” hereâ€TMs an inside look at how. [online] techinsider.com. Available at: http://www.techinsider.io/inside-Spotify-and-the-future-of-music- streaming [Accessed 12 Sep. 2015].
- TED, (2012). What we’re learning from online education.
Available at: http://www.ted.com/talks/ daphne_koller_what_we_re_learning_from_online_education [Accessed 12 Sep. 2015].
To start off this blog I would like to draw your attention to the back-end of this blog, WordPress.com. WordPress is developed by Matt Mullenweg, while he was seeking a more rich environment for his blogs. As we discussed the “free” model in class, I found the next upcoming article very interesting. The Forbes article talks about the origin of WordPress and how it struggles to make money while being the industry leader. The book mentioned in class, Free by Chris Anderson, talks about the ‘freemium’ model, where free content is supported by advertisements or users that pay for specific features.
My question to you: Do you think “freemium” is a sustainable business model for the next 5-10 years?