Digital products business models

Well, let’s not kid ourselves. In the world of digital products, everyone copies each other, and everyone does the same thing.

This has one advantage: you can generalize about the competition and do better than them by learning from their mistakes.

That’s why we will look at the classic business models they all use.

Digital Product World:
Add-ons Business Model.

The “add-on” model offers a basic software version at a starting price. This model allows customers to tailor their offers to suit their budget and needs.

For example, Zoom uses this model by offering a basic plan free of charge, with additional options such as extra storage space and advanced administration features available at extra cost.

If you look closely, this model corresponds to the “Freemium w/ In-App Purchases Model” in the classic business models list.

Digital Product World:
Commission Business Model.

The “commission” model is based on taking a percentage of the value generated by a transaction that your software helps to create.

This method is often used on marketplace platforms, as it is directly aligned with the value generated for the customer. The classic example is eBay, which takes a commission on every sale made via its platform.

This model corresponds to the “Marketplace Model” in the classic business models list.

Digital Product World:
Flat-fees Business Model.

The “flat-fees” model provides a single fixed cost independent of usage or number of users. This model offers transparency and financial certainty for the customer.

It is often best suited to businesses where customers’ use of the digital product does not drastically increase costs for the company. A good example is Netflix: the company offers different plans at fixed rates and provides unlimited access to its content library.

This model corresponds to the “Subscription Model / SaaS Model” in the classic business models list.

Digital Product World:
One-off cost Business Model.

Also known as “licensing,” the “one-off cost” model involves a one-off initial payment for indefinite use of the software. This is an increasingly rare model in the SaaS world, but it has proved its worth for niche products.

Adobe, for example, has used this model for its software. For a long time, they sold software as stand-alone products, such as Photoshop.

This model corresponds to the “Licensing Model“ in the classic business models list.

Digital Product World:
One-off charges Business Model.

The “one-off charges” model is based on invoicing one-off charges. These fees are stand-alone costs customers pay for specific services or features, such as customization, installation, or training.

It’s a model that enhances the user experience and covers costs outside a simple subscription model. Shopify, for example, uses this model and offers one-off fees for specific themes and plugins on its platform.

This model corresponds to the “Bait and Hook Model / Personalization Model” in the classic business models list.

Digital Product World:
Seat-based Business Model.

The “seat-based” or “per-user” model is often seen as ideal for startups just beginning to scale. For each new user, a pre-established fee is charged.

This model facilitates cost forecasting for companies that regularly add users. The correlation between costs and usage makes it a model often seen as fair. Slack, for example, uses this model, billing its customers according to the number of active users.

This model corresponds to the “Pay-Per-Use Model” of the classic business models list, specifically applied to the number of seats the customers use.

Digital Product World:
Usage-based Business Model.

The “usage-based” model, often called “pay-as-you-go,“ is an adaptable model that allows customers to be billed according to their usage, for example, by data consumption or hours of use. It’s a flexible model enables customers to pay precisely according to how they use the product.

For example, Amazon Web Service (AWS) uses this model, billing customers according to their resource usage to offer maximum flexibility.

This model corresponds to the “Pay-Per-Use Model” in the classic business models list.

Digital Product World:
A critical look.

Most SaaS companies develop an egocentric way of thinking about the business model because designing their product is costly and time-consuming. In an attempt to secure themselves as quickly as possible, almost all SaaS companies adopt one of the 7 models mentioned above.

These “default” models are secure because :

• they are used by everyone
• they provide reassurance in the form of easily quantifiable data
• they’re easy to set up since examples of their implementation can be found all over the Internet.

But, what people forget is that :

• these models are often not focused on the customers’ needs but rather on the company’s need for security.
• these models generate little margin and, therefore, rely on the rapid growth of their user base and a very low churn rate.

Almost all companies developing their own software use models that force them to regularly ask “mom and pop” (venture capitalists, business angels, etc.) for money.

As a result, it’s rare to see this kind of company become profitable and succeed in becoming/remaining independent.

That’s it. We’ve closed the chapter explicitly devoted to digital products.

We’re back on the hunt for the perfect business model.