The business model; and why it's important
As a creative I often forget to think about the ways I’m going to make money. I greatly enjoy the acts of making something from scratch, whether it be a website or a short video, that’s where my enjoyment comes from. I never stopped to think about what my business model is, nor what it actually means.
So, what does this actually mean to an aspiring business person? What is it that we have to do in order to create a business model?
First, we have to understand what a business model does for a business. In class, we looked at how Netflix has evolved over the last few years to change their business model. Netflix started as an online streaming platform for TV and film content to be viewed through the internet. It came about as a replacement for DVD and VHS rental companies like Blockbuster and LoveFilm. At the initial point, Netflix would pay distributors for the rights to host their content through their platform, and allow customers to pay a monthly fee to have access to all content which they hold rights to.
However, as our discussion started we found that this wasn’t so much the case anymore. Netflix has changed from a content distributor, to a content creator. With the addition of Netflix Originals, the business uses analytical data on viewing trends to create new content for their subscribers. Although this isn’t a new concept, and has been a big factor of how TV channels choose what to show based on viewing ratings, Netflix has a much more unique way of defining it’s customer segments.
So how did we map this information in a way that is easy for us to understand?
BUSINESS MODEL CANVAS
The business model canvas is a document which outlines the key elements that we need to work with in order to create a business model. It is a tool that can, at a glance, show the various aspects of a business in a way which can be visualised clearly and show some of the connections between the difference sections. Below is a standard layout for the business model canvas.
After class, we were tasked with creating a business model for an existing company which we know about, and then innovating on the business model by changing something to visualise what happens. Below is the business model I chose to create for the company I currently work in – English Language Testing LTD who create online testing for universities and schools.
To innovate on this model, I think that it would be a good idea to increase revenue streams by charging for support services by creating packages for different levels of support. As with any product, basic setup support should always be included in the cost of purchase.
However, by charging for support services there could be an increase of revenue streams with very little changes elsewhere. One of the key issues with doing this would be cost to the current clients would increase, which could mean some smaller clients would be unlikely to spend on these packages and look for alternatives.
This is an assumption that I am making based on experience working in the company and in other IT support companies, there is sometimes a need to increase the cost of a service based on the level of service provided however many long term clients are reluctant to pay extra for a service they were already receiving.
This makes for an interesting argument, if the company was able to break into every school and university in the country and were only receiving revenue through the sale of test codes, the growth is limited to the number of test codes sold in a year – which doesn’t change very much, and can even increase or decrease based on estimated intake of students.
By adding service charges for IT and setup support, this provides a revenue stream for services that are required by the customer. This is however somewhat unethical, why should a customer pay more for something they already get?