What Revenue Model Should I Choose? Part Two [Sell Your Product]

Revenue Models for Startups

Cutting the chase, part one about Ads as a revenue model is here and the introduction to this series is here.

Here’s some of the most popular revenue models for startups again:

  • Ads
  • Sell Your Product [Verticals: Freemium and In-app Upgrades, Sell Your API, Sell Support, Sell Your Code, Sell Licences]
  • Subscriptions
  • Affiliate Programs [Verticals: Partner programs]

While ads can be a revenue model you can implement faster, it’s a little harder to hit a balance where your users find the ads to be useful rather than annoying / necessary evils to use your product.

There are, of course, several other revenue models to explore and one of the most prominent ones that a lot of B2B and B2C startups focus on is selling the product itself.

For most mobile developers doing iOS apps, selling the product has been a lucrative way of sustaining their startup. Take Rovio, for instance, that sold millions of copies of Angry Birds and made a name, got funded and now makes a fortune.

Selling the product also works on the web although a more successful option has been subscriptions.

Interestingly, selling your product has several sub-categories to it that there is a wide range of revenue models for startups. The bottom-line is this: if you built a product that’s truly unique and insanely useful, you’ve got a product you can sell.

Selling a product seems to be a tough job because there are a ton of free alternatives for everything that you can think of. From games to utilitarian apps, from entertainment to business apps there are free apps for every function/purpose you can think of. So how can you put a price to your product and sell it under these circumstances?

The trick lies in two things:

  1. a few product features that become the obvious ‘selling point’ (or USP, if you choose to use that term)
  2. product marketing

As an obvious example, I am going to take the case of the iPhone. It sure was a revolutionary product back when it was launched but today, Android smartphones are far more powerful and feature-packed than the iPhone is. Even as an iPhone-user, I know that the features on iPhone aren’t anywhere over the Android platform but this is the trick:

  • the iPhone ‘just works’ and that’s a great selling point.
  • Apple does a magnificent work in marketing the iPhone.

We can go on and on about these two things but we’ll keep that for later.

Selling a product is one of the hardest ways to generate revenue. Unlike ads, it’s not set-it-and-automate (with occasional testing/tweaking). Selling a product needs a marketing drive, a salesmanship and of course, a genuine understanding of what your user needs.

Before you sell a product, you have to validate the product. Even more important than that is: you have to figure out if people will be ready to pay for your product/service.

The obvious clues lie in your competitors and people who make similar products. You can find out from their business if users are willing to pay for the product and if yes, how successful is the business.

You can position your product for selling in many different ways:

Freemium

A freemium model is where you put up one version of your product for free and add another version with more features (the important ones) with a price tag.

At Bootstrappist and elsewhere, discussions on freemiums have been carried out a lot. Some freemiums fail (Real Racing 3 from EA, for instance) and some freemiums do an awesome job (Angry Birds, again).

There is no set pattern but all you can tell is this: if your user is passionate about your product because it changes his life in some little way, the user will be ready to pay. Freemiums can be, in those cases, a good way to monetize after you’ve found passionate users.

In-App Purchases & Virtual Products

This is one of the most lucrative and successful product revenue models for a lot of developers. On the iOS platform, in-app purchases account for the maximum revenue generated by apps. Much more than paid apps.

Virtual goods/products are the equivalent of in-app purchases for desktop and web apps. These might unlock a few features of the app when the user buys them.

It’s easy to go wrong with how you position the IAPs. This keeps happening with a lot of apps and users get frustrated enough to write a bad review with a 1-star rating. The key to doing IAPs successfully is to not let the user feel severely constricted or limited.

When you put up the app for free, the user still expects a good product that provides a wholesome experience. You have to find a way of limiting the user in areas where the wholesome experience doesn’t get affected. Toss a few features that will enrich the experience and sell them as IAPs and you’ll not turn the users away.

Sell Support

Alternatively, if you can’t put a price tag for your product, you can explore other options. One of them is selling support.

For instance, there are a few github projects where the code is free to use. Developers can host the code on their servers and use the project but for people who aren’t tech-savvy to host the code (or who don’t have servers/hosting accounts), the developer who put the code up on github offers a plan to host the code and run the db.

This is just one of the ways of selling support for the product.

You can also charge for a time-based support (1 year’s worth or 1 month’s worth of support).

Selling support is – while not being a new revenue model – a less-explored revenue model. Especially for startups because the focus is on customer acquisition and product development.

Sell Your API

Thursday has written about this so I’m just going to link to it.

When it comes to pricing your API, the key focus-point is data. If the data you present in your app is of immense value to other developers, you have a product in your API.

Building an API and then putting it up for grabs is going to be hard work. You have to build something that doesn’t break, that processes requests consistently and fast and that does not compromise anything, particularly, security.

If you’ve built a product that lets users follow the tweets of their favorite celebrities, that’s data which someone might be interested in tapping into. You’ve got an API product!

Selling APIs can be pretty hard because most of the other products (the successful ones) provide access to the APIs for free. But it doesn’t mean someone isn’t willing to pay for an access to the API.

You can of course sell your code with a licence or sell the licence to using parts of your code and these are rarely spoken of in the case of B2C startups. But it does happen when you are building something that a larger corporation with enough money to licence your product comes along and discovers your product.

If your product is a cutting-edge app/service that takes on some very interesting applications in the real-world, be open to these revenue models too.

About Chandru V.

I watch the startup space while occasionally writing front-end code in sweatpants. Passionate about that intersection of technology, design, usability and minimalism.