Starting up a Business – Step 3: The Revenue Model

For the majority of examples, entrepreneurs start a business to generate revenue and hopefully in turn, make a profit.

Before I go any further I want to clarify something. I have always found it perplexing the way people approach how they should be making a profit from their value offering. I’m not talking about the method in generating a profit, I’m referring to how they think about the term, ‘profit‘. People almost feel guilty if they have an aim of making a profit. Why would you feel guilty about this? There is no reason to feel ashamed of doing something to make a profit. If you provide a product which is of great value and set your price in a range where people can and will purchase it then its a win-win situation. First, you generate revenue and your buyer has purchased something that has a certain perceived value for something they were willing and able to purchase it. I don’t see why anyone should be ashamed of this? If you provide a sub-standard product and charge an exorbitant amount to people who don’t know better just to make a profit, then yes you should be ashamed.

Before you go on this post is continuing from my previous steps for starting up a business. Step 1 and Step 2. If you havn’t read these I strongly recommendyou do as you’ll be completely lost for the remainder of this post!

That aside, once I have thought of an idea with potential and then put down some points regarding the concept, my next step is to think of how I can make money out of offering this service. Well the first and most obvious answer would be to copy the Youtube example and place ads on the website which will earn me money whenever a site user clicks on them. That sounds pretty straight forward but people who are regulars to this blog know my thoughts on using advertising as the revenue model. In short, I’m not a big fan. After all, how many times have you clicked on a display or text ad on Youtube?

On the other hand, will people actually pay to use a video sharing service on their mobile when there are so many free options out there? No I don’t think they would to be honest. If I started charging for a service to stream videos onto mobile then wouldn’t my users start reverting back to using another mobile video streaming site? Most probably. I’ll think a little harder.

Ok so what do I do now. I know that Youtube is the giant and so far offers the best mobile video offering available. I also know Youtube only allows streaming to your mobile and the other download sites are not really anything special. So I’m thinking if I can offer the streaming service for free and support it by advertising I will keep and retain the casual visitors. On top of that if I can also offer a premium service for those wishing to download those videos onto their mobile then I would be able to charge for this as the current alternatives are pretty poor. This allows me to work with two revenue streams, the first being advertising for those casual streaming visitors and as well as a membership based premium service for those wanting to download the content to their mobile.

Ok so this is what I’m thinking:

1. Revenue model 1 – Free video streaming (will not include video downloads) will be supported by advertising. Advertising network options include: Adsense Mobile, Admob and Decktrade.
2. Revenue model 2 – Offer a premium paid service where users can stream videos as well as download any mobile video they like directly to their mobile. Premium members will pay a small monthly fee in order to use the download service.

I’m pretty happy with this as it offers both a streaming option which anyone can use and yet also tailors for users that want even more and wish to download any video directly to their mobile. To do this they will need to become site members and pay a relatively small ongoing membership fee. For me that means the highly trafficked free streaming section still generates a revenue but I can also offer great value and charge for membership which is a great form of recurring income.