Narratives of business models

post by Itay Dreyfus (itay-dreyfus) · 2024-03-28T19:05:58.595Z · LW · GW · 0 comments

Contents

  But there’s more.
None
No comments

There’s a common theme when discussing business models over the internet, which usually revolves around its optimal form.

What’s the most effective model? Monthly vs. yearly subscriptions, the relevance of ads, and the appeal of lifetime plans are debates I often come across on my Twitter feed. Builders of all kinds shake their heads to crack the formula.

Needless to say, a business model is at the core of any for-profit entity. It might make a business or break it.

When I was writing about Telegram a couple of months ago, I was intrigued by its nearly two-year-old freemium model. I knew Telegram had been financed for a good decade by its CEO, Pavel Durov, so unveiling a real sustainable business model seemed interesting. However, I was a bit skeptical when I was trying to do the math:

In a rough calculation, it needs to take more than 1.5 million customers to pay for the premium version to pay back only the “investment” Durov made. Although Telegram surpassed 800 million users, I’m curious to know what’s the conversion rate.

Despite Telegram already had more than 1 billion active users, I doubted how many people have actually taken their credit cards out of their pockets (or tapped) to pay.

In the territory of messaging apps, monetization has never been easy. Looking at the history of this space shows no great evidence:

In a weird coincidence, a day after I published the post, I received my answer when Durov announced on his channel that Telegram had reached 4 million premium subscribers. I’m not sure what number I was expecting but it kinda hit me. Then, a month later Durov, again, announced an addition of a whole new million subscribers.

So now Telegram has presumably more than 5 million premium subscribers. That’s 3x more than what I estimated it would take to pay back Durov's investment.

I very much doubt this number as Telegram users often become paid subscribers by discounts. But by all means, this is astonishing news.

Considering Telegram isn’t a company with big enterprise contracts, it solely relies on the grace of individuals. Inspecting total revenues in 2022 of other tech companies makes Telegram's estimated revenue promising:1

But there’s more.

Telegram might become a case to study in business faculties one day, but something more profound than the bottom line of how much money a company makes lies here.

Sure, it’s way easier to prove a business model after you’ve long been in the game and gained millions of users, but I think a business model uncovers a lot more.

It seems there’s a psychological effect and a sense of attachment to any type of business model. I find it funny yet very sensible to personify popular business models as if they were characters. I think it also illustrates how each model contributes to a product's identity:

The advertiser villain. Ads have been long deterred consumers. More often apps with integrated ads are considered as a meh experience. It’s annoying to read an article while ignoring big banners every few paragraphs or waiting for the ‘skip’ button to appear before a YouTube video starts.

Moreover, the Facebooks of our time have created the ad model with a bad reputation ever since we realized how our data is being exploited for personalization. It seems companies opting for this approach are automatically associated with corporate vibes.

Andrew Lewis's 2010 meme remains relevant today, though I suspect less than it was. The peak of social networks was also the early beginning of monetization after years of growth. Recent moves by Twitter and Tumblr for more expansive models have taken this space in a slightly different direction.

…

The subscription archetype. Recurring payments are an integrated part of our lives. We pay our TV cable provider, mobile carrier, and taxes monthly.

In software, the inflation in subscription-based apps, or the SaaS era, is largely the reason why people tend to get triggered when seeing this pricing tier.

Whether or not there’s a mindset shift in this manner, it seems people think twice before they input their credit card details nowadays. We need to see significant changes in the environment so this model would drastically change.

Meanwhile, we’ll continue to prioritize what truly matters to us.

…

The one-time rebel. Over the past few years, I’ve seen indie hackers leveraging the one-purchase, lifetime deal to generate early income while creating a bit of hype when launching a new product.

This old-new concept of "pay-a-higher-price-access-forever” has now become a hot topic. The 37signals guys have challenged the business of business models after announcing ONCE, turning it into the “SaaS model antagonist”. Jason Fried and DHH are getting their applause (and money), but I noticed this model tends to be attributed to highly assertive personas:

…

The romantic crowdfund. Although not an absolute business model, it’s often used as a step to kickstart an initiative, or even after raising some funds. I’ve found people develop a sentiment toward crowdfunds, as they put their money where their mouth is.

The humble idea of involving the community resonates with a lot of people and fosters a positive public image.

Various examples can be found at Are.na, Roam Research, and Gumroad.

…

Business models tend to emotionally drive customers. A decision on whether one would purchase access to a service or software can be largely affected by the way it’s being monetized.

The story of business models doesn’t relate only to the end customer. It also (partially) reflects and shapes the product and brand identity, offering a glimpse into the founders' inner world:

Of course, more parameters exist to measure a company's ethical values. Taking VC money vs. going bootstrapped is one example that can also answer those questions.

Going back to Telegram, it seems that people honestly appreciate it. Besides the premium luxury, a short digging through Reddit reveals an innocent reason why people pay: they genuinely want to support Telegram's existence. According to this post, the premium income is not only on the way to recoup Durov’s investment but also to cover operational costs.

Telegram opts for a straightforward approach, asking users to pay for a service rather than inundating them with ads. It could easily implement an ad model to generate income long ago, but it chose the opposite path, earning more respect from its customers. At least for the product side of Telegram, this model enhances its positive public image.

Like many other debates in the industry, there’s no universal consensus on the right business model. People often rant about ads, while others find them valuable. And some prefer to pay a high price to support a certain team or donate to a burning cause.

As naive as it might sound, I think there’s a potential for business models to make companies more righteous. I’m not suggesting any changes in how companies charge money. Every business model is valid. A man's gotta eat—and gotta pay.

However, I think the psychological implications of business models could be some food for thought for aspiring founders and others who might think about the way they want to march their company.

This post was first published on my blog

0 comments

Comments sorted by top scores.