Free and Freemium Business Model

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18.05.2020
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Freemium Case Study

Difference between Free and Freemium Business Model

For the Pandora Company, the freemium business model proved its effectiveness in comparison to the free business model. It is important to define the specific features of these two models to be able to find out the reasons that led to Pandora’s success after the change of the company’s business model. The value proposition for both situations was the same, which points to the need to also explore other characteristics of the model. The difference between these two business models is the approach to the revenue model. In the case of the free business model, Pandora used the subscription revenue model. The use of this model gave its customers an opportunity to use company services for ten hours for free, requiring to pay a subscription fee after this period. The customers had no chance to use the company’s services again after they used the prescribed ten hours. Such a business strategy reduced the enterprise’s market opportunity to a niche of users who are willing to pay for services.

In the freemium model, the customer had the longest period of free usage of the Pandora’s services, and the opportunity to choose between the paid subscription to a service and the return to the free usage of services for the following month. This fact increased the company’s market opportunity since its product could take not only a niche of users willing to pay for services but also those who prefer free services on the web. The revenue model combined the advantages of the freemium and the advertising approaches. For the free business model, the company required subscribers to achieve revenues. With the implementation of the freemium strategy, it could receive profits without the subscribing fee due to the low variable costs of the product and the advertising revenues.

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Pandora’s Value Proposition

In comparison to company’s competitors, Pandora does not only provide the services of the internet radio. Its product includes the possibility of radio content personalization and customization, according to customer’s preferences. The user can form and save the music list, according to his/her preferences. Pandora’s proposition decreases the customer’s product search costs and facilitates the product’s transaction. Anyone who has access to the Internet can quickly find the required music composition and hear it as soon as possible. The company employs professional musicians to classify the music compositions, which is used by the algorithm to form the list of the proposed compositions for the client. In this way, Pandora’s services do not just allow the customer to create his own music list, but also to enhance customer knowledge in the field of music and offer him/her a new experience.

Differences between MailChimp and Ning

The difference in the effect of the usage of the freemium model for these two companies is defined by the distinction in their product value proposition and market opportunity. For MailChimp, the basic product already had a lot of competitors in the market, which required providing better conditions for customers. The company’s waiver of payment of basic services has increased its attractiveness on the market. Since the variable costs of providing basic services were low, the company could obtain the necessary level of income from the provision of paid services, such as analytics of the customer’s email lists. The market share of the MailChimp included people who do not want to pay for the services and those who are ready to pay a considerably lower fee for the additional services. Since the company’s product was easy to exploit and public, it brought profits due to a large number of involved people.

The value proposition of Ning was completely different. The failure to use freemium for this company is explained by its error in determining the promising market niches. Since Ning developed the tools for the creation of social networks, it competed with the companies that provide the ready-made social network, in which the user’s efforts to implement registration costs are unnecessary. Due to this fact, Ning’s product could not be interesting for people who do not wish to pay for the social network’s services. Having faced the issue of converting eyeballs into paying customers, the company made a successful decision to orient on the premium users. In this way, the market opportunities for the MailChimp and Ning products defined the effectiveness of a freemium strategy for these two companies.

Freemium Revenue Model Consideration

Making a decision to use a freemium revenue model, the company must evaluate the perspectives of the product it is offering. The freemium model can prove its effectiveness for easy products with a high level of the potential audience, which would be able to cover the costs of free services through advertising or paid services revenues. The product must also have low variable costs and high long-term customer retention rates. The company that is willing to implement the freemium revenue strategy must be ready to cover its costs through advertising revenues if the level of paying customers is too low.

Akamai Technologies Case Study

Geographic Dispersion of the Akamai’s Servers

Since the aim of the Akamai Company is to provide high-quality network communication, the geographic dispersion of its servers plays an important role. Such an approach to data management reduces the distance between the customer and the required Web content, increasing the network capacity and the data transfer rate. The customer’s orientation on the local server of the company allows him/her to avoid the bandwidth issue of the contemporary Webs. All the necessary data for the customer accumulates on the local server. In this way, there is no need to transfer data across long distances, which usually causes the bandwidth and latency limitations in modern networks. The cloud platform structure of the Akamai allows it to overwhelm the limitations of the wired internet structure. The company also achieves the efficient tools of local Internet services customization, according to the requirements of customers and businesses in each region. The orientation of the local servers’ structure gives Akamai an opportunity to identify and block the security threats and provides instant server-level detection and optimization, which does not slow down the work of the entire system.

Delivering Software through Akamai

The Akamai becomes an attractive tool for the businesses that require tools of the software content transfer through the Internet. The orientation of the cloud platform and the geographical servers’ structure allow Akamai to increase its competitive advantages due to the quality and high speed of data transmission. The opportunity of service customization, according to the requirements of the separate region, also distinguishes the company from competitors. The main issue that figures out to be the potential threat to the system is the possibility of Cyberattacks on the servers. Since Akamai owns the diversified structure of servers, it seems possible to implement a cyber-attack on a single resource of the company, which creates significant risks for a business. At the same time, constant monitoring of own resources and focus on improving the protection allows the company to minimize such threats.

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Advertisers and Akamai

Akamai develops the variety of services that can be used by advertisers in their work. Among them are the targeted advertisings, which include the specifics of the server’s region. Akamai’s product, the Advertising Decision Solutions, provides the advertising companies with the relevant information about the Internet network activity, allowing them to plan the advertising activity on different servers effectively. The current relevance of the network data provided to the users of Akamai is one of the main competitive advantages of the company.

From the point of its effectiveness for other kinds of products, Akamai can become an efficient solution for small businesses that require presentation on the Internet at the local level. Since the Akamai Web sites show a higher rate of data delivery to the client, it can become a serious competitive advantage for local businesses, particularly for the distribution companies. The potential of large files, like music and videos, transfer through Akamai structure, is also significant. The latest agreements of the company with Hollywood companies and Aspera show the prospects of this sphere. The Akamai video streaming start-up Octoshape will allow the company to occupy the niche in the video streaming industry.

The Future of the Customers’ Billing on the Internet

The significant growth of Internet traffic in recent years raises the question of potential customers’ pricing strategies, which will create conditions for sustainable growth of the global network capacity. In order to ensure the growing demand for data on the Internet, the providers will have to increase the networks’ bandwidth and operational speed. To provide revenues required for such changes, the adequate pricing policy is needed. The diversification of pricing strategies, according to the possibilities of the local network, seems perspective. In this way, the providers can implement the strategy of users, charging according to the amount of bandwidth they consume in the regions, where web resources face the issue of bandwidth limitations. Thus, the providers reduce the load on the limited network and create a budget for their development in the future. For the networks with high potential and headroom for additional users, the tiered plan of payments, according to the amount of data used, can be useful. The users are not limited in their capabilities and may use the amount of data that they can afford financially.

Orbitz Charts Case Study

Mobile Apps’ Reservation Tools

The application of mobile sites and applications to book hotel or reserve airline ticket for the same day figures out to be more comfortable for the customer, in comparison to performing the same operations from the traditional desktop. The Orbitz mobile site, which was launched in 2010, gave its users an opportunity to purchase flights and book a hotel room on the same day. The booking of tickets or seats at a hotel in the same day has many advantages over booking in advance for several reasons. First of all, booking on the same day is very convenient for people who urgently need to use transport services or book a hotel. The variety of Orbitz tools allows customers to define the possible delay in the flight and determine the most convenient route of movement. In comparison to booking from a traditional desktop, the mobile site gives the user greater freedom in selecting the preferred service. The customer can book a plane ticket or a hotel room from anywhere where there is access to the Internet from his phone. The application of mobile booking applications frees the user from unnecessary commitments and allows him/her to quickly make decisions, based on the current position. In this way, the implementation of mobile site improves the value proposition of the product.

Mobile Web Site for Corporate Users

Making a decision about the perspective tool for its corporate users, Orbitz had developed a mobile Web site instead of providing native applications for different devices. Such a solution allowed the company to avoid the costs of developing native applications for the variety of existing devices and increase its market opportunity at one time after the release of the mobile site. In the case of developing a separate application for each device individually, the project of services implementation for businesses could stretch out long enough. At the same time, the company would not be able to simultaneously increase their niche of corporate users of all types of mobile devices. From the perspective of increasing the number of users and traffic of the website, the decision to develop a unified mobile site for business was the right one.

Native Applications for Private Customers

Making a solution to implement a native applications for each mobile platform to provide services for private customers, Orbitz aimed to increase the efficiency and ease of use of their application by the users. The usage of mobile site, as for the corporative customers, caused the need to perform unnecessary actions, which increased the time of operation and reduced the product’s attractiveness for the customer. The development of native applications allowed improving the effectiveness of the customer’s cooperation with the company’s product. First of all, the native applications provided the consolidation of the entire search and reservation process, eliminating the need to move on partners’ sites using the company’s mobile site. This fact has increased the ease and speed of the product’s usage and defined the company’s competitive advantage. The native applications also saved the customer’s personal data, search history, travel preferences, and presented relevant data about automatic search suggestions. In this way, Orbitz managed to improve the customization and personalization of its product. Since such an approach to work is not so common for corporate users, the difference in approaches to different niches allowed the company to achieve success.

Syncing Searches across Devices

The Orbitz efforts to provide customers with tools for syncing searches across devices greatly enhance the ease of the system usage for clients. Since Orbitz has implemented the new design approach for different devices, the speed of users’ decision is improved. The client is no longer tied to a single device and can rapidly generate the queries. The client loses the need to repeat a similar operation if the use of different devices is necessary. All information about the client’s actions is quickly synchronized in a single system.

Programmatic Advertising Case Study

Advertisements Structure

According to the results of the research, about 15% of the presented advertisements were interesting and relevant to me, 36% of advertisements provided a proposal that could be interesting to me earlier, and about 49% were absolutely uninteresting advertisings. The research shows that though the usage of programmatic advertising is widely spread nowadays, the level of the relevance of its results remains considerably low. Though the share of relevant advertisings is higher than the level of uninteresting ones, the automatic distribution of advertising still does not reach the desired level of efficiency. Based on the results of my analysis, the greatest demand for programmatic advertising services is provided by the online shops. After the customer visits online shop to consider the purchase of any product, the hype of this store starts chasing him on other sites. As a result, the programmatic advertising method leads only to an increase in customer’s annoyance with regard to online shopping due to constant display of the uninteresting advertisings.

Advertisement Profiles

In the case study, the authors mention two examples of customer’s profile, which can be useful in defining the field of programmatic advertising. The first one is considering the mountain bike advertising and includes the following characteristics of the potential customer: person of any gender, aged 24-35, living in zip code with mountain bikes mentioning, used to mention mountain bike’s activities on the social network, mentioned this topic in his/her emails, has an income of more than $70,000 a year, and does not obtain a mountain bike just yet. In comparison to earlier presented profile, which included only requirements for the customer’s gender, age, and interests in mountain bikes, such an approach to the potential customer’s definition narrows the selection of candidates and raises the prospect of the use of programmatic advertising. In another example, the authors mention that auto industry focuses on the potential customers’ demographic features, aspirations, and income levels during the formation of an advertising strategy. The more detailed the profile of a potential customer, the higher the probability of success is when using programmatic advertising method. In this way, the advertiser can pick customers with relevant interests, demographic characteristics, and income.

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Search-Engine-Like Results

The most effective way in which display advertisements can reach search engine-like result is tracking the preferred user’s preferences by the usage of tracking software, like Web bugs, beacons, cookies and flash cookies. The usage of these measures will allow the advertiser to represent the advertisements that are more suited to the user’s preferences. Web beacons allow advertisers to monitor the users’ activity at a site. The cookies are also an effective tool for the separate users’ preferences collection and recognition, which provides business with data about customer’s preferences with respect to individual sites and advertisements.

Instant Display and Search Engine Marketing

The display advertisements based on the customer’s prior clickstream can be as effective as search engine marketing methods. The clickstream technology of advertisements performance can be an effective tool of selection of promotional offers that are most suitable for an individual user. The customer prior clickstream method can also be useful in attracting customers to the choice of advertising that it will be displayed to him. Such an approach will improve the attractiveness of the advertisements to the customer and will increase the likelihood of customers’ purchases. At the same time, the prior clickstream’ approach offers a good marketing strategy, providing advertisers with content images and navigation images, which the customer found to be the most attractive when deciding to view advertisements. In this way, this approach also helps to improve the advertisements quality in future.

Exchange Hunter Case Study

Exchange Hunter Site Comparison

Evaluating the competitive advantages of the Exchange Hunter Jumper (EHJ) site, it can be compared to the site that offers horses sales in the UK – Horse and Hound. The Horse and Hound provides classified advertisements for horses. The competitive advantage of Horse and Hound can be the high level of products diversification, which includes equipment, food for horses, as well as educational courses. At the same time, such a level of diversification can cause the business failure, in case the most important niche was not highlighted. The Exchange Hunter Jumper site focuses on one product, but provides more qualitative marketing services. Speaking about services for the horse buyers, the Exchange Hunter Jumper allows personalizing the list of horses for the customer on the basis of a large number of indicators. Though Horse and Hound also allows picking horse on several criteria, their number is significantly lesser than that of the Exchange Hunter Jumper site. For horse sellers, the EHJ provides two listing types, which is also a mean of personalization and is absent at the Horse and Hound site.

The EHJ site also provides the list of shows, where the potential buyer can get acquainted with the horse he/she liked personally. It is an absolutely unique marketing tool. The presentation of the horses on the site is a separate topic. The site page of each horse shows general data about the horse, its show records, lineage, videos and the seller’s contacts. Speaking about the horses’ presentation on the site, its quality is definitely higher than the results of the company’s competitors. Social media tools, mentioned in the case, are also the hallmark of the site.

Social Media

The example of EHJ Company shows how effective the social media can be in promoting services. The social media products become one of the main sources of attracting new customers for the company. For example, Facebook provided over 12,000 subscribers to the company and further personalized the EHJ online marketing efforts. Having an access to the customers’ social profiles, the Exchange can develop strictly personalized propositions and improve the quality of cooperation with the buyers and sellers. The uniqueness of social media also lies in the fact that the entrepreneur can independently assess the effectiveness of each tool to attract the customers. Such tools, like Google Analytics, can also raise awareness about the company’s promising ways for the development of marketing strategy.

Services Personalization

The EHJ developed a variety of personalization tools for buyers and sellers. As for the buyers, the company implemented the list of criteria that allow personalizing the horses’ choice and narrow bid for the customer. The list of criteria includes: horse’s type, height, location, sale price, and lease price. The attraction of the social media tools is also a way of product’s personalization. The buyer can save data about the horse that he liked in his profile on social networks, which will later facilitate his access to the relevant information. Such an approach to data management makes it easier for customer to work with the EHJ site, and improves its attractiveness.

For the sellers, the EHJ allows to place an offer for the sale on the basis of one of the two listing types. The first one, premium sale horse listing, will fit the sellers that wish to sell from 1 to 5 horses. The sale barn listing will be common for the sellers with a higher amount of horses available. Also, the premium sale horse listing includes the provision of services to improve the quality of advertising applications and enhance the attractiveness of horses during sales.

Open Table Case Study

Open Table Competitors

The specific of the discussed business defines high barriers to entry of new companies in the industry. For most of the Open Table competitors, the implementation of seats in restaurants reservation function has become a serious problem. Though a sufficient amount of time has passed since the creation of Open Table, companies like MenuPages still do not obtain tools of reservation, which significantly decline its competitive positions. The example of Urbanspoon, which resorted to the Open Table with the development of its reservation system, shows that this is a serious problem for anyone who decides to implement any activities in this area. Even such a powerful corporation, like Google, which purchased the online restaurant guide Zagat to compete Open Table, still did not provide the level of functionality that is available to Open Table system users. Most competitors of Open Table in the U.S. also face the issue of effective expansion of the cooperating restaurants’ number.

Restaurant Market Characteristics

During the development of the project, the company’s founders have faced several problems, presenting the nature of catering industry. First of all, it was quite difficult to cooperate with restaurants of different scale and character as a single market. Since the business was highly fragmented and local, it took a big amount of time to unite it in the single system. Open Table had to construct a large-scale structure, which would include the greatest possible number of restaurants in various cities. The problem was compounded by low awareness and a lack of technical expertise of restaurants to such changes. When the company started its work, most restaurants did not even have computers to integrate their activities with Open Table applications. The company also had to provide application for the diners, which would allow them to achieve real-time access to the variety of proposals from local restaurants and book confirmed reservations instantly.

Marketing Strategy

At the beginning of its history, the Open Table used to promote its services by paying online restaurant reviewers for links to its Website to quickly expand its reach. Since this strategy did not prove its effectiveness, the company’s top management has made a decision to implement the new marketing strategy. The company had improved the hardware and software characteristics of its product, providing conditions for the development of the Electronic Reservation Book (ERB), as a unique and easy tool of a real-time restaurant reservation. The features of this system included friendly client interface and great tools in the selection and reservation of seats in the restaurant. Open Table also applied door-to-door sales to reach effective cooperation with leading players in the restaurant business. The success of Open Table marketing strategy is due to the effective combination of e-commerce, the personal touch, and user-friendly technology. The company also encourages its customers to verbal advertising among their friends and acquaintances, which also helps in the promotion of its services.

SaaS Model Advantages for Business

Since the Open Table applications provide many advantages for the restaurant business, most players in this industry find working with this product perspective. The restaurant owners mainly find the company’s products to be quite easy and comfortable to use. The Open Table allows rationalizing their operations, increasing the level of rooms’ occupancy and the restaurants’ service quality due to the continued attraction of the new customers. The usage of SaaS model proved its effectiveness as a measure of customers’ retention rates increase. The emergence of such a service also allowed restaurants to reduce the cost of attracting new customers, which can often be the key to success in this business.

Netflix Case Study

Three Challenges of Netflix

In its business activity, Netflix had to face three different challenges that seriously affect its profitability and positions at the market. The first challenge included competition with the larger cable television industry. The difficulties, which Netflix faced, competing with these companies, are explained by the differences in technology and business model between them. Netflix has to spend significant amount of its costs for the licensing of the films it presents to the customers. At the same time, cable television companies usually provide a big amount of channels that are not interesting for the customers and raise the monthly fees faster than the inflation rate growth. Netflix managed to overwhelm this challenge by developing agreements with Hollywood about their films and shows distribution. The requirement for the cable television industry to allow their customers to make decisions about the preferred channels also decrease its competitive advantage and make things earthier for Netflix.

The second challenge for Netflix was the high costs of content that was distributed to its customers. The owners of content require high payments for the privilege of the presentation of their work. As a result, the profit rate of Netflix is considerably lower, in comparison with other industries. Another risk is connected with the difficulties in the customers’ preferences prediction. The big amount of films and shows that are developed nowadays make it difficult for the provider to define which of them will achieve the highest level of interest among customers. If the company does not manage to choose the most interesting show for its content, it has a risk of losing the revenues.

The third risk for Netflix is connected with the necessity to produce its own content. In this case, the company aims to reduce its costs for content, licensing and creating its own brand. The main challenge for Netflix is the necessity for Netflix to create a unique, attractive product that will be in high demand among its viewers.

Netflix Strategy in 2014

To reach success in its industry, Netflix had to implement the development strategy, which would allocate it among the other companies in the business. This new strategy included the personalization of the content, the creation of “binge watching” model, the formation of favorable agreements to broadcast the content of large companies on the Netflix platform, and the development of films and shows by the company. The implementation of the customer’s personalization service allowed building a recommendation system that offers new films for the viewers. The “binge watching” model was oriented on the broadcast of the old movies, which figured out to be very attractive for the customers. The efforts of Netflix to create its own content led to great success, serving as a basis for the creation of such successful projects as “Orange” and “House of Cards”. The formation of agreements with the successful companies in the field of cinema and show industry in Hollywood and New York allowed Netflix to significantly improve the quality of its content. In this way, the new Netflix strategy served as a tool of its competitive advantages increase.

Netflix Strategy Implications

The new Netflix strategy led to the change of cable television companies’ positions in the industry. The large audience of Netflix served as an argument in its negotiations to Hollywood. As a result, Hollywood provided Internet distributors with the same opportunities as cable systems from the point of TV shows and movies novelties broadcast time. At the same time, cable television companies have lost their main competitive advantage, which served as a source of their high profits – the ability to provide customers with a large number of irrelevant channels and take a fee for them. Since the Netflix became a powerful competitor in the sphere of films distribution, cable television industry was forced to provide customers with the possibility to choose the preferred channels.

Netflix Strength

The success of Netflix in the online broadcast industry was very attractive for many big players in the sphere of the Internet, which would prefer to earn some extra income by using their own resources. Among them are Apple, Amazon, and Google. The appearance of these players in the market is caused by the simplicity and accessibility of the technologies, which are used by Netflix. In comparison to Netflix, its new competitors are able to provide free services to their customers, by providing income through advertisements. Nevertheless, Netflix still remains the leader in the industry due to its high reputation among users, and the provision of unique content. At the same time, the occurrence of competitors using the freemium revenue model to improve their positions at the market can become a serious threat to the dominance of Netflix.

Elemica Case Study

Concerns of Joining Elemica

Making a solution to use Elemica online software to perform trading operations, small and medium businesses face several risks that define certain concerns. First of all, the maintenance of confidential information of the enterprise is a cause for debate about the need to use the Elemica system. Through this online platform guarantees the security of confidential information, the cloud structure of the system creates some risks after the location of the information on it. Another reason to be concerned about is a loss of control over the process of finding a supplier or a consumer. The effectiveness of online trade platforms is usually affected by the lack of knowledge and experience about the real supply chains functioning principles. Since Elemica can obtain a lack of real-time demand, logistics, financial, and production data on suppliers, such state of affairs can cause risks during the implementation of trade operations. The B2B supply chains usually have very little experience about the effect of such factors, as the environment and natural changes, costs changes, and the impact of public values, on the real supply chains. An example of unexpected situation that seriously affected the world supply chains is the accident at Fukushima.

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Cooperation and Competition

The competition of the chemical companies that operate in the Elemica system is fairly reasonable. Since Elemica is a means of interaction between companies within the trade association, it is not the basis for the regulation of their relations with external entities. Performing business operations inside and outside of the Elemica, the top management of each enterprise is primarily guided by their company’s interests. Since the Elemica is a tool of beneficial cooperation with other chemical companies to reduce search and administrative costs, it is widely used by the members. However, outside of the system, all the players have to improve their profits in the competitive fight. Since the Elemica is only a tool of supply chains formation, it does not allow members to form cartels or syndicates, which would have eliminated competition in the market from outside the Elemica system. As a result, the state of affairs in which the members of Elemica system prefer to compete with each other outside the platform is quite rational and logical.

Private Industrial Networks

Elemica illustrates many of the private industrial network (PIN) features. It performs one of the main functions of the PIN – the online supply chains organization. In Elemica, like in any PIN, the members of the system can the rapid exchange of data on the purchase, sales, planned volumes of production and sales. In many aspects, Elemica repeats the features of the described Procter & Gamble (P&G) PIN. This system allows P&G and its partners to achieve operational information about the level of sales, which is used in the processes of production, supply, and logistics planning.

In comparison to PIN, Elemica system is more complex and has more functions. Since the PIN is usually focused on one sponsoring company, which funded the creation of a system to fit its individual requirements, the private industrial network is often confined to a single enterprise and its partners by its functionality. In structural terms, Elemica is built on top of participating companies. It fits the requirements of all of its customers, which defines its competitive advantage. As compared to PIN, Elemica can also perform a variety of functions that were previously handled by separate divisions of enterprises, which relieves them of the labor and financial costs. In this way, Elemica can form a list of potential companies for cooperation under separate order or a production plan, which is a higher level of functionality, as compared to the PIN.

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