Tag Archives: business model

What’s Your Model?

A key question any organization, including non-profits, will have to (eventually) answer is what is What Is Your Business Model? How will you fund your operations to stay in the game, let alone prosper? The question is easy to ask. The answer – not always.

You don’t necessarily start with a Biz Model. Disappearing message phenomenon Snapchat has millions of customers and a rumored valuation of $3 to $4 billion yet no revenue at all. Whatever else it may be, no revenue is not a business model.

Similarly, Twitter, after seven years and tens of billions of tweets has yet to approach profitability. Its recent successful IPO gives it space to continue to optimize its business model.

Another increasingly popular phenomenon is online instruction. From rather crude beginnings, such as MIT’s open courseware  – at first not much more than an online syllabus and lecture notes – the online learning platforms have improved and the number of courses increases substantially. These have become complete courses, not just someone giving a lecture on YouTube.

Commentators some times call these online courses by the ungainly acronym, MOOC, as in Massively Open Online Course. MOOCs are created by individual universities but commonly syndicated to students through portals such as Coursera, Udacity, and EdX, which offer courses from many schools. For an overview of the range of online courses see mooc-list.

The courses are generally free. This begs the question – what is the business model? What pays for the software, services, video production, and staff let alone a return on investment? Visitors to MOOCs generally don’t see embedded ads or even offers to buy logo wear or tsatskes similar to what traditional colleges offer. Advertising and merchandising would detract from the platform, without providing enough revenue. A few MOOCs have tried explicitly charging up to a few hundred dollars per course, but the abundance of free alternatives just a click away has so far thwarted a direct pay to learn approach.

Looking at the latest crop of online courses, providers seem to have been thinking about other ways to increase revenue and been evolving from a free to freemium model. Freemium is common with services from online gaming, e.g. Zynga, to web based storage, e.g. Dropbox. Typically, there is no charge to start and you can continue to use a modest amount of the service at no charge. Use more or avail yourself of advanced features and you have to pay.

In the case of online education, refinement of the business model also entails changing the value proposition and the essence of the product. Instead of requiring students to pay for the instruction, MOOCs ask them to pay for verification that they took the course. That is, students pay for some form of an e-certificate of completion. As in the brick and mortarboard world, the product is not so much education as certification.

For example, visit Coursera and the heading on the home page proclaims – Take the world’s best courses, online, for free. However, select a course from the extensive course list at and you’re presented with a choice – “Learn for Free” or “Earn a Verified Certificate.” The certificate costs $49.

Verified certification is but a part of Udacity’s upsell. For about $100 a month, it offers “Udacity Coach.” Students get guidance with course projects and help with assignments. Students, who do not upgrade to Coach, can only ask questions to an online forum, with no guarantee of a satisfactory answer or indeed any answer at all.

EdX, the third major MOOC, seems ambivalent about selling addons. It does offer “Verified Certificates of Achievement,” for variable fees starting at $25 but suggesting that the student pay more. Yet it virtually apologies for doing so with a plaintive:

As a not-for-profit, edX uses your contribution to support our mission to provide quality education to everyone around the world, and to improve learning through research. While we have established a minimum fee, many learners contribute more than the minimum to help support our mission. The funds go towards class creation and improving EdX.

For any of these programs, would friends, relatives, or prospective employers be impressed with a stack of such certificates? How impressed would you be to see not a diploma on the wall, but a tablet with the image of a certificate?

MOOCs might try many other possible business models. What’s encouraging is that they are actively experimenting. When is the last time your organization examined its business model?

Happiness in a Box

What business are you in? Phrased another way, what do your customers buy – really?

One of my vacation reads was Tony Hsieh’s Delivering Happiness. The book is a widely ranging narrative of how a young programmer and frequent quaffer of Red Bull made an early bonanza, became an angel investor and gradually developed a notion of management. He distilled all of these through the school of hard knocks to transform his company, Zappos, into a leading direct apparel merchant and a brand which delivers more than the shoes and clothing it sells.

Hsieh and his team did not do this by running a lean, mean profit maximizing machine. They experimented continuously, paid well, staffed fully, rejected outsourcing, invested in a large domestic call center and abandoned a cost efficient out sourced drop-shipping model to take on the risk and expense of carrying a vast inventory.

Rather than use brute force marketing such as offering large discounts or spending heavily on advertising, SEO and promotion, Hsieh transformed Zappos into a customer service powerhouse. He marketed better by marketing less. The result in many cases is to deliver an experience, which not only satisfies but “Wows” the customer. Thus Zappos can claim to deliver “happiness” while also delivering profits. How does he do it?

Zappos has an excellent ecommerce website, but its core channel is, surprisingly for this day and age, the telephone. Zappos achieves customer intimacy through highly trained and carefully selected phone representatives and embedding them in a culture which honors their role. No minimum wage remote call centers in a low wage country here.

The phone experience is paramount for Zappos, such that every employee regardless of job goes through call center training. Unlike so many firms, the call center is not treated as just an expense to be minimized. Reps do not have a quota and can spend as much time as they wish on a call. They are empowered to deal with customer issues as they think appropriate and may dispense additional benefits such as upgrades to free overnight shipping. They can learn a great deal about customers and use this knowledge in growing their business. Their customers feel as if they’re being wooed. That’s delivering happiness.

The concepts which built Zappos are simple, so why don’t more organizations apply them to deliver happiness to their customers and profits to their stockholders? In essence, Zappos has a different business model: Dote on the customer, engage her in conversation and capture what you learn from these conversations. She will pay full price and tell her friends about it.

This approach requires the courage and commitment of making continuous long term risky investments and deferring short term profitability. It also requires dedicated leadership to build and maintain a culture of customer focus and continuous innovation.

Many firms, including some I’ve worked for and consulted to, have flirted with Zappos’ approach with clichés about how they value customers and staff. They abandon it with the first dip in quarterly earnings or the next article they read in a business magazine. It’s too hard and too disciplined for most companies.

If it can’t be like Zappos, what does your organization do to foster customer intimacy?