7. Business Models

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup

Flickr:dystopos

How are you gonna create value?

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup

Innovation happens also in business models

(not only technology)

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup

Auction business model■ Bricks and clicks business model■ Collective business models■ Component business model■ Cutting out the middleman model■ Direct sales model■ Distribution business models, various■ Fee in, free out■ Franchise■ Freemium business model■ Industrialization of services business model■ Low-cost carrier business model■ Loyalty business models■ Monopolistic business model■ Multi-level marketing business model■ Network effects business model■ Online auction business model■ Online content business model■ Premium business model■ Professional open-source model■ Pyramid scheme business model■ Razor and blades business model (bait and hook)■ Servitization of products business model■ Subscription business model

Lots of business models possible

http://en.wikipedia.org/wiki/Business_model

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup

Flickr:jamesjustin / dexxus

One of the key decisions

B2C vs B2B

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup

New MarketFinding a working business model at all

Existing MarketFinding a better business model

New Markets vs Existing Markets

http://en.wikipedia.org/wiki/Blue_Ocean_StrategyFlickr:Aube insanité

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup

Good Business Models are Scalable

Create once - sell often

Scalable: licenses, subscriptions, services

Not so scalable: project business, consulting

Flickr:brandondoran

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup

“Free” as a business modelChris Anderson, Wired

http://www.wired.com/techbiz/it/magazine/16-03/ff_free

Free: the future of a radical price. Chris Anderson, 2009http://www.amazon.com/Free-Future-Radical-Chris-Anderson/dp/1401322905

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup

Twitter has many appealing opportunities for generating revenue but we are holding off on implementation for now because we don’t want to distract ourselves from the more important work at hand which is to create a compelling service and great user experience for millions of people around the world.

While our business model is in a research phase, we spend more money than we make.

From the twitter website (“About twitter” (2009))

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup

http://www.youtube.com/watch?v=0CDXJ6bMkMY

David Heinemeier HanssonThe secret of making money online

“Free” as a business model - maybe not?

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup

Free often doesn’t mean free for everybody

Two-sided marketsOne side finances the other. Often with advertising.Examples: Any newspaper, Google, Acrobat Reader, Games.

Platforms are often two-sided marketsExamples: Nintendo, PC, iPhone, Acrobat.

FreemiumBasic Service Free, Pro costs (Flickr, Dropbox, Evernote and many other online services)

The paying minority finances the free majority. (But digital services are cheap, so no big deal)

Typical conversion is 2-3%. These users pay for everyone else.

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup Examples of two sided markets

Geoffrey Parker and Marshall Van Alstyne (2005). “Two-Sided Network Effects: A Theory of Information Product Design.” Management Science, Vol. 51, No. 1

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup

Why does Google work?

Advertising targeted - really targeted!

Basic advantage: people are searching for something. (They are not on facebook, NYT ...)

Economic part of ad auction business is crucial (more crucial than PageRank)

E.g. they hired Hal Varian as Chief Economist (formerly professor Economics at Stanford)

Secret of Googlenomics: Data-Fueled Recipe Brews Profitability (Wired Oct 2009)http://www.wired.com/culture/culturereviews/magazine/17-06/nep_googlenomics?currentPage=all

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup

Digital Business Model TrendsAdvertisingMust be targeted as just seen. Examples: Google adwords, many websites, iAd (!!)

Saas (Software as a Service)Run Software in cloud/browser. Subscriptions (!). Example: Salesforce, 37signals.

FreemiumBasic service free, extended costs. “Drug dealers get it right” (ReWork)Examples: Flickr, Google apps, Evernote!

“Apps”Apple App store is huge success. (1 billion paid out). But note: not recurring for developer -> iAd

Virtual goodsMainly gaming. In game purchase of weapons, levels etc. Facebook virtual goods ($75 million* in 09(?)).

* http://www.businessinsider.com/breaking-down-facebooks-revenues-2009-7

What is special about Vision?In Terms of Business Model

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup

Special challenges for Vision StartupsB2B partly well established Industrial Vision, face recognition, ...

B2C no models established yetInvestors often point to the many image retrieval (by similarity) companies as failures although counter examples exist (Riya, ...)

BUT: new opportunities come around these daysNew generation of technology (local features etc.)Mobile phones with integrated camera (in general increasing amount of visual data on Web)New distribution platforms for services (app stores!)

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup

Case: Riya - like.comTried to do a Flickr competitor with face recognition but too little traction/adoption.

Switched to visual comparison for shopping and now cash flow positive with shopping referral model. Advertising to get traffic.

How we did it

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup

How we did it

Experimented a lotWere now able to turn from project business into recurring models

Still experimenting with joyThis year is gonna be interesting! Lots of opportunities to innovate.

We are making revenue ;)We have been making revenue from the beginning.No black numbers yet, but hopefully soon.

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup

How we did it

Experimented a lotFirst, we tried to do a “Google” (tagging across the web, better search results for people search)

Then we tried B2C (consumer service where users collectively tag people in their social graph)

Now we do B2B(licensing for mobile, desktop and cloud)

Not there yet but B2B seems to be the right model.

Q & A

Lear

ning

s fr

om fo

undi

ng a

Com

pute

r Vis

ion

Star

tup

ResourcesWikipedia on Business Models http://en.wikipedia.org/wiki/Business_model

Book: Blue Ocean Strategy http://en.wikipedia.org/wiki/Blue_Ocean_Strategy

Free (Wired Article) http://www.wired.com/techbiz/it/magazine/16-03/ff_free

Free (Book)http://www.amazon.com/Free-Future-Radical-Chris-Anderson/dp/1401322905

David Heinemeier HanssonThe secret of making money online

http://www.youtube.com/watch?v=0CDXJ6bMkMY

Geoffrey Parker and Marshall Van Alstyne (2005). “Two-Sided Network Effects: A Theory of Information Product Design.” Management Science, Vol. 51, No. 1Geoffrey Parker and Marshall Van Alstyne (2005). “Two-Sided Network Effects: A Theory of Information Product Design.” Management Science, Vol. 51, No. 1

Wired Article Googlenomicshttp://www.wired.com/culture/culturereviews/magazine/17-06/nep_googlenomics?currentPage=all