At Startup Giants we only invest in freemium or marketplace concepts, subsequently a number of founders come to us asking what the difference is between these two business models, so we thought we’d take a moment to explan …
Think of airbnb, Compare the Market, JustPark, ebay, etsy, Uber…
How do they make money?
Each of them takes a small price from every sale. When the customer makes their final payment, the marketplace owner will take a percentage or a set fee from that amount.
This is a very positive business model – the providers of each service are happy because you’re doing the hard work of sourcing consumers for them. Often they won’t have to even pay a fee to be part of your site. And the consumer has had an easy time shopping for their services or products online, generally with time saved as a result.
Because a marketplace business model relies on a large amount of users you need to be able to identify, access and market to them in a highly scalable manner. We teach you skills for growth hacking but it requires a lot of work.
If you are planning on becoming a site like etsy that charge a listing fee you really need to think very carefully about the pricing element. Can your end-users bypass your site to get the service they require for less? You need to ensure that you add so much value to your product or service that they don’t begrudge paying you, in fact they accept the payment and talk about it as a minimal and positive investment in the overall concept because they receive so much value in return.
Where do your marketplace customers go when they’re bought the service? Will the company they’ve bought through communicate all future marketing with them directly, or will you have the opportunity to remain in their minds?
Think of spotify, slack, skype, even LinkedIn…
How do they make money?
Typically this business model initially boomed as SaaS (software as a service), so think of your Dropbox account. Many of you signed up to that using the initial free offering which gave you a specific amount of storage in the cloud for free, they then tempt you with a higher level of services which will dramatically benefit you if you sign up to a monthly subscription fee.
Intrinsic to the success of this business model again is a high customer base to market to, who has had a problem that they may or may not have been aware of, solved.
Totally key here is the kicker we’ve spoken of before and the service options above the free level. You have to give just enough use to whet their appetite, the last thing you need to do is spend budget creating a free product that’s good enough to use on its own. A fantastic example of this type of model is later.com. On the free offering you get 30 uploads per month to a social media account of your choice, however, it’s capped at that and you find out far greater analytics that help you boost your posts and following when you subscribe. Everything about their brand site is clean, easy to use and quick to get started.
You need to ensure that the follow on service is substantially beneficial and leads to a higher level of success for your customers.
Two elements to bear in mind when writing about your concept:
- The language used on marketing materials in this genre is very friendly, like they’re your best pal who’s trying to help you solve a problem. Try to write yours in the same manner
- They are clear in their goal to simplify and solve an issue that their target market may have
For both the freemium and marketplace models, you need to test out your user base’s requirements fully first. The more you can test what makes someone go ahead and purchase a subscription or a product, the better you’ll be placed to market your idea to them.
The good news? Whilst it should be obvious which concept your idea pertains to, the Startup Giants team is ready to help and guide you through the thought process, viral design, development and launch strategy.
Right, now go and work on your concept and get back to us!
Cherry has worked in branding, copywriting, communications, and PR for over 14 years, and is Chief Wordsmith at Startup Giants and our main point of contact for journalists and editors.