Understand Revenue Stream

Knowledge Sharing:
1. The publisher makes money because he or she is being paid a commission for any work that coincides with the affiliate program. Advertisers make money because they keep the majority of the sale, or get new leads and only pay the publisher if they help the advertiser.
2. Marketplaces are difficult businesses to get off the ground. A marketplace without buyers cannot attract sellers and vice versa.
3. In fact, the infamy of this proverbial chicken and egg problem detracts entrepreneurs from the challenges that a marketplace presents after it has successfully gained adoption and is successfully matching buyers with sellers. After all, marketplaces for products, like Ebay and Etsy seem to have it all working for them once they gain adoption.
4. Services marketplaces, however, present a unique challenge. Most services marketplaces cannot facilitate a transaction before the buyer and seller agree on the terms of the service. Also, actual exchange of money often follows the delivery of the service and the delivery of the service requires the buyer and seller to directly interact with each other. Connecting buyers and sellers directly before facilitating the transaction cut weakens a marketplace’s ability to capture value. The party that is charged is naturally motivated to abandon the platform and conduct the transaction off-platform.
5.  Marketplaces that fail to capture the transaction often resort to a lead generation, paid placement or subscription-based revenue model. The classifieds model has traditionally worked on paid placement. Dating websites and B2B marketplaces work on a subscription-based model while several financial comparison engines work on a lead generation model. However, lead generation models are attractive only at very high levels of activity and subscription-based revenue models make the chicken and egg problem worse than it already is. If your monetization model involves extracting a cut from the buyer-seller transaction, you need to figure out a way to own the transaction.
6.  Services marketplaces like Fiverr, Groupon and Airbnb try to solve this problem by preventing the users from directly connecting before the actual transaction. These marketplaces typically try to provide all the information that a buyer needs to make a transaction decision. Groupon features services from sellers that are largely standardized. While less standardized, Airbnb and Fiverr try to provide enough information for the buyers to make a decision without having to contact the seller.
7.  Additionally, some marketplaces charge the buyer ahead of the transaction and remit money to the service provider after the provision of services, thus providing some insurance to the buyer, encouraging her to transact.
8.  Unfortunately, the above strategies fail with professional services marketplaces for two reasons.
First, it is much easier to take the transaction off-platform in the case of marketplaces connecting professionals. Freelancer marketplaces like Elance or expert marketplaces like Clarity are particularly prone to off-platform transactions for two reasons:
a) Clients need to know information about service providers before making a transaction decision
b) Once the end users know each other, they can potentially connect directly on LinkedIn or other networks, thus avoiding the platform cut
Second, professional services marketplaces require discussions, exchanges and workflow management during the provision of services before the actual charge can be levied. As a result, charging the buyer ahead of the transaction is all the more complicated.
9. This may sound counter-intuitive. After all, a marketplace’s goal is to connect the two sides, complete the transaction and get out of the way, isn’t it?
10.  Clarity provides additional call management and invoicing capabilities that serve to capture the transaction on the platform. Since the call management software manages per-minute billing, advice seekers have the option to opt out of a call that isn’t proving too useful. For the experts, the integrated payments and invoicing provides additional value. There is enough value for both sides to prevent them from leaving the platform to avoid the cut.
11.  Clarity is one of many examples of platforms which are using workflow management solutions to capture the transaction. Services marketplaces like Elance focus on providing work-tracking and billing solutions that provide value to both sides and capture the transaction on-platform.
12.  Secondly, a marketplace is only as good as the liquidity of available suppliers. As a result, there is no real need for a buyer to stick to a particular marketplace, transaction after transaction, especially if two or more competing marketplaces have similar liquidity and choice. Workflow management solutions help create stickiness because the requirement of on boarding on and learning new workflow management tools acts as a greater barrier to switch and can potentially keep users loyal to a particular marketplace.
14.  In recent times, we have been seeing the model flipped. Businesses are now building SAAS workflow solutions first to get entrenched among the demand side and then opening out the marketplace, to get suppliers in. An invoicing service spreads out to become a B2B order management platform. A payroll software provider expands to append a marketplace that can bring in freelancers which are then managed using the same payroll software. This also solves the chicken and egg problem by staging the launch of the marketplace.
15. In general, if you run a marketplace that requires services to be exchanged remotely, provisioning workflow management solutions to facilitate this exchange is a great way to own the transaction and create greater engagement and stickiness for users.
16. Software as a service (SaaS; pronounced /sæs/ or /sɑːs/[1]) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted.[2][3] It is sometimes referred to as "on-demand software".[4] SaaS is typically accessed by users using a thin client via a web browser. SaaS has become a common delivery model for many business applications,
17. In marketing, lead generation is the generation of consumer interest or inquiry into products or services of a business
18.

Types:
1. Commerce and Retail(Selling physical and digital goods, Service Sold per unit, Service with fixed price, Sale of service for future use, Daily Deals and Flash sales)
2. Subscription and Usage Fee (Rental)
3. License (Patents)
4. Auction and Bids (Dynamic Pricing)
5. Advertisement (Promoted Content, Sponsorship, )
6. Data (Database)
7. Transaction and Intermediation (Brokerage, Transaction Enabler, Affliate Program, Create a platform and marketplace)
8. Freemium (Paid Version without Advertisement, Without Restriction and With additional Features)
9. Common in the financial industry (Interest Revenue, Asset Mgt Fee)
10. Affiliate model


About Transaction Revenue Model
1. Transaction Processing is not a "net native" business model. There have been businesses built up around processing transactions for a long time. But the Internet and Mobile present some challenges in processing transactions and therefore there are opportunities to build substantial businesses around helping companies process transactions.
2.  The thing that all of these forms of transaction processing have in common is the processor handles a transaction that was generated by another product or service and provides some form of completion service and charges a fee for doing so. That could be processing a credit card transaction, handling a banking transaction, shipping something to someone, completing a call originated on another network, or distributing a third party app on an internet or mobile platform.
3.  Platform distribution fees are the outlier as they are often very significant, Apple charges a 30% cut in its app store.
4.  PayPal processed $145bn of transactions in 2012 and generated $5.6bn in revenue. Out of that $5.6bn, PayPal has to cover all its costs including processing fees to other transaction processors, customer service, fraud prevention, fraud losses, technology and development, and several others. I am certain that PayPal makes a very nice profit off of that $5.6bn of revenue but it is probably on the order of $1-2bn, which is in the range of 1% of the total transaction volume.
5.  Business needs scalability.
6.  One of the challenges of this business model is that the fixed costs required to process transcations can be significant and you will operate a loss until you can get to scale. You can see that by looking at how much capital Square has raised to date. Crunchbase has it at $341mm.
7.  It is better to do business in painkiller than vitamin.

About Subscription Model:
1. Gone are the days of simple one-time transactions with customers as the subscription business model goes mainstream with companies like Dropbox, Netflix, Adobe and Zipcar because it offers a predictable, recurring revenue stream.
2. Subscription models used by companies like Salesforce offer customers different levels of functionality for a variety of prices per seat, per month. That, in and of itself, might not be too complicated to calculate and bill. But what happens when a customer upgrades or downgrades in the middle of the billing period and prorated billing must occur? Or the credit card “on file” expires and renewal billings fail? How do you bill customers for actual usage? What’s the tax rate on your product? Can you track each product’s churn rate?
3.  To settle just one lawsuit for non-compliance in April 2013, Symantec offered $10 refunds or free subscription extensions to 3,900,000 customers
4. 1. Revenue recognition
2. Taxation
3. Credit card expiration/payment method changes
4. Compliance
5. Analytics
6. Lifecycle management
5. Great subscription businesses are built first by steadily booking new business and then by consistently retaining those customers. The ability to achieve each of these goals will be greatly affected by the systems and processes the company puts in place from the start.
6. Building a recurring business means processing a (hopefully growing) stream of subscription orders.
Each of those orders will need to kick off a process to set up a subscription period, provision the
service offering, generate one or more invoices and recognize revenue. Ultimately, it should also
remind you to terminate that subscription at the end of the period—or better yet, help you renew
it. That process is significantly more complex than the one order = one shipment = one bill = one
revenue posting world of the one-off model.
7.  recurring revenue businesses create more complexity in the process and more
demand for data than traditional businesses. They require sophisticated, integrated systems for
handling the throughput, capturing the data and facilitating the analysis. It’s important to set up
an infrastructure in the beginning that can manage the complexity and evolve with your company,
allowing you to react competitively and expand into new areas as you grow. Below are a few
practical recommendations for establishing a recurring revenue business that can grow and adapt
for years to come.
8.

References:
http://en.wikipedia.org/wiki/Revenue_stream
http://en.wikipedia.org/wiki/Subscription_business_model
http://en.wikipedia.org/wiki/Advertising
http://www.wisegeek.com/what-is-an-affiliate-model.htm
http://www.bridgepointconsulting.com/wp-content/uploads/2013/02/Recurring-Revenue-Model-Best-Practices.pdf