Technology 101: Monetisation—2 revenue models for tech start-ups

Photo credit: YHP

by Oluwatobi Soyombo

One of the major things that confuse tech start-up founders is monetization. Truly mapping out income streams from an idea can be cumbersome especially with internet start-ups. Due to this, many of these founders have resorted to offering free services hoping to charge a fee some day, but the start-ups never live long to see those days. Some have also considered Google Adsense which hardly make them anything. These have led to the premature death of numerous tech start-ups and led to the frustration of many of start-up founders. Today, let’s consider two revenue models you can base your start-up on.

  1. Freemium: This is one of the most common model found on the internet today. It is a situation where the basic features of a service/product is made available free of charge and advance features are offered at a fee. This model needs large user base to be successful. Analysts believe that only 1% of the free user base will upgrade to the advance mode; this calls for the founder to map out how to gain more returning users of such service or product. So, as a tech entrepreneur, you want to ask yourself, what basic features can I offer to the public at no cost and what advance features can I offer at a cost. For this model to be effective, entrepreneurs must ensure they create basic value sets that are good enough to entice the public to request for the advance features. Except this happens, the start-up will continue to offer the basic services with no-one requesting for the advance service. Also, the advance features must be worth more than a penny. It must be something worth upgrading to; or else your free users will just hiss and navigate their mouse off the “Sign Up” button.
  2. Subscription Model: This is the selling of continuous access to a service. As opposed to selling a specific product to users, they simply pay a subscription fee to continue to enjoy such service. This fee can be monthly, yearly, weekly and the likes. For instance, web hosting companies charge a monthly fee for users to host their files on their servers. Once payment is not made, services will be disconnected immediately. Depending on the nature of the start-up, this model can have its advantages. You have to look for a way to keep your users coming back to enjoy the services. For example, an online news service, can create a subscription service where people pay a certain fee to get exclusive reports on their phone and email or users can simply pay to gain access to certain contents on the site.

Which revenue model to use depends heavily on the nature of the business and the targeted customers. However, it is important to think monetization except if it’s an open source start-up.



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