Question

Describe business models available to digital businesses that may be impractical for more traditional “brick and mortar” businesses.

Your group is inclined toward using a freemium business model for its new App. Discuss some considerations of executing a Freemium business model

Answer 1

The business models available to digital businesses that may be impractical for more traditional “brick and mortar” businesses include :

1. The Subscription Model : Although prevalent before as well, the actual use of this model has been done efficiently and effectively by the digital businesses. For example :OTT companies offering various subscription categories, being monthly, weekly and yearly. The model has engrained in the online business to such an extent that some apps have started giving subscriptions on daily basis as well.

This model, although prevalent in brick and motor business, but did a better job in the online/digital businesses with tons of businesses revolving around this model.

2. The Free Model : This model could be used by digital businesses most efficiently. By providing services at free of cost and earning through other sources like advertising could be best applied online. With a better targeting facility available online, advertisers are heading towards online flatforms for advertising. On the other hand, consumers in search of low cost goods/service are attracted to this model. Since very low costs are involved in running online businesses, This model can be used there efficiently as opposed to brick and motor model having high fixed costs.

3. Freemium Model : This model constitutes of providing services for free termed as trial for some time before actual customer billing/ payment is charged. This is a much better model for digital businesses. Basically, with this mode, one is trying to lure customers into using our products and show them how the product will be beneficial to them. Even a reluctant customer can easily register for free trial. Once a customer uses the service, it is easier to pitch them the full fledged paid services.

Usually this model is for a reluctant or new consumer. Digital service is easier to each such a customer. Offline, a customer may not even visit the physical store for the service. In that case, the model would not be of much a use there.

Considerations of executing a Freemium business model for the new app:

i) The Freemium Model could be a good idea to acquire new customers by a new business. Without any usage barrier, there is a higher chance to tap larger customers base.

ii) Reluctant customers can also be tapped using this model which increases the original customer base.

iii) It may be profitable as well. Using the model, one can also save on other advertisement costs.