Popp (2011b) defines revenue model as the compensation that a company gets for its goods and services, not having to be this compensation in a payment form (Popp, 2011b). Therefore, as mentioned already, the revenue model answer to the question of how the company gets their income.
Besides, the revenue model is closely related to the business product that a company tries to take to the market. For instance, considering the blogging example again, the revenue model the blogger is to use in order to monetize or obtain some benefits out of the published content will be different than the revenue model used by the platform provider (WordDive or Blogger in our example). This difference comes from the fact that the business product of the provider contains the specific software needed in order to develop the blogging platform, whereas for the blogger the business product is all about the content to be hosted on the platform and published to the readers of the blog.
Table6 shows most common revenue models available for online solutions when software is part of the business product and offered as a service:
Table6. Most common revenue models for Software-as-a-Service (Adapted from Ojala 2013).
Revenue Models Definition
Pay-Per-Use Revenue depending on the usage which can be measured in different ways.
Software Rental / Software licensing Revenue from renting or licensing software for a specific time range or in a subscription format.
Freemium Offering some features for free and the rest
under a paid format (Free + Premium).
Open-Source / free software Allowing the software to be used by a third party or even offering it for free.
Commonly used by public institutions or nonprofit organizations.
Content, Media or Other-format based. Revenue coming from the content rather than from the software itself.
Thus, applying Popp's definition to the software ecosystem, the revenue model defines how a company makes profit out of their software usage. Furthermore, as seen in the table, software revenue models can be classified into two groups, those that provides income from the software usage, such as Pay-Per-Use, Software rental, Software licensing, Freemium or Open-Source/Free software; and those revenue models that despite of using the software do monetize out of something else, such as Content, Media and Other-format based. Furthermore, within the software as a service industry, the latter revenue models can be regarded as the least software oriented, in fact, these revenue models coincide with the ones the blogger in our example might for instance use as to monetize or get some benefits out of the content published. Figure6 shows many of the media revenue models available that are used recently.
As can be seen in the figure, all these revenue models provide some sort of income to their owners out of the content offered, and also many times by utilizing indirectly the platform in which they are located. For instance, for the blogging example, affiliate, advertising, brand, leads, partnerships, events and those based on communities could be of a great help in order to get good and stable incomes on the published content.
Recently, this phenomenon of using media revenue models for obtaining income is rather frequent and common. Besides, it is oriented only for online services that look for monetizing out of pure content, as the blogging example, but also for those companies having software as part of the business products and offered as a service. As FigureX showed, due to a variety of different and diverse reasons, it is perfectly normal for companies to have many different revenue models on the same product, thus explaining why companies do use media revenue models with software products also.
In addition, likewise the content based subscription media revenue model, for software as a service, as seen in Table6 above, the pay-as-you-go or pay-per-service can be regarded as the software subscription-like revenue model. The idea of this model is to pay for software usage according to different indicators. Besides, the current browser-based character of online solutions makes these subscription-like revenue models be commonly used due to the ease to measure in one way or another the usage of software done. (Rönkkö et al. 2011) However, for software manufactures the use of these models do present some disadvantages as well. Table7 shows the pros and cons of these revenue model from the software manufacturer's point of view.
Table7. Advantages and disadvantages of Pay-as-you-go and Pay-per-service revenue models for software manufacturers (Adapted from Ojala 2012).
Advantages Disadvantages
Diversifying customer base Risk of not covering development costs Promoting network externalities effect Need of accurate usage rate measurement Limiting software piracy Lowering customer switching costs
As can be seen in the table, where lower switching costs is a sounded disadvantage for manufacturers, it does become an important advantage for customers as it make customers eager to try the different alternatives offers without having to incur in high costs, thus holding negotiation power. Therefore, in order to diminish this power, online solutions providers make use of marketing campaigns together with freemium models as to raise and gain customer awareness. However, Rönkkö et al. (2011) claim that with the use of subscription-like revenue models, the need of complicated usage measurement techniques reduces, thus leading to a decrease of costs and then risks for the provider. Furthermore, the authors continue stating that by using different sales modes and channels, online software solutions providers do obtain bigger revenue than when selling larger amount of software systems deliveries. Therefore, those online software companies that do use almost half of their budget to marketing and sales activities tend to acquire a higher number of customers, who despite of spending a smaller fees on the services on a timely based, this higher number will suppose a bigger rev for providers in the long run. In addition, this bigger customer base generated leads to recurring revenue predictability, helping to the development and success of the company. (Rönkkö et al. 2011)
Finally, Rönkkö et al. (2011) also state that business models and revenue models have a highly influential and fundamental role towards innovation, meaning that it is important for companies to select a business model and revenue model in line with the innovation management process of the company in order to trigger other possible innovations or lead to future improvements.