The Revenue Streams Building Block represents the cash a company generates from each Customer Segment (costs must be subtracted from revenues to create earnings)
If customers comprise the heart of a business model, Revenue Streams are its arteries. A company must ask itself, For what value is each Customer Segment truly willing to pay? Successfully answering that question allows the firm to generate one or more Revenue Streams from each Customer Segment. Each Revenue Stream may have different pricing mechanisms, such as fixed list, bargaining, auctioning, market dependent, volume dependent,or yield management.
A business model can involve two different types of Revenue Streams:
• Transaction revenues resulting from one-time customer payments
• Recurring revenues resulting from ongoing payments to either deliver a Value Proposition to customers or provide post-purchase customer support.
For what value are our customers really willing to pay? For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues?
There are several ways to generate Revenue Streams:
The most widely understood Revenue Stream derives from selling ownership rights to a physical product. Amazon.com sells books, music, consumer electronics, and more online. Fiat sells automobiles, which buyers are free to drive, resell, or even destroy.
This Revenue Stream is generated by the use of a particular service. The more a service is used, the more the customer pays. A telecom operator may charge customers for the number of minutes spent on the phone. A hotel charges customers for the number of nights rooms are used. A package delivery service charges customers for the delivery of a parcel from one location to another.
This Revenue Stream is generated by selling continuous access to a service. A gym sells its members monthly or yearly subscriptions in exchange for access to its exercise facilities. World of Warcraft Online, a Web-based computer game, allows users to play its online game in exchange for a monthly subscription fee. Nokia’s Comes with Music service gives
users access to a music library for a subscription fee.
This Revenue Stream is created by temporarily granting someone the exclusive right to use a particular asset for a fixed period in return for a fee. For the lender this provides the advantage of recurring revenues. Renters or lessees, on the other hand, enjoy the benefits of incurring expenses for only a limited time rather than bearing the full costs of ownership. Zipcar.com provides a good illustration. The company allows customers to rent cars by the
hour in North American cities. Zipcar.com’s service has led many people to decide to rent rather than purchase automobiles.
This Revenue Stream is generated by giving customers permission to use protected intellectual property in
exchange for licensing fees. Licensing allows right sholders to generate revenues from their property without
having to manufacture a product or commercialize a service. Licensing is common in the media industry,
where content owners retain copyright while selling usage licenses to third parties. Similarly, in technology
sectors patentholders grant other companies the right to use a patented technology in return for a license fee.
This Revenue Stream derives from intermediation services performed on behalf of two or more parties.
Credit card providers, for example, earn revenues by taking a percentage of the value of each sales transaction executed between credit card merchants and customers. Brokers and real estate agents earn a commission each time they successfully match a buyer and seller.
This Revenue Stream results from fees for advertising a particular product, service, or brand. Traditionally,
the media industry and event organizers relied heavily on revenues from advertising. In recent years other
sectors, including software and services, have started relying more heavily on advertising revenues.
Each Revenue Stream might have different pricing mechanisms. The type of pricing mechanism chosen can make a big difference in terms of revenues generated.
There are two main types of pricing mechanism: fixed and dynamic pricing.