Business Models: A starter-for-ten

[Ewan McIntosh]

At Tuesday's Creative Scotland quarterly meeting there was a definite vibe (and a question from the audience) that led me to feel that large parts of the creative industries still feel that having to think about making money at the outset of one's idea is an incompatible requirement with, well, being creative. I'd disagree.

With 4iP we're finding that thinking of how one's idea can at least support itself within a year or two is, in fact, making good ideas excellent and weeding out ideas that would have been a weight around the necks of the independent companies having to continue hosting, maintaining and improving them - or, when it starts to cost more than it generates, killing them. But how we support, say, the forthcoming Central Station platform, with no advertising continues to baffle many who have seen that as the main means of paying one's way. What "business models" might there be to help sustain our ideas?

Michael Rappa from North Carolina State Uni's Institute for Advanced Analytics posts a great starter-for-ten showing how business models have become as important to seize, if not more so, than the traditional staking of intellectual property on actual running code and Artificial Intelligence. When I kicked off 4iP's work in Scotland, I remember a slight frisson in the room when I suggested that a possessive attitude to ideas through Intellectual Property laws and the insistence on NDAs before talking about ideas would be detrimental to everyone - it was how you exploited your idea, not that you had it in the first place, that would make the difference in a product's success.

Rappa outlines nine main business model categories, and goes on to provide some clear examples of how these have been applied and even patented:
* Brokerage (marketplaces, "name-your-price", auction, distributor/search agent)
* Advertising (banner, affiliate, personalised portals, niche portals, classifieds, user registration for ultralocal placements, intromercials/pre-roll, ultramercials or click-to-continues)
* Infomediary (gathering data to sell on to targeted campaigns, audience measurement service, loyalty information)
* Merchant (digital sales, virtual store)
* Manufacturer (direct sale of a product, licence of a product to a third party, white labeling)
* Affiliate (pay-per-click and revenue sharing of advertising and distribution of that advertising)
* Community (harnessing a volunteer community or accepting donations)
* Subscription (free content for all plus pay-for content, or "Freemium", could include better content services, trust networks/affiliation)
* Utility (metered subscriptions or usage)

Clearly some of these are already feeling out-of-date as we move relentlessly towards ways of making the end-product free à la Chris Anderson, and others are emerging, particularly in 4iP where we seek to marry revenue generation with public service value.

What's missing from this list? What's now redundant? Which of these are best for a new breed of self-sufficient sustainable public service media on the net?

Kind of cross-posted at 4iP.org.uk. Tip of the hat on Rappa's work to Mr C.

[Traidmark.org]

This discussion is great as business models appear to be the bedrock of future innovation and public service. http://www.Traidmark.org is a way to create institutional innovation that benefits everyone.

More details at...
http://www.4ip.org.uk/blog/post/improved_chances_of_funding_in_the_next_tranche/

[Ewan McIntosh]

The Freemium model that he suggests has probably not got the finesse required, as you say. It's the improvement of the experience where value lies (Apple's iTunes, Spotify... lots of examples in music purchasing actually). Improving process, though, often doesn't happen because it means someone has to realise that the process they worked so hard at originally has no value now or very soon. It's hard to kill your own puppies, but essential if we are to improve those experiences online. It's not all about old/new media in some kind of battle of expertise. New media and high tech cos have to kill their assumptions too at an increasing rate. One example: signing up. I've already done a riff on that game-changer.

[Anne Bonnar]

There is also public value

Very interesting discussion as business models are changing everywhere as part of our state of turmoil. I am currently looking at taking the 'box' and 'office' out of box office right now..

[Stuart Cosgrove]

I think he should add one on haptic/emotive value where a product, service, or technology adds value to a process, a product or an experience enriching it for the user or community.
Value can be derived via patents but also via sub-licensing, or the free-to-premium model. Maybe its the 'enhanced value model'

[Stuart Cosgrove]

One of the big challenges facing the Digital Media Advisory Group is captured in Ewan's original post, as business methods and models change and re-shape we are seeing not only innovation in technologies and platforms, but significant innovations in business methodology and growth. It is testing, it challenges funders and in many cases is ahead of the established certainties of the investment community, who are often risk-averse in traditional modelling let alone web 3.0

[Ewan McIntosh]

So do I :-) Some people would argue, though, I'm sure that 4iP hasn't been taking enough risk. I've discovered two distinct ideas of risk. The first is quite common, that we should be taking a punt, a spread bet, and the chances are some of those ideas will succeed. We'll have taken an ill-thought-through risk in the hope that one of those will be a success simply by virtue of the great team behind it or product idea. In reality, this method isn't effective and the ideas that don't work well often take more time out of our days as commissioners of projects than those that are really successful.

Our approach to risk is one where we will take measured risk, where there is a good potential for return from the initial project idea, a potential that has been identified by the supplier (as they are the ones that will have to drive this idea forward and look after it once 4iP has left the party). It means that we take a great level of care and due diligence when scoping out not only the idea but the people behind it. They might be unknown to us (and we're discovering loads of new talent) but we can see from their professional lives to date whether they're capable of reducing our risk on that front.

The most important element of mitigating risk, though, is less to do with business planning and more to do with the idea itself - will people find it, come back to it because they feel a need to, and get some value from it? These three questions are where most ideas fall down because one or all of them end up unanswered.

[Anne Bonnar]

Thinking about business models is important but only one side of the coin.
The other is that funders need to take risks in investing in ideas where the business model and reward may not emerge for some time. This has not been the norm for public sector cultural bodies.
Hope that the Creative Scotland funds announced for Digital Media Investment Fund will take on the 4IP approach in terms of managing risk

[Ewan McIntosh]

The above post came to me in a timely manner as I'm in Aberdeen tonight to explain, in 10 packed minutes, what 4iP's interested in. The fact is, we're interested in an area that can't be unpacked in 10 minutes flat. What I see in my day-to-day work is that traditional production companies with a heritage in content production want to continue having that cake without taking the plunge to hire some technologists and biz dev people who understand, live and breathe this way of tihnking. Likewise, though, in fairness I don't see anywhere near enough startups thinking about how a user would use something, or why they would even come to it in the first place, something traditional media content makers are really good at working out. Both sides - traditional and hitech - need each other, I think, to get the best ideas out there. An example: Webb and Shultz are a top design agency, but Webb isn't a designer (and reminds us every time he speaks). We need that appreciation that it's both the shared vision you talk about (which we're getting there with on some fronts) and turning it into hard and fast changes in our companies' directions through hiring the right MIX of people.

[Colin Jack]

The business process discussion is heading in the right direction. All of them are valid. The problem is that the "traditional" media formats are not easily applied to digital business processes.
I have been arguing for the past few years that a new file format for music is required. The same could apply to TV, Radio and Film.
The people that I have spoken to have not been from an IT background and have not understood what I was saying. There has also been an attitude that it would not be possible for a few people in Scotland to start a revolution in the music industry, and that we would need to get direction from MIT or some other research institution before we could move forward. I disagree.
The IT industry has been built by organisations such as HP, Microsoft, Apple, Google etc. They were all started by small teams of people working in sheds and bedrooms.
We have people who understand business processes, people with technical skills, plus an identifiable culture with world leading artists.
If the right people get together with a shared vision, we could lead the world in public service and commercial media on the net.