In the previous sections we saw the advantages of having a subscription website business model. We also discussed factors for selecting a business idea. In this section we would discuss some of the issues pertaining to developing your business model. This is mainly focused on the revenue streams and how you can set rates.
The very first aspect of developing your business model is to devise your pricing model and subscription rates. The best way to do this is to study your competitor sites and their pricing models. You should also make a comparison of the kind of services offered by your competitors. Subscriptions can be monthly, quarterly, annually, or even one-time. A report on online paid content conducted by Online Publishers Association (OPA) in 2002 concluded that although, one-time subscriptions grew a bit faster, all types of subscriptions still made considerable gains.
One time subscriptions priced at $50 or more had a year-over-year growth rate of
125 percent, while subscriptions priced in the range of $5-$49.99 experienced
122 percent growth. Depending on the content, generally websites charge a subscription price of around $5 to $25 monthly. However, it is important to have more than one pricing models. For instance, CNN news and other video content from RealOne.com can be downloaded by subscribing to a package costing around $9.95 a month. Subscribers to the service also get video from several other well-known sites. For another $10 a month, there's the gold version, which is good for 125 downloads and 125 streams of music on top of all the goodies in the RealOne bundle.
You can have different subscription rates for different packages offering different services. Also, in the case of monthly, quarterly, and annual subscriptions, customers could be given incentives mostly in the form of discounts to retain their membership. For instance if you charge $19.95 for a quarterly subscription, at the end of the term, the customer should be offered a discounted rate of around $16.95 - $17.95 for the next quarterly subscription.
A one-time subscription is offered when you expect the customer to download some content like an e book as a single transaction. This means you are not offering any recurring changing content. This is like selling a product – you are making a one-time sale of an information product.
A periodic subscription is seen when your site offers value over a period of time. There is changing content or the facility to interact with specialists or other members. You expect your member to visit your site again and again. The periodic subscription model generates revenues in advance of use, either in whole or part. It fosters a loyalty amongst its customer base.
If you wish to build trust in your offering and are just starting with a new site, you should think of offering a low subscription option either a low rate or a monthly package so that it can be considered a sort of trial period for your new member. Of course you can (and should) consider offering free as well as premium content on the same site.
Should one charge for everything or charge for some content, because free content attracts potential subscribers to the sites? To some extent this depends on how the free and paid for content are separated. A feeling of exclusivity can be created for those who receive paid content in contrast to those with access to free content. Other publishers seek to ensure the subscriber for content is receiving value without alienating the non-subscriber. Many of the highly successful subscription websites employ such a hybrid model.
Besides subscription sales and one-off sales, you can earn from affiliate income and commissions on cross selling to your members. If there are products and other services that are great for your member community vendors of those products and services will welcome the opportunity to leverage this relationship. You can earn commission on such sales.
You can also charge your members additional fees for special services or personalized coaching or extra privileges. Besides, you can offer them your own books, training material, videos and the like through your site. Some trainers also offer workshops and boot camps for advanced level training and these can be promoted with your members.
Scaling up and growing your business
As discussed earlier, one of the advantages of an online business is being able to scale up your website quickly and easily. Scaling up is essential for any business, more so for a website. Your softwares and databases should be such that they have the ability to handle a large customer database, even if you start very small. Your business model should be very flexible to accommodate customers’ needs while scaling up.
Approaching Venture Capitalists or banks is the traditional way to raise finance for your website. However, there are certain factors to be considered before you go to a bank or a VC.
Many people telephone an investment officer of a venture capital company and try to set up an appointment so they can explain their financial needs and the potential of their company. Most venture capitalists will resist such visits until after they have received the business proposal. Without the proposal, or at least a summary proposal, the venture capitalist has no idea of the details of the business. If you do meet he is not prepared to ask intelligent questions.
The business proposal is similar to the business plan, except that it is shorter and contains fewer details. A business proposal is much like any other proposal in that it proposes something to someone. In this case, it suggests how the venture capitalist and you can both make money. It is an abbreviated business plan with an emphasis on showing an outsider how the company will succeed.
Raising venture finance for an Internet business has become quite difficult after the recent crash. However, scores of ventures are still getting early stage investment from venture capitalists. The paid content model will generally be regarded a solid and stable business model and it should be possible to raise venture capital for good business ideas and well executed plans.
Several Internet businesses have met with considerable success for the original investor when they exited their ventures. Often larger players in a related market segment, including traditional brick and mortar businesses may be interested in acquiring your business. There are several instances where such business ventures have realized very attractive valuations.