Week 4 and the online Business model

            So this week we talked about multiple different business models that have emerge from the Internet or the “liquidity of information.”  Some of these models are fairly familiar by now such as the Amazon model or the EBay model.  Amazon is like the Wal-Mart of the Internet.  Utilizing a low cost structure to provide low prices on a huge variety of products.  EBay engages in the broker business model.  Either customer-to-customer or business-to-customer, they provide a platform where people can buy or sell and they take a cut or a listing fee.  The advertising model is also very familiar by now.  Websites that make money by having banner advertisements that direct people to other sites. 

            These are all familiar to me.  The most interesting discussion this week was about some other business models developed.  Notably, the model of providing free content but then having purchases within the content was interesting.  I have been familiar with this before from the consumer side.  In-app-purchases are a way to get the consumer to be hooked on your “free” product and then make a purchase within the app to advance.  This is a hugely popular strategy right now on the app store for games.  The question I wonder about is how sustainable this strategy is? 

            I am constantly frustrated by apps that seem enjoyable but become useless without a large financial commitment.  Typically these games allow you to play for a short while then make it very difficult (or impossible) to proceed with out an in-app-purchase.  I would often rather pay a price for a game up front and then not worry about the progression of how much I will have to pay to continue.  A balance needs to be struck by these app developers.  From the business side you need the customer to become hooked without being turned away by in-app-purchases to early in the game.  They also cannot wait to long to offer it because apps are often forgotten quickly for a new game. 

            Also interesting was the discussion of companies like Warby that have gone from 100% online to adding physical locations.  The most interesting thing is that you cannot purchase glasses directly from the show room.  An order still needs to be placed online.  This direction being taken shows that there is still room in this world for a physical location where people can physically interact with the product.  I think more and more these “showrooms” will become the prevalent style of shopping.  Soon instead of mall full of product you will see malls full of show rooms.  This should help eliminated some distribution and inventory costs and allow companies to deliver low prices at higher margins.  Very interesting model.