A business model (BM) is a company's plan for making profit by describing how an organization creates and delivers value to customers with its products. So, business models are the company's core strategy for profitably doing business. It characterizes products that a company provides, and the way a company is compensated for them – a revenue model. Over time, business models have to be revised to reflect the changing business environments and market demands.

In spite of the varied publications in the field, there is no single classification of software business model types. Creating a software business model involves a combination of the following properties:

• Distribution: is used to provide services or create products for customers. Three main distribution approaches can be distinguished on the IT field: on-premise, cloud, and hybrid.

• Source code licensing: is a type of license for software that allows the source code to be used, modified and/or shared under defined terms and conditions. Basic licensing options include proprietary or open-source code.

• Revenue streams: defines the way a company gain revenue for its products and services. Typical revenue streams include ad revenue, sales, subscriptions, and their combinations also.

• Business model interaction: can take a form of one-to-many or many-to-many interactions. In the former case a provider directly solves customer problems, while in the latter one a company creates a platform where both the end-providers and the customers meet.

• Target audience: is those group of users to which the company sells products or services. Typically, it can be business-to-consumer (B2C) or business-to-business (B2B) approach. The former means selling a product or service directly to a consumer, while in the latter case the company sells services to other businesses.

Figure 1. Extended Product Vision Board. (Based on [2].)

• Competitor: shows the strengths and weaknesses of the competitors. It is usually the result of competitor analysis activity. The analysis helps to find superior value for the product.

• Revenues: states the revenues generated by the product. There can be myriad (see below) of was to gain money, for example, through licenses, subscriptions, or by charging for premium features.

• Costs: captures the cost incurred by developing, purchasing third-party products, marketing, and supporting the product.

• Channels: depicts how customers are informed about the product in different communication channels. For instance, on-line media, conferences, or trade shows.

Common revenue streams

• License: means that the software owner charging a customer once for installing the software. This approach is the most common monetization approach to \thindex{on-premise software} (i.e. installed and runs on computers on the premises of the organization). (e.g. Adobe Photoshop)

• Subscription: gives an access to the software for a given period of time such as for a month or year. In this approach the software is run and maintained by the software provider. (e.g. SalesForce)

• Freemium: provides a basic version of the software for free, but charging for premium features. (e.g. Grammarly)

• In-app advertising: gains revenue from advertising other products in the application. So, it allows to make money by selling advertising space in the application. (e.g. Angry Birds)

• In-app purchasing: means that (physical e.g. cloths, or virtual e.g. in-game currency) goods are sold though out the application. (e.g. Mario)

• Bait and hook: gives a discounted of free product and gaining revenue by selling an other bounded product that locks vendor or technology in - that is when a customer is dependent on a certain product and cannot switch easily. (e.g. Amazon Web Services)

• Usage-based license: means that customers are paying a minimum or free license fee and they are paying extra for extra services such as computing power, or user count. It is used mainly in B2B products - and often called as "\thindex{pay-as-you-go}". (e.g. Shutterstock)

• Transaction fee: counts the number or the monetary size of the transaction as the basis of the fee. The calculation can be percentage-based or flat (i.e. fixed price) fee. (e.g. Uber)

• Premium charge: the product is basically free, but the producer gains extra fee for providing extra services - such as service, support, or consulting - for corporate clients. (e.g. RedHat)

References

[1] Alexander Osterwalder and Yves Pigneur. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. John Wiley and Sons, 2010. ISBN: 9780470876411.

[2] Roman Pichler. Strategize: Product Strategy and Product Roadmap Practices for the Digital Age. Pichler Consulting, 2016. ISBN: 0993499201.