Business model

A business model is a plan for a company.

It helps them make money. It shows how they make and sell things.

One plan is like a hook. A shop sells a main item for a low price. Then, they charge more for the parts you need later.

This works for things like printers and ink.

Some companies use a pipe plan. They make a thing and push it to buyers. Other companies use a platform plan. These help different groups meet and trade.

New tools like the internet change these plans. They help companies reach many people. A good plan helps a business grow well.

A business model is a plan for a company. It explains how a group makes and sells things. It also shows how they earn money.

Some companies use a "bait and hook" plan. This is also called a tied products model. First, a shop sells a main item for a very low price. This is the bait. Then, they charge more for things you need later. These extra items are the hook.

For example, a shop might sell a printer for a low cost. But, you must buy ink to use it. This ink is the hook. You can also see this with cell phones and air time. Or with cameras and the prints you make.

There are also two big ways to move goods. One way is called a pipe. In a pipe model, a company makes goods. Then, they push them out to customers. The other way is a platform. A platform helps different groups meet and trade. This is a very big part of the modern world. Many companies use the internet to reach many people quickly.

A business model is a special plan for a company. It describes how an organization creates and delivers value. It also shows how they capture that value to make a profit. This plan includes many parts like the company's purpose and its customers. It also covers how they spend and earn money.

A business model helps managers explore new ideas for the future. It can be a way to describe how a company works. Some people even use these models to help with accounting.

One way a business works is called the bait and hook model. This is also known as the tied products model. First, a company offers a basic product at a very low cost. This is the bait. Then, they charge more for things you need to use it. This second part is the hook.

For example, a printer might be cheap, but the ink is expensive. Cell phones can be the bait, while air time is the hook. Adobe used a version of this for their software. They gave away a document reader for free. However, they charged hundreds of dollars for their document writer.

People have used different business models for a long time. The term "business model" first appeared in 1832. Since then, these plans have become much more complex. In the 1950s, McDonald's and Toyota used new models. The 1960s brought new ideas from Wal-Mart and Hypermarkets. By the 1970s, FedEx and Toys R Us were innovators. The 1980s saw companies like Dell and Intel change things. In the 1990s, Amazon and Netflix arrived. Today, many models depend on how we use technology.

Modern business models often move from "pipes" to "platforms." A pipe is a linear model. In a pipe, a company makes goods and pushes them to customers. Value flows in one direction, like water in a pipe. A platform is different because it is networked. It helps different groups of people meet and trade.

A successful platform needs three things. First, it needs a toolbox to create connections. Second, it needs a magnet to attract people. Finally, it needs a matchmaker to help people exchange value.

Platforms use many ways to make money today. Some use a subscription model with a monthly fee. Others use a freemium model where some parts are free. Advertising is another very common way to earn money. Some platforms even use data to help them work. This helps them make personal recommendations to users. This is very different from how old companies worked.

These new ways of working are changing entire industries. Technology allows businesses to reach huge numbers of people easily.

A business model is a framework that describes how an organization creates, delivers, and captures value. It serves as a specific plan for how a company conducts itself, spends its resources, and earns money to generate profit. Beyond simple finances, a business model can encompass a company's purpose, its target customers, and its organizational structures. It also includes operational processes, sourcing, and even the internal culture of the firm.

By using these models, managers can explore possibilities for future development and use them as "recipes" for creative growth.

Researchers often view the creation of a business model through the lens of design logic. This perspective sees the model as the result of creating or changing organizational structures to pursue a specific opportunity. Authors Gerry George and Adam Bock have studied how managers use these designs to succeed. They found that successful entrepreneurs often create a coherent narrative, or a consistent story, to move a business from one opportunity to another. If the components of this story are misaligned or incoherent, the business is more likely to fail.

One classic example of a specific business model is the "bait and hook" method. This is also called the tied products or razor and blades model. In this system, a company offers a basic product at a very low cost, often at a loss. This low-cost item acts as the "bait." The company then earns money by charging recurring amounts for necessary refills or associated services, which acts as the "hook."

For instance, a company might sell a printer cheaply but charge high prices for ink cartridges. Adobe used a variation of this by providing a document reader for free while charging hundreds of dollars for its document writer.

Business models have evolved significantly since the term was first used in 1832. The history of innovation shows a steady increase in sophistication across different decades. In the 1950s, McDonald's and Toyota introduced new ways of operating. The 1960s saw innovation from Wal-Mart and Hypermarkets, followed by FedEx and Toys R Us in the 1970s. The 1980s brought companies like Intel and Dell, while the 1990s featured Amazon, Netflix, and eBay. Today, many models depend on emergent technology, allowing businesses to reach massive customer bases with minimal costs through globalization and outsourcing.

Modern commerce is currently seeing a shift from "pipes" to "platforms." A pipe is a linear business model where a firm creates goods and pushes them downstream to customers. In this model, value flows in one direction, much like water through a physical pipe. In contrast, a platform is a networked model that facilitates exchanges between interdependent groups, such as producers and consumers.

This digital transformation is now the predominant way of doing business in the 21st century.

A successful platform requires three specific elements to function effectively. First, it needs a "toolbox" to provide the infrastructure that allows participants to plug in and connect. Second, it needs a "magnet" to create a pull that attracts a critical mass of both producers and consumers. Finally, it needs a "matchmaker" to foster the actual flow of value between the groups.

Data sits at the heart of this matchmaking process, helping the platform connect the right people at the right time.

Platforms have also changed how companies monetize their services. One common method is the subscription model, where users pay a small monthly fee. To attract users who prefer free content, many companies use a "freemium" model instead. Another method is through advertising, which has moved toward highly personalized and targeted strategies. Finally, some platforms monetize the data and metadata generated by their users. This shift in how value is captured continues to disrupt entire industries globally.