How Can Businesses Create New Revenue Models With Product Engineering?

Product-engineering

The United State of America is said to be home to more than 28 million small and medium scale business houses (US Small Business Administration). More than 99% of the American business volume is created by these self-owned small-scale businesses. Every single year the number of employees who leave the comfort and security of a regular job to chase their dreams of entrepreneurship and self-employment is also steadily rising.

The gig economy, on-demand economy and services economy are all creating new business models and workplace environments that look totally unrecognizable to the previous Industrial Revolutions.

At the core of all this is a new business model—product engineering. Product engineering can be quickly summarized as the creating, designing, assembling or manufacturing of a new product. It is what turns a vague concept into a product that can be taken to the customer and monetized with a proven revenue model.

The product could be a tangible one like a new gadget or an intangible product like a software or a service. The key characteristics of a successful product engineering model is that it addresses an existing problem, caters to an under-served clientele in a better fashion and has ample room for scalability.

Consider these—the iPad which has now become a suitable replacement for laptops. Netflix which has triggered a cord-cutting phenomenon. Uber which has given ‘on-demand’ a whole new meaning. All these digital products and services are basically product engineering success stories.

From the outside, these products and services look so perfectly designed, enriched with the right set of features and options that make them a winning choice for customers. But, a great deal of product engineering goes under the hood of these products before they see light in the market.

Read: 7 ecommerce design trends to watch out for in 2018

Here are some product engineering examples that are shaking up markets across the world:

1. Marketplace for virtual products

E-commerce has created fortunes for the entire retail industry. In fact, it has penetrated every industry with a striking force, changing the way how customers found their ideal choices of products and how businesses sold such products to customers.

The marketplace model brings under a single roof many vendors who are selling a wide-range of products. E-commerce marketplaces provide a platform for vendors to sell their products to customers. The prime benefit is that they are spared from having to undergo the pain of setting up an online store of their own. Amazon, eBay, Flipkart, are all examples of the marketplace business model. The marketplace business earns revenue in the form of commission and affiliate marketing.

2. SaaS Products (customer help desk, bots, CRM, etc.)

The SaaS business model is closely aligned with the subscription business model. Customers pay for SaaS products on a monthly, quarterly or annual basis. The difference between SaaS and subscription services is that customers pay for the product as well as the entire or part of the infrastructure. For example, cloud hosting, maintenance services, customer support, etc. Pricing plays an important role in the success of SaaS products. Each successive plan or package of the SaaS product offers the customer with more features or value add-ons to the product.

Some examples of SaaS products include Salesforce CRM, Cisco WebEx, Google Suite, etc.

3. Subscription Model (Spotify, Magazines, on-demand Services)

The subscription business model is a recurring business model where the service provider enters into a long-term contract with the customer. There is a heavy focus to retain the customer, and hence heavy discounts and ad hoc offers are a regular feature of this business model.

The subscription model was leveraged primarily by magazine publishers and newspaper agencies. In the recent days, digitally inspired services like music streaming, on-demand video streaming, on-demand cab hailing services, etc. are also provided on subscription business model.

Some examples of subscription-based business models include Spotify, Netflix, UBER, Zipcar, Amazon Prime, etc.

4. License fees

A license fee is an amount paid by the customer or a business to use a product or service. For instance, license fee paid by users to activate Microsoft Office Suite for a specific period of time. In a way, the license fee is a type of royalty that the product owner receives. A license agreement is given by the owner to the user/licensee in return for the license fees paid.

Some popular examples of this business model include Adobe Studio; Anti-virus programs like Kaspersky, Symantec, McAfee, AVG, etc.

5. Freemium model

The Freemium business model became a rage in the recent days when mobile apps and cloud-based applications like software, web services, media, etc. came to the forefront. In the freemium model, the basic version of the product is offered free of cost. Premium features for heavy users are charged a price which got the business model the ‘Free’mium title. Freemium models are effective in making a large volume of users sign up for the product. A large volume of these customers can be converted into paying customers.

Some freemium business model success stories include Zapier, Evernote, Skype, Hootsuite, etc.

There are many other revenue models that a business can add through well-planned product engineering. These are the most commonly seen and popular models that most of us must have used at least once in the past few years.

Conclusion

Product engineering can bring about a revamp of the entire business model. It helps the business exploit existing opportunities in the market as well as stay ahead of the competition through innovation.

Every single one of the revenue model described above can increase market agility and profitability of a business by many notches.

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Author : Ganesh Date : 18 Apr 2018