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Understanding LinkedIn Business Model In the post titled, ‘Understanding ‘ Understanding Business Model Fundamentals’, Fundamentals’, we learnt why do we need to understand business models and how to visually represent a business model using the ‘Business ‘Busin ess Model M odel Canvas’. Canvas’. In thi t hiss post, we wil willl try to understand LinkedIn busin b usiness ess model using using the Canvas. LinkedIn Lin kedIn is the world’s world’s largest largest professi profession onal al network. network. As of 31 st March 2012, 2012, LinkedIn had had 161 million members in over 200 countries. LinkedIn helps the professionals stay connected with each other by creating and managing a professional identity and building a professional network. LinkedIn has imp implemented lemented a Multi- sided Platfor Pla tform m, which offers different solutions to different categories of users. LinkedIn provides the following categories of solutions to its network members for free: An ability to manage professional identity using tools such as Profile and Profile Stats; An ability to build and manage professional networks using tools such as LinkedIn Connections, Invitations, and Introductions; Access to knowledge and insights using tools such as LinkedIn Groups, Network Updates, News, Answers etc. LinkedIn is a good example of a Freemium business model. model. While the core offering is free for its network members, premium offering comes for a price. The premium offering includes tools such as LinkedIn InMai I nMails ls and Profile Profile Stats Pro. The T he users can upgrade from a basic accou account nt ty pe to Business, Busin Businee ss Plus, or Executive account types. The pr emium accoun accountt ty t y pes provide prov ide access to the the premium offerings. LinkedIn platform induces the same-side network effects among effects among its members. This helps in growing growi ng the network through wordword-of-mouth of-mouth or conn connectio ection-r n-requestequest- email emails. s. As the t he average av erage number of member connectio connections ns grows, the strength str ength of the network improves. T he more the network becomes strong, the more attractive it becomes to the users on the other sides of the platform. platfo rm. T he users on the other sides of the platform platform inclu include de Recruiters, Markete Mar keters rs & Advert Adv ertisers, isers, and Dev Develo elopers. pers. LinkedIn offers LinkedIn Corporate Solutions, LinkedIn Jobs, and Subscription products to the bmi matter s.com/tag /business- model - canvas- exampl es/
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Recruiters. LinkedIn Recruiter is their flagship hiring solution to find, contact, and hire candidates. Self-serv Self-ser v ic icee postings help recruiters to post and manage job job opportunities. opportunities. LinkedI LinkedIn n Referral Referr al engine helps organizations leverage their employees network to find qualified candidates. LinkedIn provides job recommendations to its members over Job You May Be Interested In (JYMBII) section sectio n of a member ho home me page. Lin L inkedI kedIn n offers offers T alen alentt Basic, Talent Finder, and Talen T alentt Pro P ro as subscription products to recruiters and hiring managers. LinkedIn offers Job Seeker family of products produc ts – Job Seeker Seeke r Basic, Job Job Seeker, Seeker , and Job Job Seeker Seek er Plus P lus – to its its members membe rs to t o stand out out to to recruiters and hiring managers. LinkedIn marketin market ing g solutio solutions ns enable enable marketer mark eterss and advertisers adver tisers to t o reach their target audi audience. ence. LinkedIn Ads is their self-service product to target advertisements to specific members based on their profile information. Advertisers can setup and manage multiple campaigns and continuously monito mon itorr cli clicks, cks, impressions, impressions, clickclick-through through rates, and average ave rage cost- perper-cli click. ck. LinkedIn Ads A ds for Enterprise product targets larger advertisers that receive dedicated account management and get access to additional marketing solutions such as Display Ads, Custom Groups, Sponsorships, Whitepapers, Whi tepapers, and Recommendatio Recommendation n Ads. LinkedIn provides a set of open open APIs API s and embeddable Widgets Widgets to t o the develo dev eloper per community. community. T hese APIs AP Is and Widg Widgets ets provide access to the content in the LinkedI LinkedIn n database and help help the develo dev elopers pers buil build d third-party third- party appl applic icatio ations ns leveragin leve raging g LinkedIn data. dat a. LinkedIn rev enues come from 3 key ke y rev revenue enue streams: str eams: Hiring Hiring Soluti Solution ons, s, Marketing Mark eting Soluti Solution ons, s, and Premium Subscriptions. For CY 2011, these 3 streams represented 50%, 30%, and 20% of total revenues of $522 Million. LinkedIn sells Hiring and Marketing solutions through field sales organization and through their website. The Premium subscriptions are primarily sold online. Field Sales organization comprises of direct sales force, agencies, and resellers. While online channel is characterized by lower average selling prices, the offline channel is characterized by longer sales cycle, cy cle, higher higher av erage sell s ellin ing g prices, and lon longer ger contract terms. t erms. During During CY 201 20111 , Field sales contributed 55% of the total sales, whereas online channel contributed 45% of the total sales. LinkedIn business model can be represented over the business model canvas as follows. Click the image to see it on Full Screen.
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As discussed earlier, LinkedIn drives almost half of its revenues from Hiring solutions. Here, LinkedIn competes with established online recruiting companies such as Monster+HotJobs, Careerbuilder, and Indeed.com, talent management companies such as Taleo, and traditional recruiting firms. Then, there are companies new to the recruiting industry such as BranchOut, which offers a Facebook application for finding jobs and recruiting employees. In a span of less than 2 years since its launch in July 2010, BranchOut has grown into largest professional networking application on Facebook with over 25 million registered users and 400 million professional profiles. With over 3 million jobs, it operates the largest job board on Facebook. How big, you think, is the threat of BranchOut to LinkedIn? In case Facebook decides to acquire BranchOut, then how big the threat can become? On 3 May 2012, LinkedIn announced acquisition of Slideshare, a leading professional content sharing community , for $118 Million. How acquisition of Slideshare is going to help LinkedIn boost its rev enue growth and overcome the threat from companies such as BranchOut? Rate this:
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Posted by businessmodelinnovationmatters on May 1 6, 2012 http://bmimatters.com/2012/05/16/understanding-linkedin-business-model/
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Understanding Facebook Business Model In the post titled, ‘Understanding Business Model Fundamentals’, we learnt why do we need to understand business models and how to visually represent a business model using the ‘Business Model Canvas’. In this post, we will try to understand Facebook business model using the Canvas. Facebook is the leading Social Networking Site (SNS) of the World. Facebook mission is to make the world more open and connected. Facebook has built a Multi-sided Platform (MSP) that serves different customer segments with different value propositions. Facebook helps I nternet users stay connected with their friends, families, and colleagues. It helps them discover and learn more about what is going on in the world around them. It helps them express themselves by sharing their opinions, ideas, photos, and activities. Facebook provides a number of products, free of charge, to its users. These include: T imeline, News Feed, Photos and Videos, Messages (Email, Chat, Tex t Messaging), Groups, Lists, Events, Places, Subscribe, Ticker, Notifications, and Facebook Pages. Facebook had 845 Million Monthly Active Users (MAU) by the end of 2011. The following statistics are further illustrative of Facebook size and scale: 100 Billion friendships; 250 Million photos uploaded every day; 2.7 Billion Likes and Comments per day. More than 425 Million MAUs, nearly half of Total MAUs, used Facebook products on Mobile. With so many users using Facebook on a regular basis, it has become an attractive destination for advertisers and developers alike.
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Facebook offers a unique combination of reach, relevance, social context, and engagement to the advertisers. Advertisers can engage with users based upon the information shared by users such as Age, Gender, Location, Education, Work history or specific Interests. Facebook offers advertisers an ability to include social context in their Ads. Social context highlights a user’s connections with a brand or business. Businesses can also create Facebook Pages to engage with interested customers and simulate an ongoing dialog with them. Facebook offers development tools and APIs that enables dev elopers to easily integrate with Facebook. Developers can use Facebook platform to build apps and websites that are more personalized, social, and engaging. Facebook offers developers Open Graph API and Social Plugins that developers can use build different user experiences, including Apps on Facebook, Desktop Apps, Mobile Apps, and Platform-integrated websites. At the end of 2011, more than 7 million apps and websites had been integrated with Facebook. Facebook offers developers an online payment infrastructure that enables developers to receive payments from the users in an easy-touse and secure environment. While advertisements remain a key source of revenue for Facebook, the contribution from payments is increasing consistently. Payment revenues increased from nearly 2% in 2009 to 15% in 2011. Ad revenues contributed 85% to the total revenues in 2011.
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Facebook is investing heavily into Facebook-owned data centers. This is to support user growth, increased user engagement, and delivery of new products. Facebook data centers currently store more than 100 petabytes (100 quadrillion bytes) of photos and videos. This is going to increase further in the future as users engage more on Facebook. To support these massive storage and computing needs, Facebook custom designed and built their software, serv ers, and data centers from the ground up. To increase the user engagement even further, Facebook has partnered with companies such as Netflix, Hulu, Spotify, Washington Post providing online movies, TV shows, music, and news. Their apps help users share what they are watching, listening, or reading with their friends and family. Facebook business model can be represented over the Canvas as follows. Click the image to see it on Full Screen.
Yesterday, on 9th April 2012, Facebook announced a decision to buy Instagram for $1 Billion. Instagram is a photo sharing application that allows its users to apply digital filters to the photos and then share them on different social networking services. The acquisition news is generating lot bmimatters.com/tag/business-model-canvas-examples/
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of buzz because Instagram had no revenues and only 13 employees. However, following statistics of Instagram are impressive: 30 million+ Registered Users; 1 billion+ Photos Uploaded; 5 million+ Photos Per Day; 575 Likes Per Second (~50 Million Likes per Day); 81 Comments Per Second (~7 Million Comments per Day). In your opinion, how Instagram complements Facebook Business Model? Facebook spent about a quarter of cash they had at the end of 2011 on the acquisition. Was it worth it? Does the Canvas representation of Facebook business model helps you in assessing the acquisition fit? Rate this:
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Posted by businessmodelinnovationmatters on April 10, 2012 http://bmimatters.com/2012/04/10/understanding-facebook-business-model/
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Understanding Google Business Model In the post titled, ‘Understanding Business Model Fundamentals’, we learnt why do we need to understand business models and how to visually represent a business model using the ‘Business Model Canvas’. In this post, we will try to understand the business model of Google using the Canvas. Google is among the leading Technology companies in the World. Google is most popular for its Search engine, which helps Internet users get useful results in response to their queries. Google maintains vast index of websites and helps users search different ty pes of content such as Text, Images, Audio, Video, Blogs, News, and Maps through its products. Gmail is another very popular product of Google, for free email services to the users. Google provides social networking services to its users through its Google+ product. Google provides its services to the Internet users for free. Google makes the revenues from Advertisers who are interested in reaching out to the online users. Google helps them create tex t based Ads through Google Adwords – a self-serve auction-based advertising program. These ads appear next to the search results. Most advertisers pay Google on a Cost per Click (CPC) basis, which means advertisers pay when users click their Ads. Google helps advertisers ex tend their Ad campaigns to the Google Network members’ websites through its Adsense program. Google Network members get a share of Ad revenues in return. Google provides Display Advertising services through DoubleClick advertising technology. Display advertising comprises of video, text, images, and other interactive ads. Display ads appear on Youtube, Google Finance, and Google Network member websites. Google has developed Android – an open source mobile software platform – that can be used by handset manufacturers to install on their devices and by developers to create applications for mobile devices. Google provides Chrome browser for web browsing. Google is working with sev eral OEMs (Original Equipment Manufacturers) to bring computers running Chrome OS. Google serv es the Enterprise market through hosted web-based applications called Google Apps. Google Apps include Gmail, Google Docs, Google Calendar, and Google Sites. People need a browser and an Internet connection to use the Google Apps. Google has developed a Global Sales and Support infrastructure with specialized teams across bmimatters.com/tag/business-model-canvas-examples/
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different industries. Google multi-product sales force sells campaigns that include Search, Display, and Mobile advertising. Google helps most of its customers with a self-serve approach and tries to bring automation where possible. Google has built a global support team to help advertisers and Google Network members to get the maximum value out of its offerings. Google sales team focus on building relationships with largest advertisers and leading Internet companies. Google business has 4 key costs elements: R&D, Data center operations, Traffic Acquisition, and Sales & Marketing. Google invests heavily into R&D to create new products and improve existing products. Google is estimated to have over 1 million servers in data centers around the world that process nearly 1 billion search requests every day. Google has invested heavily in these data centers and managing their operations continue to be a key cost element. Traffic acquisition costs comprises of money paid to the Google Network websites under the Adsense program and to the distribution partners who distribute G oogle Toolbar and other products or drive traffic to the Google websites. Google Sales & Marketing costs include the cost of managing global sales and support teams as well as adv ertising and promotional expenditures. Google generates over 96% of its rev enues from advertising and this has remained true for last several y ears. T hough Google has evolved its Search offering, got into Mobile space, try ing to get into Operating systems, and has build offerings for the Enterprises, any of them has not yet resulted into major revenue streams. Apple, on the other hand, earned 70% of the revenues from products (iPhone and iPad) that didn’t existed 5 years ago. Can Google do that? Can Google innovate its Business Model so that 50% of revenues in 2017 will not come from advertising, but from Google new value propositions in next 5 years? In your opinion, what can be the new revenue streams for Google? Google Business Model is represented over the Canvas as follows. Please click the image to see it on full screen.
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Posted by businessmodelinnovationmatters on March 29, 201 2 http://bmimatters.com/2012/03/29/understanding-google-business-model/
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Understanding Banking Business Model In the post titled, ‘Understanding Business Model Fundamentals’, we learnt why do we need to understand business models and how to visually represent a business model using the ‘Business Model Canvas’. In this post, we will try to understand the business model of a Bank using the Canvas. A Bank has broadly two types of customers: One who deposits their money with the bank and one who borrow money from the bank. T he banks are a kind of an intermediary between the depositor and the borrower. The business model of a bank is very simple: Offer lower interest rate to the depositor and higher interest rate to the borrower. Make the money from the interest rate differential. People whether salaried or businessman prefer to keep their money with the bank. It is a better option than keeping it at home because this helps them earn interest income. They trust the bank with their money and believe that it will always be available when they need it. The same people in a different situation would want to borrow money from the bank. T he banks offer them the money, but at a higher interest rate. The depositors and borrowers can be segmented into Retail and Corporate customers. Retail customers are individual consumers, whereas corporate customers can be segmented to small companies, mid-size enterprises, and large corporates. Banks offer different value propositions to different customer segments. To retail customers, banks offer Home loans, Education loans, Auto loans, and Personal loans. Corporate customers in different industries have different loan requirements. For example, Power sector companies need money to fund power projects. Airline companies need money to purchase airplanes. Construction companies need money for building projects. Before offering them money in form of loans, one critical exercise that banks do is the risk assessment. This is to ensure that they will get back the money, along with the interest, they are lending. Banks use multiple channels to reach out to their customers. T hey open branches at convenient locations where their customers can physically meet them. They encourage self-service through ATMs at convenient locations. Banks operate call centers to resolve any issues or queries and to serv ice different kinds of requests. Banks are increasingly leveraging Internet and Mobile channels bmimatters.com/tag/business-model-canvas-examples/
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to offer more convenience to their customers. In order to reduce their channel costs, banks increasingly look forward to automation. However, they appoint relationship managers to enhance their relationships with their wealthy customers. The operations of a bank are highly IT intensive. T o fulfill their IT needs, banks partner with technology vendors. T he technology vendors provide IT solutions in areas of customer experience management, multi-channel integration, business process improvement, loans origination and processing, Risk Management, Business Intelligence, Predictive Analytics etc. Banking industry is highly regulated by the government. It is very important for regulatory agencies to maintain control over the banks because they are the lifelines of an economy. The control is also needed to protect the depositors against any fraud. One example of a regulatory requirement is the Reserve requirement. It sets the minimum reserves that each bank must hold. Banks have two key revenue streams. First is the interest income from lenders. Second is the fee that they charge for different kinds of operations. Banks also make money through Credit cards business. We learnt that in the VISA business model case study. Channel costs are the key component of the cost structure of a bank. The interest paid by the bank to the depositors is also one of the important cost structure components. There exist several different types of banks such as commercial banks, community banks, private banks, state- owned banks, credit unions etc. Some operate within a country’s boundaries, whereas some operate globally. Some focus just on banking, whereas some get into insurance and investment banking businesses as well. Whatev er be the case, the basics remain the same. The basic business model of a bank can be represented over the Canvas as follows. Does the Canvas help you quickly understand how does a bank works? In y our opinion, what are the differentiation strategies that banks can use to differentiate their business models?
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Posted by businessmodelinnovationmatters on March 24, 201 2 http://bmimatters.com/2012/03/24/understanding-the-business-model-of-a-bank/
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Understanding VISA Business Model In the post titled, ‘Understanding Business Model Fundamentals’, we learnt why do we need to understand business models and how to visually represent a business model using the ‘Business Model Canvas’. I n this post, we will try to understand VISA business model using the Canvas. VISA business model is very different from a traditional business model. It is not very intuitive enough. Though most of us use VI SA credit cards for our pay ments, very few of us would know how VISA works. In fact, many of us would not even know that VISA is a public-traded company and is listed in the New Y ork stock ex change. VISA is a Technology company providing global payment solutions to the banks. Its pay ment product platforms are used by the banks to develop credit and debit card programs for their customers. VISA does not issue credit cards or extends credit to the consumers. Instead, it operates an “Open- loop payments Network” to manage the exchange of information between different financial institutions. To understand how VISA works, which customer segments it serves, what it offers to its customer segments, and how does it makes money from them, we need to get familiar with few terms. VISA classifies the banks as either Issuers or Acquirers. Issuers issue cards to the cardholders, whereas the Acquirers manage the relationship with the merchants. The diagram below ex plains what happens behind-the-scenes when a cardholder presents a card for payment to a merchant.
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When a cardholder presents a card for payment to a merchant, the payment request is forwarded to the acquirer. The acquirer contacts the issuer through the VISA network. The issuer shares the information on whether sufficient balance is available to carry out the transaction. The information is then routed to the merchant. In case sufficient balance is available, the payment is accepted. Else, it is rejected. T he issuer bills the cardholder on a monthly basis. The cardholder pays those bills then. This is a very simplified explanation of what happens behind-the-scenes. The actual process involves separate loops for Authorization and Clearing & Settlement. VISA also offers sev eral value-added serv ices such as risk management, debit issuer processing, loyalty serv ices, dispute management and value-added information services. What the above diagram does not tell is how VISA and banks make money in the process. They make money from the transaction fees charged to merchants. T o understand how it works, imagine a $100 payment from a cardholder to merchant. In case the merchant fee is 2.4%, the merchant would get $97.60 from the transaction. $2.40 would get unevenly split between issuer and acquirer, depending upon the interchange fee. In case of an interchange rate of 1.8%, the issuer will keep $1.80 and acquirer will keep $0.60. Issuer gets to keep more of the merchant fee bmimatters.com/tag/business-model-canvas-examples/
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because of a higher risk of payment default from the cardholder. VISA makes money on payment volumes, transaction processing, and value-added services. VISA creates value for all its stakeholders during the process. Cardholders’ benefit because of convenience, security, and rewards associated with card payments. Merchants benefit from improved sales by offering payment method options to the customers. Banks get new r evenue streams through card fees, late payment interests, and transaction fee cuts. VISA captures value through the following revenue streams: Serv ice rev enues from banks for their participation in card programs; Data processing revenues for authorization, clearing, settlement, and transaction processing serv ices; International revenues from transactions where the cardholder issuer country is different from the merchant’s country . In order to create the v alue, VISA has built a global processing infrastructure consisting of multiple synchronized processing centers. These centers are inter-linked and are engineered for redundancy. Managing these payment networks is a core part of VISA operations to ensure a safe, efficient, and consistent service to the banks, cardholders, and merchants. VISA is a great example of a “Multi-sided Platform” business model pattern. The platform induces “cross-side” network effects. More the cardholders use VISA, more the merchants will accept it and vice-versa. Since merchants are on the ‘money side’ of the platform, VISA focuses its marketing efforts on the cardholders who are the ‘subsidy side’ of the platform. VI SA sponsored FIFA world cup in 2010 and will be Olympic sponsor through 2020. T his marketing focus helps VISA in building a strong brand and attracting more consumers. All the aforementioned discussion is captured on the business model canvas below. Does the Canvas help you quickly understand the big picture of VISA business? Who do you think can threaten the strong business model of VISA?
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Posted by businessmodelinnovationmatters on March 1 9, 2012 http://bmimatters.com/2012/03/19/understanding-visa-business-model/
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Businesses are also using Twitter in several ways. Content and Media companies are using Twitter to drive traffic to their websites. It is being used by e-commerce and local businesses for deal promotions. Some businesses are using it as a customer service channel; while some are using it increase their brand awareness and monitor their brand perception. Some non-profits are using Twitter as a fund-raising channel as well. Twitter started as a service in 2006. It gained immense popularity in 2009-10. As on 8 Sep 2011, as per Twitter official blog, Twitter had 100 Million active users. More than half of them logged in each day. As on 26 Jan 2012, as per Twitter official blog, 1 Billion tweets were send every four days, which means 250 Million tweets were shared every day. With so many users connected to the platform and using it on a regular basis, it is becoming an attractive destination for the advertisers. Unlike other SNS websites, Twitter hasn’t yet started offering the option of ‘Display Ads’ to the advertisers. Instead, it has provided them with the following innovative ways to reach the users: 1. Promoted Accounts – Businesses can scale up their follower-base through Promoted Accounts product. The promoted account appears in search results and within the ‘Who to Follow’ section (powered by Twitter’s account recommendation engine). Promoted Accounts are offered through Cost-Per-Follow (CPF) auction, where a business is charged when a user converts into a follower. 2. Promoted Tweets – Businesses can promote key messages through Search Results to the non-followers of their account. Promoted Tweets can also be targeted at followers of a Follow
business or at the users having similar profile to that of a follower. Promoted T weets are offered through Cost-Per-Engagement (CPE) auction, where engagement is defined as
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3. Promoted Trends – Businesses can leverage Promoted Trends product to scale Get every new post delivered to your Inbox.
conversations and build mass awareness. Trends reflect hottest topics of discussion during a moment. They appear next to a user’s timeline. Promoted Trends appear at the top in the Trends section.
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Twitter offers APIs that help developers build third party apps. Twitter for Websites (TfW) allows easy integration of twitter into websites with Tweet and Follow Pow ere d by WordPres s.combuttons. Search API allows a user to query Twitter content and find tweets meeting a search criterion. REST API bmimatters.com/tag/business-model-canvas-examples/
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allows access to core Twitter objects such as timelines, status updates, and user information. Streaming API provides real-time access to Twitter firehose. It helps developers with dataintensive needs. As per Twitter official blog on 11 July 201 1, “Application developers play a fundamental role in helping people get the best out of Twitter. As an ecosystem, we’ve just crossed one million registered applications, built by more than 750,000 developers around the world. This is up from 150,000 apps just a year ago. A new app is registered every 1.5 seconds, fueling a spike in ecosystem growth in the areas of analytics, curation and publisher tools.” Twitter business goal is simple: Increase the number of users using the serv ice. This will help attract more advertisers. While third-party apps help increase website traffic and content usage, Twitter has entered into different kinds of partnerships to increase awareness and drive more users to the service. Here are 4 kinds of Partnerships that Twitter has entered into: 1. Search Vendors – T witter licenses full feed of public tweets to search engine v endors such as Microsoft (Bing Social), Google (Google Realtime), and Yahoo. This helps in enabling realtime search and discovery. 2. Device Vendors – Twitter partnered with Apple to enable deep integration of Twitter in iOS5 mobile operating system for iPad, iPhone, and iPod touch. This means users can tweet directly from Apple apps such as Camera, Photos, and Safari, along with third-party apps such as Flipboard, Livingsocial, and Instagram. 3. Media – T witter has entered into partnerships with companies such as Mass Relevance and Crimson Hexagon to help media companies and brands deliver compelling Twitter integration to their users more easily. This can help media companies capture real-time reactions to the important news. Though these partnerships are not major source of rev enue, they help in expanding user base. Additional visibility drives further growth for Twitter. 4. Mobile operators – Twitter has partnered with Telecom operators across the globe to enable users to send and receive tweets from mobile phones using SMS. All the aforementioned discussion is captured on the Business Model Canvas below. Though we have attempted to capture all important aspects of Twitter Business Model, we might have failed to capture some. What do you think we have missed? Does the Canvas help y ou quickly understand the big picture of Twitter business?
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Posted by businessmodelinnovationmatters on February 18, 2012 http://bmimatters.com/2012/02/18/understanding-twitter-business-model-design/
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