Pattern description

The logic that the user is responsible for the income of the business is abandoned. Instead, the main source of revenue comes from a third party, which cross-finances whatever free or low-priced offering attracts the users. A very common case of this model is financing through advertisement, where attracted customers are of value to the advertisers who fund the offering. This concept facilitates the idea of 'separation between revenue and customer'.

Inventive problems

Application examples

JCDecaux, founded in 1964, is an excellent example. The company delivers innovative advertising systems for public ‘street furniture’ including bus shelters, self-service bicycles, electronic message boards, automatic public toilets, and newspaper stands. JCDecaux works with city authorities and public transport operators to provide such ‘street furniture’ for free or at a reduced price in return for exclusive advertising rights. Advertisers pay JCDecaux for prime locations and transit media opportunities, while the cities benefit from the free or cheaper public services and advertising design innovations, with JCDecaux serving as intermediary between the two parties. In the case of the self-service bicycle scheme Cyclocity, further revenue is achieved from hire and subscription charges. The result is happy users of the bicycle rental service, less motor traffic in the cities, and effective advertising for local businesses. The Hidden Revenue model generates annual revenues of over €2 billion for JCDecaux, making it the largest outdoor advertising corporation in the world.

‘Targeted advertising’ is a special version of Hidden Revenue adapted to the Internet. Ads are adjusted to specific target groups to avoid waste coverage and communicate the advertising content efficiently. Google has very successfully implemented Hidden Revenue in that novel form. Originally founded purely as a search engine for the Internet in 1998, Google now dominates the search engine market with a number of free services including web search engines, personal calendars, email services and maps, as well as specialising in other Internet technologies such as cloud computing and software. With all this, Google has become one of the biggest brokers in the online advertising business. The company is able to maintain its register of free services by cross-financing through its AdWords advertisement program, which allows companies to purchase targeted advertisements that then appear on Google’s search listings depending on the search terms entered by the user. Google receives revenue on a cost-perimpression (i.e. each time an ad is displayed) or cost-per-click (each time a user clicks on an ad) basis. With this scheme the company attracts more customers and this in turn increases advertisement revenues. Google’s business model allows it to generate billions of dollars in revenues every year and to maintain an online advertising market share of over 60 per cent.

References

The Business Model Navigator: 55 Models That Will Revolutionise Your Business