55-51.
FLAT RATE
Pattern description
Fractional ownership describes the sharing of a certain asset class amongst a group of owners. Typically, the asset is capital intensive but only required on an occasional basis. While the customer benefits from the rights as an owner, the entire capital does not have to be provided alone.
Inventive problems
The product price should be high in order to cover production costs.
The product price should be low in order to attract more buyers.
Application examples
Netflix, founded in 1999 as the first on-demand Internet streaming media provider, also serves as an important Flat Rate business model innovation. For a monthly fee of as little as US $7.99, customers gain unlimited access to over 100,000 films and TV shows. With over 26 million subscribers worldwide, Netflix’s business model is regarded as a great success. Next Issue Media is currently working on porting Netflix’s business model into the realm of magazines. The company’s proprietary software allows customers to access over 100 magazines such as Sports Illustrated, Time and Wired. Instead of having to pay for each magazine individually, customers purchase a monthly subscription to the service starting at US $9.99.
The Swedish company Spotify presents a mix between the Freemium and Flat Rate business models: the company offers a commercial music streaming service providing digital-rights management-restricted content from record labels including Sony, EMI, Warner Music Group and Universal Music Group. Founded in 2006, the company had approximately ten million users in 2010, one quarter of whom paid a monthly subscription fee. By 2014 Spotify was reaching 24 million users, more than 12 million of whom paid a fee in addition to advertisement income. Some 4.5 billion hours of music was streamed in 2013. Upon account registration or first login with a Facebook account, a six-month free trial period is activated, allowing the user to listen to an unlimited amount of music supported by visual and radio-style advertising. After the trial, listening time is reduced to ten hours per month, divided into two-and-a-half-hour weekly portions (with carry over of unused hours). This company could become a serious threat to Apple’s dominating iTunes system in the near future.