Andrew Chen Archives

Subscribe · Featured · Recent · The Cold Start Problem 📘
Dear readers, I have moved to Substack and I will be writing here from now on:
In the meantime, I will leave up for posterity. Enjoy!

Potential consumer business models

My sister’s boyfriend and future in-law Sachin asks:


I was curious what your thoughts were on viable consumer services business models.

know everyone talks about monetizing a site through display\text ads on
the site. And many sites seem to be going that way. But then there are
what business week calls fremium, where you have a basic free site and
users pay for a premium service, like flickr. Last night we also talked
about real estate\car sites being all about lead generation and selling
those leads to the appropriate sellers. I’ve heard in casual\mobile
device gaming the idea is to sell the games for a couple of bucks each.

What else is out there? What works?


First of all, I want to razz the guy: Sachin works at Microsoft and loves it – so naturally I want to point out that he uses ‘\’ rather than ‘/’ like a normal human being. Shame on you Sachin. Also, don’t wear your badge outside of the Microsoft campus :)

Anyway, down to business: I actually brainstormed a big list of these and wrote them all down at one point, but I seem to have lost it. Oh well. I’ll just list a bunch off the top of my head and see how it goes. I’ll focus completely on business models for consumer-facing sites, since they seem more interesting.

  • Advertising (text ads, banner ads, lead generation)
  • Subscription fees (dating sites, "fremium" like Flickr)
  • Traditional retail (Amazon, iTunes, etc.)
  • Transactional fees (eBay, PayPal, etc.)
  • … anything else?

Am I missing anything? Anyway, there are lots and lots of variations of this stuff. For example, within Advertising, you have text ads and banner ads, but you also have co-registration. Co-reg is what happens when you enter in your name, address, etc. as part of signing up for a site, and then that info gets swapped with other business entities and potentially sold as a lead. Obviously it’s different than something as simple as a banner ad, but it’s essentially the same thing – helping advertisers identify useful people and then selling those people to them.

Advertising is clearly the most common version since it’s the only one that really seems "free." Obviously it’s great to double-dip as well, and have ads for normal users, and then sell additional features for more money.

Probably the most interesting way to think of this sort of thing is to overlay these abstract monetization approaches to a particular kind of website. Then, you could drill down and get more tactical with specific products and features that support each monetization strategy. (It’d look like a 2-D table of all sorts of different options within each cell)

For example, if you were monetizing a social networking site, you might imagine that you could combine text ads with using the profile information your users give you as lead generation information. You might make it easy to opt into offers or subscriptions for brands they are already loyal to. Or target ads more effectively through their profile info. For subscriptions, you could charge them for advanced features of the site, such as more pictures or functionality. I really like the model of CyWorld and others which ask people to pay for "expressions" or little custom widgets they can put in different places. I suppose that would be one version of Retail. You might also look for transactional opportunities within the social network, such as places where people might want to swap goods or buy/sell things. Then you can start charging listing fees or be part of the settlement process. Etc.

The real creativity is in looking at the assets and user population that you have, and see how you can weave in monetization techniques without alienating the user. Or the subtle tradeoff in "teasing" the user with features and then monetizing them in the backend. For example, casual gaming is based on giving away the demo for free, but then getting them to convert by buying it. Well, why that model instead of charging upfront? Or integrating ads into it and making it all free? Etc.

This seems similar to what happens in the movie industry, where the question is: How do you integrate product placement without making it too alien or over-the-top? But if you can do this successfully, it’s a great money spigot since all your users are pushing themselves towards monetizing. Obviously eBay is the most successful example of a runaway train in this regard.

UPDATE: I was googling and found a nice little list – slightly academic, but still interesting nonetheless.

PS. Get new updates/analysis on tech and startups

I write a high-quality, weekly newsletter covering what's happening in Silicon Valley, focused on startups, marketing, and mobile.

Views expressed in “content” (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, “content distribution outlets”) are my own and are not the views of AH Capital Management, L.L.C. (“a16z”) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.

The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.

Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16z’s investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at Excluded from this list are investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets. Past results of Andreessen Horowitz’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see for additional important information.