This article summarizes the content from a previous entrepreneurship course I attended.

1. Definition of a Business Model (BM)

1. The way a company generates revenue (Revenue Generation) + the process of creating profit (Profit Generation)

2. Thought process:

   • Definition of the customer (Who is the service for? Who pays for it?)

   • Value proposition of the product/service (What’s the benefit?)

   • Methods of generating revenue (How do we get paid?)

   • Cost structure (Expenses)

   • Delivery method of the product/service

2. Importance of a Business Model

1. Company = Way of making money

   • Essential for a company’s survival and growth.

   • Either making money now, or delaying with investors' funds to make more money later.

   • The choice of the business model (What) and the timing of its full implementation (When) can determine the success or failure of a company.

3. Considerations When Designing a Business Model

1. Price

   • Consider both (cost + margin) concept and (value - price) concept, and cross-check.

   • LOSS LEADER (selling at a loss in the short term) is not sustainable.

2. Contribution Margin

   • Profit after variable costs are deducted from revenue, used to cover fixed costs.

3. Market Share

   • How long can you sustain without implementing a business model and relying on investors' funds?

   • When is the right time to implement a scalable business model?

4. Three Main Categories of Online Business Models

1. Media Business (e.g., Naver)

   • Ad revenue based on traffic, does not charge users.

2. Commerce Business (e.g., Gmarket)

   • Commission revenue from matching supply and demand.

3. Sales Business (e.g., Nexon)

   • Revenue from selling products or services.

→ These main categories can be further subdivided into subcategories.

(1) Media Business

1. Start Small, Scale Heavy

   • Initially, little cost (can start with 3-4 people, free service).

   • Scaling requires significant investment.

2. Challenges in Vertical Media Business in Korea

   • Many advertisers do not make decisions based on quantitative criteria (changing gradually).

   • When targeting a specific segment, the total audience is much smaller compared to global services. Convincing advertisers that specific segments are more efficient is challenging.

   • In Korea, it might be cheaper to target the entire population. Therefore, monetizing vertical media is difficult.

(2) Commerce Business

1. Includes commerce and marketplace concepts

   • Physical goods (e.g., Gmarket)

   • Intangible goods (e.g., JobKorea)

2. Potential for Global M&A Exit

   • Attracts attention due to its scalability and potential.

   • Requires significant initial capital.

   • High burden of working capital.

(3) Sales Business

1. Two areas that have succeeded in internet-based content sales:

   • Games (Global leader with revenue of 30-40 trillion KRW)

   • Education (Korean market alone is 30-40 trillion KRW)

2. Disparity between investor enthusiasm and market judgment

   • High risk of success → Lack of solid evaluation criteria → Reliance on previous works

   • Paradoxically, successful market hits are often the team's first work.

2. Case Studies (7 Types of Business Models)

1) E-Commerce - Market Kurly

E-Commerce Essence: Selling products online.

• Representative Examples: Market Kurly, Coupang, TMON

• Key Questions:

  1. Who are our customers?

     • Define as narrowly and specifically as possible.

  2. What products are we selling?

     • Quality & price → If quality is the same, the price should be lower, or if the price is higher, the quality should be better.

     • Margin considerations:

       • High margin: Large-scale production, low fixed costs, low distribution costs (e.g., cosmetics).

       • Low margin: Limited production scale, high distribution costs, price-sensitive customers (e.g., fresh food).

• KPIs:

  • Quality repeat customers.

  • Product satisfaction = Quality metrics (e.g., VOC (Voice of Customer) input rate).

  • Operational efficiency = Cost-effective and fast delivery.

2) Subscription - Wisely

• Representative Examples: Dollar Shave Club, Netflix, Woongjin Coway, Stitch Fix

• Definition:

  • Regular delivery of specific goods or access to certain services/content for a subscription fee.

1. KPIs:

   • User metrics (number of subscribers) & LTV.

2. Keys to Success:

   • Meaningful value to customers.

   • Simple and easy customer experience.

   • Overcoming reluctance towards regular payments.

3. Applicable Goods/Services:

   • Replenishment needs (e.g., razor blades, milk, vitamins).

   • Curation (e.g., fashion, cosmetics).

   • Unlimited access (e.g., movies, music).

   • Financing (e.g., water purifiers, mattresses).

   • Maintenance & management (e.g., razor blades, water purifiers).

3) Marketplace - Kmong

• Representative Examples: Kmong, Idus, Airbnb, eBay

• Definition:

  • Two-sided platform consisting of sellers and buyers, facilitating transactions between them.

1. Seller vs. Buyer:

   • Address the chicken-and-egg problem by focusing more on one side.

2. Commission Rate:

   • Determine the appropriate take rate based on purchase frequency, order value, and purpose-driven purchases.

4) Rental (Sharing) - Second Syndrome

• Representative Examples: Wework, Fastfive, Socar

• Definition:

  • Sharing and optimizing the use of limited resources for multiple users.

1. Success Factors:

   • Resources must be finite and expensive to create anew (e.g., office space, vehicles).

   • These limited resources must be used inefficiently.

   • Provide additional value beyond just offering the resource.

2. KSFs:

   • Reducing capital expenditures.

   • Maximizing resource utilization (turnover rate, occupancy rate).

5) SaaS (Software-as-a-Service)

• Representative Examples: Salesforce, MS Office, Adobe, Zoom, Slack, Sendbird (vs. On-premise)

• Structured Business Model: Learning and Benchmarking:

  • Conversion rate: Visit → Free trial → Paid conversion (0.1-1%).

  • Churn rate: Monthly attrition rate {"<5%"}.

  • MRR/ARR (Recurring Revenue).

- C-LTV = \frac{($M^1 - c^2)}{1 - r^3 + i^4} - CAC

1. Average annual revenue per customer. 2. Average annual cost per customer. 3. Retention rate (annual). 4. Interest/discount rate. - CAC (Customer Acquisition Cost) X 3 < C-LTV.

• Generating Operating Profit is Challenging:

  • Marketing expenses are recognized immediately.

  • Customer contract amounts are recognized over the contract period.

  • Significant initial investment required, business model grows proportionally to effort.

6) Advertising

• Representative Examples: Google, Facebook, Twitter, Tiktok, Naver

• Revenue from Users via Traffic and Advertisers via Ads:

  • Google: Search ads (CPC, cost per click).

  • Facebook: Display ads (CPM, cost per milli).

  • Diverse ad products: Retargeting, CPA (Cost per action), CPS (Cost per sales).

  • Requires at least 5 million MAUs to generate annual revenue of 10 billion KRW+@.

• Sub-Model with High Traffic:

  • Amazon annual ad revenue exceeds 10 trillion KRW+@, high contribution margin.

  • Business model is straightforward; the challenge lies in generating traffic.

7) Freemium

• Representative Examples: Nexon, NCSoft, PUBG

• Business Model Originated by Korean Online Games:

  • Started by Nexon, even Lineage shifted from subscription to partial freemium.

  • Differs from SaaS in providing basic utility for free.

  • Rational approach (premium features) vs. emotional approach (cosmetic items).

  • Rational approach: Increasing the proportion of paid users through reasonable upselling.

  • Emotional approach: Creating a fandom business model based on strong supporters.

• Most Online Business Models are Derived from Gaming, requiring continuous research into monetization methods used by gaming companies.