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Common business models of startups

Short answer

Subscription model charges recurring fees (e.g., streaming). Marketplace connects buyers and sellers for a commission (e.g., ride-hailing). Freemium gives basic free service with premium upgrades (e.g., music apps). Franchise licenses brand for a fee and royalty (e.g., fast food).

Explain any four business models used by modern startups, with examples.

A business model describes how a company creates, delivers and captures value. Four common models:

1. Subscription model

Customers pay a regular fee for continuing access. It gives predictable income and high lifetime value. Example: video streaming, software-as-a-service.

2. Marketplace (platform) model

The firm connects buyers and sellers and earns a commission or listing fee. It owns no stock, so it scales fast, but must solve the "chicken-and-egg" problem of attracting both sides. Example: online shopping and ride-hailing platforms.

3. Freemium model

Basic service is free; advanced features cost money. Free users give scale and word of mouth; a small share (often 2-5%) pays. Example: music and productivity apps.

4. Franchise model

The owner licenses brand and system to local operators for a fee and royalty. It grows with others' capital. Example: fast-food chains.

Other models: razor-and-blades (cheap device, costly refills), pay-per-use, advertising-supported, and direct-to-consumer.

ModelRevenue sourceMain risk
SubscriptionRecurring feeCustomer churn
MarketplaceCommissionNeeds both sides
FreemiumPremium upgradeLow conversion
FranchiseFee and royaltyQuality control

Answer: Subscription, marketplace, freemium and franchise models earn through recurring fees, commission, premium upgrades and royalties respectively.

✓ Answer checked by Claude Opus 5.5 (high effort)

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