24 Financial Models

Erica Morrissette, Riley Murray, Simon Pierpont, Julie Nagel, and David Muite

The world of internet and technology transforms how we receive our media, and is continually evolving. This interactive platform raises new opportunities for companies to generate revenue. Typically, media forms follow set business rules, but with the ever-changing technologies companies are still working to find the best way to make money utilizing interactive media forms. These work differently than traditional media, and as a result require less conventional financial models. While video games tend to make up their own industry and work in a typical business framework, internet and augmented reality are a technology, not and industry, because of this their financial frameworks are unique.

Internet 

The Internet is much more than meets the eye. What began as a way for colleges and universities to transfer information at a rapid pace, has grown into “the world is at your fingertips” web we know today. The Internet industry is a unique business in how those players in the market make their money, given their specific financial plan. There are many different financial models for the Internet that are specific to the needs of the company at hand.

The first of the financial models is the Merchant or Brokerage model. The merchant model follows a business to consumer plan through the use of online stores such as Target.com. The Brokerage model is different in that instead of being specific to one company, the brokerage model brings together businesses from all over to sell their products on one platform:  Amazon.com (Duff).

The Infomediary and Affiliate models are very different in that the infomediary model deals with subtly conveying information about a product. The product “Head On” which was marketed as a headache reducer had an infomercial for their advertisement and followed the infomediary model. An affiliate model is varied from infomediary because it deals with websites using products you have previously searched for to scope you towards your next purchase (Duff).

Working similarly to the way subscription based revenue works for magazine and newspaper companies, another financial model is the subscription model. Companies such as the Wall Street Journal are turning to online subscriptions for their revenue. Salesforce.com, uses a Utility platform as they charge users a base rate in order to access their software (Duff).

Google, Amazon, YouTube, and more all use an advertising model that makes money through using paid text advertisements and through selling the user’s search history to companies such as Amazon who can, in turn, tailor their marketing plan for each individual user (Duff).

Video Games 

The video game industry is a massive business globally. This industry has been making money since 1962 when MIT student Steve Russell created the first computer-based video game titled “Spacewar!” (Pavlik and McIntosh). In the year 1980, Namco released Pac-Man, which went on to become one of the most influential video games of our time. By the mid 1980’s Japan launched the Nintendo Entertainment System (Harada, 1705). Since then, the United States and nations around the world have seen nothing but an increase in video game sales and production, and that slope continues to climb. A recent study found that “Sixty-five percent of American households are home to someone who plays video games regularly, and 67 percent of American households own a device used to play video games” (2017 Essential Facts).

Over the last decade video game sales have skyrocketed with more content being released (2017 Essential Facts). More information and statistics can be found here:  http://www.theesa.com/wpcontent/uploads/2017/09/EF2017_Design_FinalDigital.pdf

Everyone who has a smart phone, tablet, or computer has access to the thousands of interactive apps that exist. Most apps are free but make money through in-app purchases and advertisements, in some cases people can pay money to stop seeing ads that interrupt them while using the app. Even popular television shows have a correlating app. TV Networks pay to have apps made for their television shows as a promotion strategy. They are even beginning to move toward cellular games because at least 20% of cell phone users play games with roughly fifty percent being male and the other female (Yuan and Sarmad).

The progression of smartphones and the move to larger screens makes way for more complex games and better graphics. Video Game trailers are starting to look like movie trailers in terms of quality.  Game publishers release games on multiple platforms to increase their profit and allow for more people to purchase a specific game. Most video games also include an additional expense such as game packs or tools, separate from the original game purchase. Americans have spent over $30 Billion on the video game industry, the content alone taking up $24.5 Billion, and the rest on hardware and accessories (2017 Essential Facts). Manufacturers continue to make money by releasing new games and sequels to popular games.

For a developer to survive in the video game industry they must be able to adapt and think outside of the box in order to remain a top competitor in the market. The video game industry is an oligopolistic business which makes it very hard for small firms to start up, often forcing them to use a method called crowdfunding. Crowdfunding is when a developer uses a resource, like the Internet, to raise money by collecting small sums of money from a large number of people (Planells, 627). This new financial model allows video game players in the game industry to be able to voice their opinion on how a new game can be created and what features they believed would work best. Antonio José Planells an Introduction to Game Design professor at Tecnocampus stated, “At present, the traditional consumer has been transformed into a new active investor called ‘‘prosumer,’’ a consumer who, in turn, has the potential to create and circulate their own content and thus becomes a producer, distributor, and user” (Planells, 627). Allowing consumers to be involved in the production of games has changed the whole concept of how games are created.

Augmented Reality 

Augmented reality overlays digital information on top of what is being viewed in the real world, rather than creating a new one like virtual reality does. Augmented reality is a technology employed by an array of companies, rather than being an industry on its own. It’s a rapidly developing technology, that does not yet have a set financial model. Because of this, companies that use the technology are still exploring the best ways to make a profit. These elements include, but are not limited to, advertising and sponsorships, in-app purchases, hardware sales, and an increase in engagement. Companies who utilize augmented reality are still searching for the most successful models in today’s changing world (Merel).

Advertising is a big component for companies who utilize augmented reality. Mobile apps that use this technology, in order to make their content free to users, sell advertising space to make money. This is also true for companies who sell their products on online webpages. Often, companies who make products like clothing, or furniture, allow you to virtually try out or try on these products using augmented reality technologies (Samit). They make this service free on their websites but selling advertising space. Advertisers themselves are also taking advantage of the technology by using it within their ads, changing the consumer’s experience (Merel).

Other apps that employ augmented reality use sponsors, similarly to advertisements to propagate earnings. This is evident in the popular social media app Snapchat. This photo/video driven app uses graphic overlays and facial recognition technology to alter reality in conjunction with the mobile device cameras in order to create Snapchat filters known as “lenses”. This feature can then be sold in terms of sponsorship to advertisers who then create their own filter that is representative of what they are selling, thus generating money for the app (O’Reilly).

In-app purchases are another large factor in the financial intake of companies who use augmented reality. Pokémon Go, an app that uses an advanced augmented reality technology in combination with location based information and the smart phone camera, was free to download. Despite this the app generated all their revenue through in-app purchases. These in-app purchases allowed the app to skyrocket to the coveted number 1 top-grossing app the same day it was released (Williams).

Some companies who market their use of augmented reality, require the purchase of specific hardware that enables the technology and equate income. This is true for products like Google Glass and other equivalents. Typically, hardware like this comes with a high price ticket for consumers but only costs a fraction for the company to make. The Google Glass reportedly costs only $150 dollars to manufacture, yet it sells for ten times that at $1,500.  This inflated price allows the company to make a sizable profit off the technology (Strange).

There is a less obvious way companies use augmented reality to make a profit. Often, they implement it as in an improvement to their product in hopes it will result in growing engagement numbers. This is true for a large variety of companies including museums, and mobile apps, and television programs. Take for example football games aired on cable TV. They use augmented reality to display scores, stats, and virtual extras like first down lines (Pavlick and McIntosh, 163). This presents an opportunity to improve watcher engagement, and increase viewers (Convey). For example, when the announcers of a football game describe a play, they are able to draw virtual lines that create a visual for the viewer, highlighting the path of the player. This makes it easier for the viewer to follow. Augmented reality transforms user experience, and in result, optimizes profits.

Financial models alter how a company makes a profit. Video games use aspects like the buying of games, in game purchases, crowdfunding, and other methods. Internet employs merchant models, subscription models, advertising models, along with other models that are successful and depended upon the type of company and what they sell. Augmented reality uses an array of elements ranging from in-app purchases, to advertisement space, to increased engagement schemes, an everything in between. Every industry and outlet does things a little differently, but all comes down to the question; “How do they make their money?”

Work Cited 

“2017 Essential Facts About the Computer and Video Game Industry.” ESA Entertainment Software Association, April. 2017.

Afuah, Allan and Tucci, Christopher. Internet Business Models and Strategies. http://opac.vimaru.edu.vn/edata/EBook/081105/Internet%20business%20models%20and%20strategies.pdf

Convey, Michael. “Transforming Audience Engagement with Augmented Reality.”  NewscastStudio, http://www.newscaststudio.com/2017/03/21/augmented-reality-engagement-weather-traffic/.

Duff, Victoria. “Internet-Based Business Models.” Chron.com, Hearst Newspapers, http://smallbusiness.chron.com/internet-based-business-models-definition-909.html.

Harada, Nobuyuki. “Video Game Demand in Japan: A Household Data Analysis.” Applied Economics, vol. 39, no. 13, 20 July 2007, pp. 1705-1710.

Li Yuan and, Sarmad, Ali. “Your Own Next Top Model; TV show Moves to Cellphones: CBS Gets Revenue, Advertising, Fans Pick Dresses and Makeup.” Wall Street Journal, December 07, 2006.

Merel, Tim. “The Reality of AR/VR Business Models.” TechCrunch, 5 April 2016, http://techcrunch.com/2016/04/05/the-reality-of-arvr-business-models/.

O’Reilly, Lara. “Advertisers Love Snapchat’s Priciest Ad Format.” Business Insider, 13 May 2016, http://www.businessinsider.com/advertisers-absolutely-love-snapchats-most-premium-ad-format-and-that-ought-to-worry-its-rivals-2016-5.

Pavlik, John V., and Shawn McIntosh. “Interactive Media: The Internet, Video Games, and Augmented Reality.” Converging Media: A New Introduction to Mass Communication, Oxford University Press, 2018, pp. 140-167.

Planells, Antonio. “Video Games and the Crowdfunding Ideology: From the Gamer-Buyer to the Prosumer-Investor.” Journal of Consumer Culture, vol. 17, no. 3, Nov. 2017, pp. 620-638.

Samit, Jay. “Augmented Reality: Marketing’s Trillion-Dollar Opportunity.” Ad Age, 18 July 2017, http://adage.com/article/deloitte-digital/augmented-reality-marketing-s-trillion-dollar-opportunity/309678/.

Strange, Adario. “New Google Glass Teardown Claims Device Costs Only $150 to Make.” Mashable, 14 May 2014, http://mashable.com/2014/05/14/google-glass-teardown-150/#s8Zbu4UQLZq6.

Williams, Trey. “How Pokémon Go Makes Money.” MarketWatch, 12 July 2016, http://www.marketwatch.com/story/how-pokemon-go-makes-money-2016-07-11.

License

Icon for the Creative Commons Attribution 4.0 International License

Introduction to Media Studies by Erica Morrissette, Riley Murray, Simon Pierpont, Julie Nagel, and David Muite is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

Share This Book