1. 7. Business Models

2. Learnings from founding a Computer Vision Startup
Flickr:dystopos
How are you gonna create value?

3. Learnings from founding a Computer Vision Startup
Innovation happens also in
business models
(not only technology)

4. Learnings from founding a Computer Vision Startup
Lots of business models possible
Auction business model
■ Bricks and clicks business model
■ Collective business models
■ Component business model
■ Cutting out the middleman model
■ Direct sales model
■ Distribution business models, various
■ Fee in, free out
■ Franchise
http://en.wikipedia.org/wiki/Business_model
■ Freemium business model
■ Industrialization of services business model
■ Low-cost carrier business model
■ Loyalty business models
■ Monopolistic business model
■ Multi-level marketing business model
■ Network effects business model
■ Online auction business model
■ Online content business model
■ Premium business model
■ Professional open-source model
■ Pyramid scheme business model
■ Razor and blades business model (bait and hook)
■ Servitization of products business model
■ Subscription business model

5. Learnings from founding a Computer Vision Startup
One of the key decisions
B2C vs B2B
Flickr:jamesjustin / dexxus

6. Learnings from founding a Computer Vision Startup
New Markets vs Existing Markets
New Market
Finding a working business model at all
Existing Market
Finding a better business model
Flickr:Aube insanité http://en.wikipedia.org/wiki/Blue_Ocean_Strategy

7. Learnings from founding a Computer Vision Startup
Good Business Models are Scalable
Create once - sell often
Scalable: licenses, subscriptions, services
Not so scalable: project business, consulting
Flickr:brandondoran

8. Learnings from founding a Computer Vision Startup
“Free” as a business model
Chris Anderson, Wired
http://www.wired.com/techbiz/it/magazine/16-03/ff_free
Free: the future of a radical price. Chris Anderson, 2009
http://www.amazon.com/Free-Future-Radical-Chris-Anderson/dp/1401322905

9. Learnings from founding a Computer Vision Startup
Twitter has many appealing opportunities for generating revenue but we
are holding off on implementation for now because we don’t want to
distract ourselves from the more important work at hand which is to
create a compelling service and great user experience for millions of
people around the world.
While our business model is in a research phase, we spend more
money than we make.
From the twitter website (“About twitter” (2009))

10. Learnings from founding a Computer Vision Startup
“Free” as a business model - maybe not?
David Heinemeier Hansson
The secret of making money online
http://www.youtube.com/watch?v=0CDXJ6bMkMY

11. Learnings from founding a Computer Vision Startup
Free often doesn’t mean free for everybody
Two-sided markets
One side finances the other. Often with advertising.
Examples: Any newspaper, Google, Acrobat Reader, Games.
Platforms are often two-sided markets
Examples: Nintendo, PC, iPhone, Acrobat.
Freemium
Basic Service Free, Pro costs (Flickr, Dropbox, Evernote and many other online services)
The paying minority finances the free majority. (But digital services are cheap, so no big deal)
Typical conversion is 2-3%. These users pay for everyone else.

12. Learnings from founding a Computer Vision Startup
Examples of two sided markets
Geoffrey Parker and Marshall Van Alstyne (2005). “Two-Sided Network Effects: A Theory of Information Product Design.” Management Science, Vol. 51, No. 1

13. Learnings from founding a Computer Vision Startup
Why does Google work?
Advertising targeted - really targeted!
Basic advantage: people are searching for something. (They are not on facebook, NYT ...)
Economic part of ad auction business is crucial (more crucial than PageRank)
E.g. they hired Hal Varian as Chief Economist (formerly professor Economics at Stanford)
Secret of Googlenomics:
Data-Fueled Recipe Brews Profitability (Wired Oct 2009)
http://www.wired.com/culture/culturereviews/magazine/17-06/nep_googlenomics?currentPage=all

14. Learnings from founding a Computer Vision Startup
Digital Business Model Trends
Advertising
Must be targeted as just seen. Examples: Google adwords, many websites, iAd (!!)
Saas (Software as a Service)
Run Software in cloud/browser. Subscriptions (!). Example: Salesforce, 37signals.
Freemium
Basic service free, extended costs. “Drug dealers get it right” (ReWork)
Examples: Flickr, Google apps, Evernote!
“Apps”
Apple App store is huge success. (1 billion paid out). But note: not recurring for developer -> iAd
Virtual goods
Mainly gaming. In game purchase of weapons, levels etc. Facebook virtual goods ($75 million* in 09(?)).
* http://www.businessinsider.com/breaking-down-facebooks-revenues-2009-7

15. What is special about Vision?
In Terms of Business Model

16. Learnings from founding a Computer Vision Startup
Special challenges for Vision Startups
B2B partly well established
Industrial Vision, face recognition, ...
B2C no models established yet
Investors often point to the many image retrieval (by similarity) companies as failures
although counter examples exist (Riya, ...)
BUT: new opportunities come around these days
New generation of technology (local features etc.)
Mobile phones with integrated camera (in general increasing amount of visual data on Web)
New distribution platforms for services (app stores!)

17. Learnings from founding a Computer Vision Startup
Case: Riya - like.com
Tried to do a Flickr competitor with face recognition but too little
traction/adoption.
Switched to visual comparison for shopping and now cash flow
positive with shopping referral model. Advertising to get traffic.

18. How we did it

19. Learnings from founding a Computer Vision Startup
How we did it
Experimented a lot
Were now able to turn from project business into recurring models
Still experimenting with joy
This year is gonna be interesting! Lots of opportunities to innovate.
We are making revenue ;)
We have been making revenue from the beginning.
No black numbers yet, but hopefully soon.

20. Learnings from founding a Computer Vision Startup
How we did it
Experimented a lot
First, we tried to do a “Google”
(tagging across the web, better search results for people search)
Then we tried B2C
(consumer service where users collectively tag people in their social graph)
Now we do B2B
(licensing for mobile, desktop and cloud)
Not there yet but B2B seems to be the right model.

21. Q&A

22. Learnings from founding a Computer Vision Startup
Resources
Wikipedia on Business Models http://en.wikipedia.org/wiki/Business_model
Book: Blue Ocean Strategy http://en.wikipedia.org/wiki/Blue_Ocean_Strategy
Free (Wired Article) http://www.wired.com/techbiz/it/magazine/16-03/ff_free
http://www.amazon.com/Free-Future-Radical-Chris-Anderson/
Free (Book)
dp/1401322905
David Heinemeier Hansson
http://www.youtube.com/watch?v=0CDXJ6bMkMY
The secret of making money online
Geoffrey Parker and Marshall Van Alstyne (2005). “Two-Sided Network Effects: A Theory of Information
Product Design.” Management Science, Vol. 51, No. 1
http://www.wired.com/culture/culturereviews/magazine/17-06/
Wired Article Googlenomics
nep_googlenomics?currentPage=all