2.2 Revenue streams

Revenue streams are the sources of revenues that the business model is able to generate. The question at issue here is: ‘For what value are customers willing to pay?’ (Osterwalder et al., 2010, p.31). It is also important to clarify how revenues are collected or, in other words, how customers pay. Different types of business models have different ways of generating revenues. The different types of revenue models are advertising, subscription, transaction fee, sales and affiliate models. A business model is able to generate both one-time payment transaction revenues and recurring revenues by continuing to offer value proposition to customers, or from post-sale services.

In the case of a drone spraying business, there are several ways they can generate revenue:

direct sale of drone systems
subscription services for software and data analysis tools
leasing programs for drones and equipment
training services for farmers and agricultural workers
consultancy fees for providing expert advice and customised solutions.

Revenue streams are also dependent on pricing mechanisms. Osterwalder et al. (2010, p.33) identify two main mechanisms: fixed price, based on static variables; and dynamic prices, based on market conditions.

The following table shows the fixed prices mechanism.

Table 2 Fixed price mechanisms

Pricing mechanisms	Description	Example
Fixed pricing	The price is fixed and does not change	Some commodities whose price is fixed, such as water or energy (considering a short-term horizon).
Feature dependent	The price is based on the level of quality	The price of a model of a car depends on the trim and the option
Customer segment	The price changes according to the customer segment approached	The price may change for particular groups of clients, such as students
Volume dependent	There are discounts related to quantity purchased	Many sellers of goods offer discounts if products are bought in large quantities

Dynamic price mechanisms are presented in the table below.

Table 3 Dynamic price mechanisms

Pricing mechanisms	Description	Example
Negotiation	The counterparts negotiate an agreement	The price is agreed and usually defined in a specific contract: house renovations are typically agreed between the contractor and the landlord.
Yield management	The price changes according to availability and time	Flight tickets are priced dynamically according to several variables, including the time of purchase and the capacity.
Real-time market	The price changes according to supply and demand	This is the typical case of stock markets
Auctions	Competitive bidding defines the price	Auction houses such as Sotheby’s in London or online platform such as eBay offer this kind of pricing mechanism.

Activity 4

Allow approximately 5 minutes.

Considering the pricing mechanisms in Tables 2 and 3, match the product or service proposed below with its most likely pricing mechanism.

Yield management

Hotel rooms

Fixed price

Retail clothing

Negotiation

House sales

Auction

Abandoned property

Feature dependent

iPhone

Customer dependent

Software licences for business and academic statistical software

Volume dependent

Bulk purchase of groceries

Real-time market

Foreign currency

Using the following two lists, match each numbered item with the correct letter.

Yield management
Fixed price
Negotiation
Auction
Feature dependent
Customer dependent
Volume dependent
Real-time market

1
Hotel rooms
2
Retail clothing
3
House sales
4
Abandoned property
5
iPhone
6
Software licences for business and academic statistical software
7
Bulk purchase of groceries
8
Foreign currency

The correct answers are:

OpenLearn - Developing business ideas for drone technologies
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