A great article by business insider sheds light on 11 of today’s hottest startups and how they are making money.

“It’s a mix of straight e-commerce, transaction brokering, and advertising.”

“If the startup first builds a  large userbase, larger companies will certainly take note, and in some cases, buy you out just to take your users as their own.”

“If you’re making a startup in 2012, make sure it has a way to make money. There are many tried and true methods, pick the one(s) which best fit your business model! If the opportunity hits to make it big, don’t neglect it, but be pragmatic and realistic with your expectations.”

What’s the best way for startups to make money? Remember, investors in your startup want to earn their capital back.

The three most common models are:

(from http://minimaxir.com/2011/11/how-startups-make-money/)

“1. Advertisement Revenue (Google, Facebook): The oldest, and still best, way of making money on the internet. Pioneered by Google with their AdWords platform in the 2000’s, where relevant advertisements accompanied internet searches, Google earned $billions and billions in revenue each year, and became the technology juggernaut it is today. Even individuals who are not creating a business, such as bloggers, can earn revenue on their own blogs by implementing an ad distribution network such as Google AdSense. Large scale startups and professional blogs, however, cut out the middle-man and distribute the ads themselves, which allows them to earn even more money.

2. Free/Premium Tiered Subscription Models (Dropbox): Subscriptions for services have existed well before the internet, with newspapers and gym memberships, and even with software such as shareware. However, due to the decreasing costs of IT from cloud computing, the cost per user is neligible, so startups can feasibly give away their entire service for free. This free service can be used to tempt the consumer into buying a premium version of the service with added perks; the revenue from a user paying for a subscription far outweighs the additional cost of the perks. Dropbox is one of the pioneers of this strategy: they offer 2GB of cloud storage space for free (which costs them less than $0.001/user), and users can pay $10/month for 50GB of space (which only costs them slightly more than $0.001).

3. Freemium (Zynga): Similar to #2, freemium is where the service is completely free, and customers can pay for perks or additional content a la carte. Zynga is the pioneer here with games such as FarmVille, where players can always play for free, but only for a certain amount of time; paying real money can help speed things up. It’s not my favorite business model; wayyy too many gaming startups, especially on the PC (League of Legends, Team Fortress 2) and iOS (everything in the Top Grossing section of the App Store), use this model, but it’s simple, effective, and down to an exact science. Many users are willing-to-pay for an advantage, and many aren’t; freemium caters to both of those types of users.”

(Source: Business Insider)

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