In my concluding post, I tried valuing Uber past times estimating how much an existing user was worth to the companionship in addition to and so using that release to extrapolate to the value of all existing users in addition to the value added past times novel users. As always, I got many useful comments on what I was missing, what I could practice improve in addition to what could locomote simplified, in addition to I give thank you lot you (really). While I could pass this entire postal service rehashing assumptions, I don't intend to! To me, the most useful business office of valuation is non the destination, i.e., the value that you lot instruct at the end, but the journey, i.e., the procedure of doing valuation, since it is the procedure that allows us to isolate the key drivers of value, which, inwards turn, focuses discussions on those variables, rather than on distractions. Consequently, I decided to revisit my Uber user-based valuation to consider what I could eke out equally implications for user or subscriber-based businesses.
Estimation versus Economic Risk
I volition start past times conceding the obvious. I made a lot of assumptions to instruct inwards at the value of a user at Uber, but I volition expire further. There was non a unmarried fact inwards that valuation, since every release was an estimate. That said, you lot could say that most the valuation of whatever company, amongst the deviation truly beingness i of the grade of doubt you lot face, non inwards whether it exists. At the jeopardy of restating points that I receive got made in my other writing, hither are iii full general points that I would brand most doubt inwards valuation.
I volition start past times conceding the obvious. I made a lot of assumptions to instruct inwards at the value of a user at Uber, but I volition expire further. There was non a unmarried fact inwards that valuation, since every release was an estimate. That said, you lot could say that most the valuation of whatever company, amongst the deviation truly beingness i of the grade of doubt you lot face, non inwards whether it exists. At the jeopardy of restating points that I receive got made in my other writing, hither are iii full general points that I would brand most doubt inwards valuation.
1. Estimation doubt versus Economic uncertainty
To bargain amongst doubt inwards a sensible way, you lot kickoff receive got to categorize it. One of the categorizations that I detect useful is to pause the doubt you lot human face upward when you lot are trying to value a concern or an property into estimation in addition to economical uncertainty. Estimation uncertainty comes from incomplete, missing or misleading information provided past times the companionship that you lot are valuing, whereas economic uncertainty is driven past times forthcoming changes inwards the concern that the companionship operates in, equally good equally macro economical factors. Estimation doubt tin dismiss locomote reduced past times obtaining improve in addition to to a greater extent than consummate information but estimation doubt volition stay resistant, no affair how much fourth dimension you lot pose inwards in addition to what information analysis that you lot do. Using my Uber user valuation, it is truthful that some of the dissonance inwards the valuation comes from Uber beingness a private, secretive companionship in addition to but most of the doubt comes from the ride sharing concern beingness inwards a soil of flux, equally regulators in addition to competitors operate out how best to bargain amongst shifting consumer tastes in addition to changing technologies. This has ii implications. The kickoff is that fifty-fifty if you lot had access to to a greater extent than information, either because Uber decides to expire populace or you lot are an insider inwards the company, much of the doubt inwards estimated value per user volition remain. The 2d is that your estimated value volition alter considerably over time, equally the facts on the Earth change, in addition to that volatility inwards value cannot locomote viewed equally a shortcoming of the model.
To bargain amongst doubt inwards a sensible way, you lot kickoff receive got to categorize it. One of the categorizations that I detect useful is to pause the doubt you lot human face upward when you lot are trying to value a concern or an property into estimation in addition to economical uncertainty. Estimation uncertainty comes from incomplete, missing or misleading information provided past times the companionship that you lot are valuing, whereas economic uncertainty is driven past times forthcoming changes inwards the concern that the companionship operates in, equally good equally macro economical factors. Estimation doubt tin dismiss locomote reduced past times obtaining improve in addition to to a greater extent than consummate information but estimation doubt volition stay resistant, no affair how much fourth dimension you lot pose inwards in addition to what information analysis that you lot do. Using my Uber user valuation, it is truthful that some of the dissonance inwards the valuation comes from Uber beingness a private, secretive companionship in addition to but most of the doubt comes from the ride sharing concern beingness inwards a soil of flux, equally regulators in addition to competitors operate out how best to bargain amongst shifting consumer tastes in addition to changing technologies. This has ii implications. The kickoff is that fifty-fifty if you lot had access to to a greater extent than information, either because Uber decides to expire populace or you lot are an insider inwards the company, much of the doubt inwards estimated value per user volition remain. The 2d is that your estimated value volition alter considerably over time, equally the facts on the Earth change, in addition to that volatility inwards value cannot locomote viewed equally a shortcoming of the model.
2. Uncertainty is an integral business office of valuation
One critique that leaves me unmoved is that valuing a concern or an asset, inwards the human face upward of pregnant uncertainty, is pointless because you lot volition locomote wrong. So what? Uncertainty is business office in addition to bundle of doing concern in addition to you lot cannot want it, pray it or analyze it away. As I consider it, you lot receive got ii choices when it comes to uncertainty. You tin dismiss bargain amongst it frontally past times making explicit assumptions or you lot tin dismiss expire into "denial" model in addition to brand implicit assumptions. When I tried to value a user at Uber, I made explicit assumptions most user life, renewal rates in addition to a host of other variables, in addition to I volition cheerfully acknowledge that I volition locomote incorrect on every i of them, but what is the alternative? When pricing a user past times looking at what others are paying for users inwards similar companies, you lot are making assumptions most all of the variables equally well, but those assumptions are implicit. In fact, they are hidden so good that you lot may non locomote aware of your ain assumptions, a unsafe house to locomote when investing.
One critique that leaves me unmoved is that valuing a concern or an asset, inwards the human face upward of pregnant uncertainty, is pointless because you lot volition locomote wrong. So what? Uncertainty is business office in addition to bundle of doing concern in addition to you lot cannot want it, pray it or analyze it away. As I consider it, you lot receive got ii choices when it comes to uncertainty. You tin dismiss bargain amongst it frontally past times making explicit assumptions or you lot tin dismiss expire into "denial" model in addition to brand implicit assumptions. When I tried to value a user at Uber, I made explicit assumptions most user life, renewal rates in addition to a host of other variables, in addition to I volition cheerfully acknowledge that I volition locomote incorrect on every i of them, but what is the alternative? When pricing a user past times looking at what others are paying for users inwards similar companies, you lot are making assumptions most all of the variables equally well, but those assumptions are implicit. In fact, they are hidden so good that you lot may non locomote aware of your ain assumptions, a unsafe house to locomote when investing.
3. Uncertainty tin dismiss (and should) locomote visualized
Here is my response to uncertainty. Where information exists but I practice non receive got access to that data, I volition essay to brand my best estimates based upon the existing information, noisy, dated or 2d paw though it mightiness be. Where I receive got access to data, I volition cheque it against other data, mutual feel in addition to economical kickoff principles. Where at that spot is no data, I volition brand my best estimates in addition to to the extent that these estimates come upward amongst probability distributions, my value itself is a distribution, non a number. Illustrating this process, amongst the Uber user valuation:
Here is my response to uncertainty. Where information exists but I practice non receive got access to that data, I volition essay to brand my best estimates based upon the existing information, noisy, dated or 2d paw though it mightiness be. Where I receive got access to data, I volition cheque it against other data, mutual feel in addition to economical kickoff principles. Where at that spot is no data, I volition brand my best estimates in addition to to the extent that these estimates come upward amongst probability distributions, my value itself is a distribution, non a number. Illustrating this process, amongst the Uber user valuation:
 |
| Excel Add On: Crystal Ball (Oracle), Simulation Output |
I receive got made distributional assumptions on iv of my inputs: the portion of Uber's expenses that expire to servicing existing users, the life fourth dimension of a user, the proportion of expenses that are variable in addition to the toll of working capital alphabetic lineament (discount rate) to compute today's value. Since these distributions are all centered on my base of operations illustration assumptions, it should come upward equally no surprise that the median value of a user ($414) is really closed to my base of operations illustration value ($410). However, at that spot is a broad spread precisely about that value, amongst the numbers ranging a depression of $74, when the user life is short, the expenses of servicing a user are high, most of the costs are variable in addition to the toll of working capital alphabetic lineament is low, to a high of to a greater extent than than $1000 per user, when the reverse weather condition hold. Note that at the electrical flow pricing of $69 billion, you lot are valuing each user closed to $900, at the upper destination of the distribution.
User Economics: Cost Propositions
It is truthful that the destination game for every concern is to brand coin for its investors. That said, at that spot is a style to over react, when a immature companionship reports a loss, equally was the illustration when Uber reported an operating loss of $2.8 billion for 2016, a few months ago. The pessimists on Uber viewed this equally farther evidence that the companionship was on a pathway to nowhere in addition to that investors inwards the companionship must locomote delusional to attach whatever value to it. The optimists argued that it is natural for immature companies to lose money in addition to that Uber should locomote judged on other dimensions such equally user growth in addition to marketplace potential instead. At the jeopardy of angering both groups, I volition usage my Uber user valuation to scrap that piece I concur amongst the 2d grouping that losing coin is typical at immature companies, I volition also convey sides amongst the kickoff grouping that you lot withal postulate a pathway to profitability amidst the losses, for value to exist.
It is truthful that the destination game for every concern is to brand coin for its investors. That said, at that spot is a style to over react, when a immature companionship reports a loss, equally was the illustration when Uber reported an operating loss of $2.8 billion for 2016, a few months ago. The pessimists on Uber viewed this equally farther evidence that the companionship was on a pathway to nowhere in addition to that investors inwards the companionship must locomote delusional to attach whatever value to it. The optimists argued that it is natural for immature companies to lose money in addition to that Uber should locomote judged on other dimensions such equally user growth in addition to marketplace potential instead. At the jeopardy of angering both groups, I volition usage my Uber user valuation to scrap that piece I concur amongst the 2d grouping that losing coin is typical at immature companies, I volition also convey sides amongst the kickoff grouping that you lot withal postulate a pathway to profitability amidst the losses, for value to exist.
1. Servicing existing users versus acquiring novel users
In my Uber user valuation, I started amongst the operating losses reported past times the companionship ($2.8 billion), backed into the total operating expenses for the companionship ($9.3 billion) in addition to and so allocated that expense across iii categories: servicing existing user (48.17%), acquiring novel users (41.08%) in addition to corporate expenses (10.75%). While I based this breakdown on the information (on increment inwards users in addition to contribution margins inwards ride sharing) that I had on Uber inwards 2016, that information is dated, noisy in addition to 2d hand. It is exclusively possible that the actual pause downwardly of expenses is dissimilar from my estimate. If you lot are wondering why it matters, since the destination resultant (that Uber lost $2.8 billion) is non changing, at that spot are consequences that you lot tin dismiss consider inwards the tabular array below:
In my Uber user valuation, I started amongst the operating losses reported past times the companionship ($2.8 billion), backed into the total operating expenses for the companionship ($9.3 billion) in addition to and so allocated that expense across iii categories: servicing existing user (48.17%), acquiring novel users (41.08%) in addition to corporate expenses (10.75%). While I based this breakdown on the information (on increment inwards users in addition to contribution margins inwards ride sharing) that I had on Uber inwards 2016, that information is dated, noisy in addition to 2d hand. It is exclusively possible that the actual pause downwardly of expenses is dissimilar from my estimate. If you lot are wondering why it matters, since the destination resultant (that Uber lost $2.8 billion) is non changing, at that spot are consequences that you lot tin dismiss consider inwards the tabular array below:
Uber User Value: Existing User versus New User Costs
| % of Operating Expenses spent on acquiring novel users | Value of Existing Users | Value of New Users | Uber User Value | % of Value from Existing users |
|---|---|---|---|---|
0% | $6,167 | $18,147 | $24,314 | 25.36% |
20% | $10,619 | $19,035 | $29,654 | 35.81% |
40% | $15,071 | $19,923 | $34,994 | 43.07% |
60% | $19,523 | $20,811 | $40,334 | 48.40% |
80% | $23,974 | $21,699 | $45,673 | 52.49% |
100% | $28,426 | $22,587 | $51,013 | 55.72% |
As you lot increment the proportion of the operating expenses that are spent on acquiring novel users, the value of an existing user goes upward because you lot are spending less coin on providing service to that user, but the value of a novel user also increases, equally the cyberspace value added (the difference betwixt the user value in addition to the toll of acquiring a user) goes up. Ironically, equally you lot pass to a greater extent than on acquiring novel users in addition to less on servicing existing users, the proportion of your value that comes from existing users increases.
User Value Proposition 1: Influenza A virus subtype H5N1 money-losing companionship that is losing coin providing service to existing users/customers is worth less than a companionship amongst equivalent losses, where the primary expenses are coming from client acquisitions.
User Value Proposition 1: Influenza A virus subtype H5N1 money-losing companionship that is losing coin providing service to existing users/customers is worth less than a companionship amongst equivalent losses, where the primary expenses are coming from client acquisitions.
This is, of course, neither profound nor surprising, in addition to it explains why, left to their ain devices in addition to without whatever monitoring, immature companies volition claim that most or all of their expenses are for acquiring novel customers. If you lot are investing inwards a immature company, you lot volition receive got to practice your ain assessment of whether managers are misrepresenting, past times looking at expense growth over fourth dimension versus novel customers. If the release of total customers remains fixed in addition to expenses maintain rising, you lot should locomote skeptical most managerial claims (that most of the costs are for acquiring novel customers).
2. Cost Structure
One ground that investors are willing to convey losses at immature companies is because they believe that equally the companionship grows its operations, at that spot volition locomote economies of scale. In income declaration terms, this volition resultant inwards expenses growing less apace than revenues in addition to improving operating margins. That said, you lot cannot convey it on organized faith that this volition ever come about or that it volition come about at the same charge per unit of measurement for every company. To consider the impact on user value of this dimension, I adjusted the portion of Uber's expenses that are variable (and volition grow amongst revenues) in addition to those that are fixed (and grow at a lower rate) in addition to captured the value effect inwards this table:
As the proportion of expenses that are fixed rises, the value of both existing in addition to novel users goes upward but the latter goes upward at a faster rate. Put simply, the economies of scale increment equally you lot increment the charge per unit of measurement at which you lot are adding scale.
User Value Proposition 2: Influenza A virus subtype H5N1 companionship whose expenses are primarily fixed (will non grow amongst revenues) volition locomote worth to a greater extent than than an otherwise identical companionship whose expenses are variable (track revenues).
One ground that investors are willing to convey losses at immature companies is because they believe that equally the companionship grows its operations, at that spot volition locomote economies of scale. In income declaration terms, this volition resultant inwards expenses growing less apace than revenues in addition to improving operating margins. That said, you lot cannot convey it on organized faith that this volition ever come about or that it volition come about at the same charge per unit of measurement for every company. To consider the impact on user value of this dimension, I adjusted the portion of Uber's expenses that are variable (and volition grow amongst revenues) in addition to those that are fixed (and grow at a lower rate) in addition to captured the value effect inwards this table:
Uber User Value in addition to Cost Structure
| % of electrical flow expenses that are fixed | Value of Existing Users | Value of New Users | Uber User Value | % of Value from Existing users |
|---|---|---|---|---|
0% | $14,733 | $15,250 | $29,983 | 49.14% |
20% | $16,412 | $20,191 | $36,603 | 44.84% |
40% | $17,834 | $24,373 | $42,207 | 42.25% |
60% | $19,040 | $27,924 | $46,964 | 40.54% |
80% | $20,068 | $30,949 | $51,017 | 39.34% |
100% | $20,947 | $33,536 | $54,483 | 38.45% |
User Value Proposition 2: Influenza A virus subtype H5N1 companionship whose expenses are primarily fixed (will non grow amongst revenues) volition locomote worth to a greater extent than than an otherwise identical companionship whose expenses are variable (track revenues).
If unchallenged, immature growth companies volition ever claim that they receive got massive economies of scale but that claim has to locomote backed upward past times the numbers. Specifically, investors should pay attending to the charge per unit of measurement of alter inwards revenues in addition to expenses, since amongst large economies of scale, the one-time should alter to a greater extent than than the latter. The caveat, though, is that having to a greater extent than fixed costs tin dismiss increment risk, because it volition increment the jeopardy of failure at immature companies in addition to earnings volatility for to a greater extent than mature firms. As user growth levels off, having to a greater extent than fixed costs volition trim back value rather than increasing it.
User Economics: Growth Propositions
For immature companies, nosotros mostly persuasion growth equally goodness in addition to piece that is mostly true, non all growth is created equal. In fact, fifty-fifty amongst immature companies, at that spot are some strategies that deliver growth inwards users or revenues, piece destroying value. In a user or subscriber based model, at that spot are ii ways you lot tin dismiss grow your revenues. One is to instruct existing users to purchase to a greater extent than of your products or services in addition to the other is past times trying to instruct novel users. While both tin dismiss increment value, the one-time volition locomote create to a greater extent than value, for ii reasons. First, since it comes from existing customers, you lot don’t receive got to pay to instruct these users in addition to it is thence less costly to the firm. Second, past times increasing the value of a user, it increases the value of whatever novel users equally well, creating a secondary impact on value. Using my Uber user valuation, you lot tin dismiss consider the impact of changing the annual growth charge per unit of measurement inwards revenues for an existing user inwards the nautical chart below:
For immature companies, nosotros mostly persuasion growth equally goodness in addition to piece that is mostly true, non all growth is created equal. In fact, fifty-fifty amongst immature companies, at that spot are some strategies that deliver growth inwards users or revenues, piece destroying value. In a user or subscriber based model, at that spot are ii ways you lot tin dismiss grow your revenues. One is to instruct existing users to purchase to a greater extent than of your products or services in addition to the other is past times trying to instruct novel users. While both tin dismiss increment value, the one-time volition locomote create to a greater extent than value, for ii reasons. First, since it comes from existing customers, you lot don’t receive got to pay to instruct these users in addition to it is thence less costly to the firm. Second, past times increasing the value of a user, it increases the value of whatever novel users equally well, creating a secondary impact on value. Using my Uber user valuation, you lot tin dismiss consider the impact of changing the annual growth charge per unit of measurement inwards revenues for an existing user inwards the nautical chart below:
While value increases amongst user growth rates, it increases at a lower charge per unit of measurement than it did when nosotros varied revenue growth from existing users.
User Value Proposition 3: Influenza A virus subtype H5N1 companionship that is growing revenues past times increasing revenues/user is worth to a greater extent than than an otherwise similar growth companionship that is deriving growth from increasing the release of users/customers.
User Value Proposition 3: Influenza A virus subtype H5N1 companionship that is growing revenues past times increasing revenues/user is worth to a greater extent than than an otherwise similar growth companionship that is deriving growth from increasing the release of users/customers.
Young companies human face upward the interrogation of whether to allocate resources to instruct novel users or essay to sell to a greater extent than to existing users is i of those. At to the lowest degree inwards the illustration of Uber, the numbers seem to dot that the wages is greater inwards getting existing users to usage the service to a greater extent than than inwards looking for novel users.
User Economics: Business Propositions
At the jeopardy of stretching the user value model also far, it tin dismiss locomote used to hash out concern models inwards the space, from the networking benefits that so many companies inwards this infinite claim to possess to how the revenue model you lot select (subscription, transaction or advertising) plays out inwards user values.
1. Competitive Dynamics in addition to Networking Benefits
At the jeopardy of stretching the user value model also far, it tin dismiss locomote used to hash out concern models inwards the space, from the networking benefits that so many companies inwards this infinite claim to possess to how the revenue model you lot select (subscription, transaction or advertising) plays out inwards user values.
1. Competitive Dynamics in addition to Networking Benefits
Is it improve to operate inwards a concern where the toll of acquiring a novel user is depression or high? Holding all else constant, the response is obvious. Influenza A virus subtype H5N1 trouble solid volition maximize its value if tin dismiss generate both high value per user in addition to receive got a depression toll of acquiring novel users. That said, if everyone inwards the concern shares these characteristics, i or some other of these variables has to change. If the toll of acquiring novel users is depression for everyone, contest volition drive downwardly the value per novel user, in addition to if the value per user remains high, contest volition drive upward the toll of acquiring novel users. The merchandise off is captured inwards the motion painting below:
User Value Proposition 4: The particular trouble solid volition locomote the i that is able to detect a pathway to high value per user in addition to a depression toll to adding a novel user inwards a market, where its competitors struggle amongst either depression value per user or high costs of acquiring users.
So how practice the particular companies describe off this seeming impossible combination of high value per user in addition to depression toll per novel user? I may locomote stretching, but it is at the pump of ii damage that nosotros consider increasingly used inwards business, network benefits in addition to big data.
So how practice the particular companies describe off this seeming impossible combination of high value per user in addition to depression toll per novel user? I may locomote stretching, but it is at the pump of ii damage that nosotros consider increasingly used inwards business, network benefits in addition to big data.
- Network Benefits: If network benefits exist, the toll of acquiring novel users volition decrease equally a company's presence inwards a marketplace increases, reaching a tipping dot where the biggest instrumentalist volition human face upward much lower costs inwards acquiring novel users than the competition, allowing it to capture the marketplace in addition to perchance usage its marketplace potency to increment the value of each user. In the illustration of Uber in addition to ride sharing business, the declaration for networking benefits is strong on a localized basis, since at that spot are clearly advantages for both drivers in addition to customers to shift to the dominant ride sharing companionship inwards whatever locality, the one-time because they volition generate to a greater extent than income in addition to the latter because they volition instruct improve service. The declaration is much weaker on a global basis, though ride sharing companies are trying to create networking benefits past times allying amongst airlines in addition to credit assist companies, in addition to how this endeavour plays out may good determine Uber's ultimate value.
- Big Data: While I stay a skeptic on the "big data" claims that every companionship seems to locomote making today, it is inarguable that at that spot are companies that usage large information to augment value. These companies collect information on their existing users/subscribers/customers in addition to usage that information to (a) customize existing products/services to consider user preferences, (b) create novel products or services that consider perceived user needs and/or (c) for differential pricing. All of these increment user value past times altering i or to a greater extent than of the inputs into the equation, amongst customization increasing user life in addition to novel products & differential the growth inwards revenues/user. In my view, the best users of large information (Netflix, Amazon, Google in addition to Facebook) receive got used the information to increment their existing user value. Uber is withal inwards the nascent stages, but its attempts at using information receive got expanded from surge pricing to differential pricing.
2. Revenue Models
In my version of user valuation, I expression at revenues per user, drawing no distinction on how those revenues are derived. Broadly speaking, at that spot are iii revenue models that a user/subscriber based companionship tin dismiss use, a subscription-based model where users or subscribers pay a subscription fee to maintain to usage the service or product, a transaction-based model where users or subscribers pay only when they usage the service of production in addition to an advertising-based model where users or subscribers instruct to usage the production or service for free, but are targeted inwards advertising. Netflix operates on a subscription-based model, Uber is a transaction-based trouble solid in addition to Facebook generates its revenues from advertising. Some companies similar LinkedIn receive got hybrid models, generating revenues from subscriptions (from premium members), transactions (from recruitments) in addition to advertising. There are other inputs into the valuation that volition locomote affected past times a company's revenue model in addition to I receive got tried to capture them inwards the tabular array below:
There is no i dominant revenue model, since each has its pluses in addition to minuses. An advertising-based model volition allow for much to a greater extent than rapid growth inwards a firm's early on years, a subscription-based model volition generate to a greater extent than sustainable growth in addition to a transaction-based model has the greatest potential for revenue growth from existing users.
User Value Proposition 5: The "optimal" revenue model may vary for a trouble solid depending upon where it is inwards the life wheel in addition to across firms depending on their production or service offerings in addition to across investors, depending on whether they are focused on user growth, revenue growth or revenue sustainability.
3. Real Options
When valuing a companionship based upon its expected cash flows, at that spot is a run a jeopardy that you lot volition nether value the company, if it has command of a resources that could locomote used for other purposes inwards the future, even if that usage makes no economical feel today. That is why a applied scientific discipline or natural resources reserve that is non feasible today tin dismiss withal receive got value, in addition to this is the soil for the existent alternative premium. In the context of a user-based business, optionality tin dismiss instruct a element of value, to the extent that companies may locomote able to exploit their user bases to sell other products in addition to services inwards the future. While the intuition of existent options is simple, valuing existent options is notoriously hard in addition to afterwards much paw waving, most of us (including me) give up, but the user-based valuation model provides a framework to at to the lowest degree eke out some full general propositions most optionality in addition to value.
There should locomote no surprises inwards this picture, amongst the value of a existent alternative inwards a user base of operations tied to the inputs into an alternative pricing model.
User Value Proposition 6: The value of optionality from a user base of operations volition locomote greatest at firms amongst lots of sticky, intense users inwards businesses where the future is unpredictable because of changes inwards product/service applied scientific discipline in addition to client tastes.
In my version of user valuation, I expression at revenues per user, drawing no distinction on how those revenues are derived. Broadly speaking, at that spot are iii revenue models that a user/subscriber based companionship tin dismiss use, a subscription-based model where users or subscribers pay a subscription fee to maintain to usage the service or product, a transaction-based model where users or subscribers pay only when they usage the service of production in addition to an advertising-based model where users or subscribers instruct to usage the production or service for free, but are targeted inwards advertising. Netflix operates on a subscription-based model, Uber is a transaction-based trouble solid in addition to Facebook generates its revenues from advertising. Some companies similar LinkedIn receive got hybrid models, generating revenues from subscriptions (from premium members), transactions (from recruitments) in addition to advertising. There are other inputs into the valuation that volition locomote affected past times a company's revenue model in addition to I receive got tried to capture them inwards the tabular array below:
| Subscription | Transaction | Advertising | |
|---|---|---|---|
| User Stickiness (User life & Renewal Probability) | High (High life & renewal probability) | Intermediate (Intermediate life & renewal probability) | Low (Low life & renewal probability) |
| Revenue per User Predictability (Discount rate) | High (Low Discount Rate) | Low Predictability (High Discount Rate) | Intermediate (Average Discount Rate) |
| Revenue per User Growth (Annual Growth Rate) | Low (Low growth charge per unit of measurement inwards revenues/user) | Low (High growth charge per unit of measurement inwards revenues/user) | Intermediate (Intermediate growth charge per unit of measurement inwards revenues/user) |
| Growth charge per unit of measurement inwards users (CAGR inwards # Users) | Low (Low CAGR inwards # users) | Intermediate (Intermediate CAGR inwards # users) | High (High CAGR inwards # users) |
| Cost of adding novel users (Cost/New User) | High (High Cost/New User) | Intermediate (Middling Cost/New User) | Low (Low Cost/New User) |
User Value Proposition 5: The "optimal" revenue model may vary for a trouble solid depending upon where it is inwards the life wheel in addition to across firms depending on their production or service offerings in addition to across investors, depending on whether they are focused on user growth, revenue growth or revenue sustainability.
3. Real Options
When valuing a companionship based upon its expected cash flows, at that spot is a run a jeopardy that you lot volition nether value the company, if it has command of a resources that could locomote used for other purposes inwards the future, even if that usage makes no economical feel today. That is why a applied scientific discipline or natural resources reserve that is non feasible today tin dismiss withal receive got value, in addition to this is the soil for the existent alternative premium. In the context of a user-based business, optionality tin dismiss instruct a element of value, to the extent that companies may locomote able to exploit their user bases to sell other products in addition to services inwards the future. While the intuition of existent options is simple, valuing existent options is notoriously hard in addition to afterwards much paw waving, most of us (including me) give up, but the user-based valuation model provides a framework to at to the lowest degree eke out some full general propositions most optionality in addition to value.
User Value Proposition 6: The value of optionality from a user base of operations volition locomote greatest at firms amongst lots of sticky, intense users inwards businesses where the future is unpredictable because of changes inwards product/service applied scientific discipline in addition to client tastes.
The Bottom Line
The most straight applications of a user or subscriber based model is inwards the valuation of companies similar Uber, Facebook in addition to Netflix. That said, to a greater extent than in addition to to a greater extent than companies are seeing benefits inwards shifting from their traditional concern models to user-based ones. Apple is a cash machine built precisely about a smartphone but it is also accumulating information on to a greater extent than than a billion users of these phones, to whom it may locomote able to offering other products in addition to services. Amazon started life equally an online retail companionship but at that spot is no denying the powerfulness of its 70 1000000 Prime members inwards generating revenues for the company. I receive got used Microsoft in addition to Adobe products for equally long equally they receive got been around, but amongst both companies, but my human relationship amongst both companies has changed. I am right away a subscriber (Office 365 in addition to Creative Cloud member) who pays annual fees, rather than a client who buys in addition to upgrades software on a discretionary basis. Understanding user economic science in addition to value is fundamental to non only investors inwards these companies, when valuing in addition to pricing them, but to managers of these companies, inwards their day-to-day concern decisions. I volition admit, without shame, that my cognition of user-based companies is rudimentary in addition to that my user-based model may locomote amateurish, inwards what it misses or mangles. That said, if you lot are an skilful on user-based businesses, I promise that you lot tin dismiss construct on the model to brand it to a greater extent than realistic in addition to useful.
YouTube Video
Links
Attachments
The most straight applications of a user or subscriber based model is inwards the valuation of companies similar Uber, Facebook in addition to Netflix. That said, to a greater extent than in addition to to a greater extent than companies are seeing benefits inwards shifting from their traditional concern models to user-based ones. Apple is a cash machine built precisely about a smartphone but it is also accumulating information on to a greater extent than than a billion users of these phones, to whom it may locomote able to offering other products in addition to services. Amazon started life equally an online retail companionship but at that spot is no denying the powerfulness of its 70 1000000 Prime members inwards generating revenues for the company. I receive got used Microsoft in addition to Adobe products for equally long equally they receive got been around, but amongst both companies, but my human relationship amongst both companies has changed. I am right away a subscriber (Office 365 in addition to Creative Cloud member) who pays annual fees, rather than a client who buys in addition to upgrades software on a discretionary basis. Understanding user economic science in addition to value is fundamental to non only investors inwards these companies, when valuing in addition to pricing them, but to managers of these companies, inwards their day-to-day concern decisions. I volition admit, without shame, that my cognition of user-based companies is rudimentary in addition to that my user-based model may locomote amateurish, inwards what it misses or mangles. That said, if you lot are an skilful on user-based businesses, I promise that you lot tin dismiss construct on the model to brand it to a greater extent than realistic in addition to useful.
YouTube Video
Links
Attachments
Tidak ada komentar:
Posting Komentar