Revenue models in the context of online digital audio companies: Making an optimal choice between advertising and paid subscriptions

Abstract

Objectives of the Study

This study sets out to examine the digital Internet audio market through eight case companies and their business models, and determine whether future entrants into the market should focus their monetization efforts on advertising-based models or subscription-based models. The main objective of the study is to provide an educated guess on which revenue models future entrants should emphasize based on the current situation in the market today.

Academic background and methodology

The study is based on research into business models, targeted and mobile advertising, and winner-take-all market characteristics in platform industries. A widely used business model evaluation framework is described and used to assess the selected case companies to examine the current characteristics of players in the market in detail. The results of the empirical study are then used as a basis for formulating key findings about the market and to formulate a recommendation for future market entrants concerning their potential choice of revenue model and value proposition.

Findings and conclusions

The study finds that digital Internet audio companies are roughly divided into two camps: subscription-based companies offering on-demand music and advertising-based companies offering streaming audio in various different collections of feature sets. Despite many negative arguments against selling advertising, the study finds that it is still a smarter market to enter into given the winner-take-all tendencies of the subscription-based market and the significant funding incumbents are competing with against each other already. Future avenues for research are opened in studying whether a winner-take-all market truly does emerge in subscription-based online music, in how strongly Internet audio advertising ends up growing, and how a revenue model is determined and then paired with a logical value proposition that fits it.