Level 6 · Understanding the Business
Understanding Business Models
Same industry, different model, and completely different economics.
In this lesson
What you'll be able to do
- Name the six most common business models
- Match a real company to its model
- Explain why recurring revenue is valued differently
- Spot when one company runs two models at once
Think about it
Netflix charges you every month. A cinema charges you per film. Which business would you rather own, and why?
Story
Let's picture it
Two shops on the same street. One sells cricket bats, a customer buys once every three years. The other rents cricket kits by the month, the same customer pays twelve times a year, forever. Same sport, same street, same customer. Completely different business model, and the second one is far easier to plan around.
Visual
Six models you'll meet again and again
Subscription
Customer pays repeatedly. Netflix, Jio, Adobe.
Transaction / commission
A cut per order. Zomato, Zerodha, Visa.
Product sale
Make once, sell once. Titan, Asian Paints.
Services
Sell people-hours. TCS, Infosys.
Advertising
Users free, advertisers pay. Google, Meta.
Lending / spread
Borrow low, lend high. HDFC Bank, Bajaj Finance.
Plain English
The simple explanation
A business model answers one question: how does this company turn effort into cash? Everything else in the analysis flows from that answer.
Recurring models, subscriptions, lending spreads, annuity service contracts, produce predictable revenue. Transaction and product models depend on winning the customer again every single time.
Many companies run more than one model. Apple sells devices (product) and also runs iCloud, Music and the App Store (subscription and commission). Analysing only the device business would miss where a large share of its profit now comes from.
Real world
Apple
Apple's Services business, App Store, iCloud, Apple Music, Apple Pay, earns tens of billions of dollars a year at margins far above hardware. The iPhone creates the installed base; Services quietly monetises it month after month.
Watch out
Common mistakes
- Assuming every company in an industry earns money the same way.
- Ignoring a small but fast-growing second model inside a big company.
- Confusing revenue with profit, a high-revenue model can be a thin-margin model.
Did you know?
Gillette popularised the 'razor and blades' model over a century ago: sell the handle cheap, earn forever on refills. Printers, coffee pods and gaming consoles still copy it.
Your turn
Mini challenge
List five apps on your phone. Next to each, write who pays and how often, you, an advertiser, or a merchant.
Quick quiz
1 / 5
Wrap up
Summary
The business model is the machine that turns effort into cash. Identify it first, check whether the revenue repeats, and look for second models hiding inside big companies.
- Six common models cover most listed companies
- Recurring revenue is more predictable than one-off sales
- Big companies often run multiple models
- The model drives margins, cash timing and valuation
Revise