[Recurring Revenue Series] A Guide to Recurring Income – The Network Model


In our second article, we continue to explore the 9 Models of Recurring Income, starting with The Network Model. If you haven’t yet read our previous article be sure to review it here 9 Ways to Set Up a Subscription Business Model.

The Network Model is a recurring income model that increases in value as more people subscribe.

Let’s take the telephone as an example.

While it may be difficult to imagine the days before telephones became commonplace, this was in fact one of the earliest Network Models. The use of the telephone to early adopters was limited by literally having no one to call. As the number of subscribers to the telephone service began to increase, the network become more valuable for all subscribers.

The point of difference in the Network Model is that the users have a vested interest in promoting the subscription: the more subscribers, the greater the value for every individual.

The Network Model in Action

Social Media Networks

WhatsApp messaging platform is another example of a recurring income model, the company previously offered a minimal subscription of one dollar a year, giving users the ability to send unlimited free messages over the internet rather than paying a mobile provider. While they scrapped their subscription fee in 2016, at the peak of its subscription model WhatsApp had around 700 million users worldwide and their yearly revenue could be estimated at $US 700 million per year at that time.

In 2014 they were acquired by Facebook for US$ 19 billion in one of the biggest acquisitions the company had made to date. While their initial recurring income model funded growth, insiders have speculated that the rationale of Facebook acquiring WhatsApp was to access user’s behavioural data and personal information. As of February 2018 WhatsApp had over 1.5 billion users with 60 billion messages sent per day – that’s a lot of powerful data. No matter what the intention, it’s clear that WhatsApp was valuable asset for Facebook.

A Subscription Formula for Online Gaming

The Network Model has applications in many different settings. While online games existed beforehand, it was the arrival of World of Warcraft that heralded a huge change to the gaming landscape. Online gamers would be the first to tell you that playing the game is fun, but the experience is so much better when your friends get to join you in ‘cyberspace’ – another example of the Network Model in action.

“It (World of Warcraft) was a place where gamers would go and communicate with each other and interact. It was very common if you enjoyed the game, you’d invite your family and friends to join in, maybe start a guild together — it’s always had a strong social element. We were one of the first virtual theme parks of the internet.”

John Hight 

Executive Producer, World of Warcraft

In 2015 World of Warcraft had 5.5 million active subscribers, with their wise choice of a recurring income model—a monthly subscription rate of $14.99 per month—their revenue was upwards of $82 million yearly. It’s likely these figures have dropped over time as new games have hit the market, but there is no doubt that their recurring income model contributed to the success of the company.

The Ideal Scenario for The Network Model 

  • You have a​​​​ product or service where the utility improves as more people join.  
  • You can attract tech savvy customers and prospects. The more socially connected your customers are, the faster your network will grow.
  • You can an offer a standout experience that people feel compelled to share (however, it's important to note, if your product is just ‘somewhat better’ than the alternatives on the market, it’s unlikely the network model will succeed for you).

Insider Tips

  • Focus your limited resources on building a small, tightly defined group of early adopters and build from there. (You need subscribers to build the network, but you need a network to attract subscribers).
  • The Network Model is best suited to companies with a lot of capital, or entrepreneurs skilled at raising capital.

Interested to find out about the 9 Recurring Revenue Models?

Stay tuned. In this series, we’re covering the 9 different recurring income models to understand more about subscription style revenue. It will open your eyes to a number of different options that are working for other businesses.

Don’t forget to review our other articles so far in the series.

9 Ways to Set Up a Subscription Business Model

As you learn about the different recurring income models, look at them with a curious lens. Rather than thinking “that would never work in my industry” think about how elements could be introduced or borrowed – you don’t need to have a 100% subscription model to benefit. Even a portion of recurring income will bring great advantages.

You'll discover that subscription business models can work in businesses and industries you never imagined. If you have an open mind, it could change the way you do business forever!

Keep an eye out for our next article where we’ll dive into the second model of recurring income.

Don't want to miss it? (or the others in the series)

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Understanding the 8 Drivers of Business Value

Today, we’ve discussed Recurring Revenue, which is one of the 8 Drivers of Company Value.

Now you can measure your business against all 8 Drivers of Value and get an indication of what your business is worth today.

With that information, you can develop a clear plan to increase the value of your business. You'll not only find smarter ways to grow, you'll also be putting yourself in the best position to exit your business, when the time is right, for a premium price.

interested to know 
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What you'll discover 

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Simon Bedard

Simon Bedard

CEO and Founder, Exit Advisory Group

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