Chapter 2

Case Study:

1.  Compare Pandora’s original business model with its current business model.  What’s the difference between “free” and “freemium” revenue models?

Originally Pandora gave 10 hours free then asked for $36 per month for a year.  They now give 40 hours free then .99 to finish the month, also offer premium service for a price.  If they do not, music stops but they can sign up again the next month and start the process over.  They now offer a buy option for songs and get affiliate fees for directing listeners to buy music from Amazon.

The difference between free and freemium is freemium gives some free products/services but relies on a percentage of customers to pay for premium versions of the same product or service.

2.  What is the customer value proposition that Pandora offers?

Provides a personalized radio station that plays music based on the users own selection of genre by favorite musician.  It plays music by the artist and others closely related to that genre. 

3.  Why did MailChimp ultimately succeed with a freemium model but Ning did not?

MailChimp was able to get people to pay for other services as their e-mail list grew.  Whereas Ning could not get more customers to pay for premium services and acquiring more free users cost more for Ning.

4.  What’s the most important consideration when considering a freemium revenue model?

Whether you have a high potential audience in the millions for a product that is easy to use and preferably with low marginal cost.


1.  What is a business model? How does it differ from a business plan?

A business model is “a set of planned activities designed to result in a profit in a marketplace.”  Differs from a business plan which is just a document that “describes a firm’s business model.”

5.  Why is targeting a market niche generally smarter for a community provider than targeting a large market segment?

Because there are so many niches in any large market segment, it would be easier first to dominate the market niche then trying to take over that whole market segment.  With a community provider that means a better potential for growth if they are not having to compete against the more established and bigger companies.

10.  Why is it difficult to categorize e-commerce business models?

It is difficult to categorize e-commerce business models because there are many models and new ones are being invented every day.  There is no one correct way to categorize these business models.

15.  What are the key success factors for exchanges? How are they different from portals?

The size of the industry along with the number of register users are important key factors of success for exchanges.  They need to have a large amount of buyers and sellers to survive.  The difference with exchange and portals is that exchanges are commercial purchasers and suppliers, B2B.  Whereas portals are B2C targeting consumers rather than commercial purchasers.

20.  What is crowdfunding and how does it help e-commerce companies raise capital?

 It involves using the Internet to allow people to collectively contribute money to support a project.  It helps e-commerce by getting people and companies needing funds together to raise money to support their project.  Great for new start-up or early stage companies.


2.  For this project I chose purchasing a camera online versus traditional.

Traditional:  I researched the type of cameras and their pros and cons from technical magazines like CNET,, PC Magazine, and YouTube.  I read the critics review then check the stores for availability.  Visited Walmart, Target and Best Buy.  Two of the stores did not have a particular model from Nikon.  It took from 30 minutes to an hour to look through their selections, handle item and speak to the sales staff.  Best knowledgeable staff was in Best Buy and fair return policies but higher prices.

Online:  Same research as the traditional.  Visited Amazon, eBay, and  What is really nice is the reviews from customers who have purchased the items.  The reviews are helpful in gauging if the camera is a right fit for you and helps in determining the cost of what you need.  I spent around 30 minutes going through similar cameras.  Prices were good and there were more offerings at Amazon.  Only big difference is you have to wait for shipping verses taking it home that day.