Business model and pricing
How should we charge, and who should pay?
Moves between one-off sales, subscriptions, advertising, fees and free; setting who pays and how much.
27
58%
8%
33%
What the cases suggest
Business-model changes are where established leaders most often stumble in this record. Challengers and young companies that chose who pays, and made the other side free, mostly prospered: Google’s ad auctions, Alibaba’s free listings, Salesforce’s subscriptions. Leaders were more mixed, and several of their failures came from using pricing to defend a position rather than to create value.
What separated the decisions that worked
- Successful changes aligned price with the value the customer received (pay per click, pay per seat used, pay per month of use) and were explained in advance, as Adobe did to investors before its move to subscriptions.
- Failures extracted value from a position of control in ways customers or courts later rejected: Apple’s in-app purchase rules and its 27 percent link-out fee, Adobe’s cancellation fee, eBay’s fees in China against a free local rival.
- Hidden costs created later trouble even when the model worked: card interchange built a vast network and invited decades of regulation.
Where this evidence is weak
Several business-model decisions are still too early to judge, especially pricing for AI. The record holds few cases of small companies whose pricing experiments failed quietly.
By who decided
| Decision-maker | Cases | Paid off | Mixed | Backfired | Too early |
|---|---|---|---|---|---|
| Market leader | 13 | 5 | 0 | 5 | 3 |
| Challenger | 6 | 5 | 0 | 1 | 0 |
| Young company | 6 | 3 | 1 | 2 | 0 |
| Industry-wide | 1 | 0 | 1 | 0 | 0 |
| Public body | 1 | 1 | 0 | 0 | 0 |
The cases
Each links to the essay, memo or road not taken where the decision is described and judged, with its sources.
- Price software, training and services separately from computer hardware Putting a separate price on something reveals what it is worth, and invites others to compete in supplying it.
- Introduce the kiosque billing system, charging users per minute on their phone bill and sharing revenue with service providers. A simple, trusted payment system can create an ecosystem of providers almost overnight.
- Deliver business software through the browser from a single shared (multi-tenant) system, priced per user per month, with no installation A new delivery model can be a bigger advantage than better features, if it changes who can buy and how quickly.
- Give away the software and sell subscriptions for certified, supported, long-maintained versions of Linux for enterprises When the product is free, sell the certainty around it.
- Sell text ads by cost-per-click auction, rank them by bid multiplied by expected click-through rate, charge just above the next bidder, and keep them labelled and separate from the organic results When you sell access to your users, make relevance to the user part of the price.
- Sell songs one at a time for 99 cents, with the copy protection the labels required, through its own software and player Make the legal path easier than the illegal one, and the price question becomes secondary.
- Extend the ad auction to other people’s websites, sharing revenue with publishers When you pay the producers whose work you also rank, expect them to produce for your payments.
- Charge sellers nothing to list, hold buyers’ payments in escrow until goods arrived, and let buyers chat with sellers Solve the trust problem your customers actually have, not the one your competitor solved elsewhere.
- Offer a gigabyte of storage, replace folders with search, and pay for it by scanning mail to choose ads Compete on the dimension where your costs are structurally lower than everyone else’s.
- Launch a free web map that users could drag, zoom and search in the browser, funded by advertising, and let outside developers build on it Giving away a costly layer can win the market for everything built on top of it.
- License the major labels' catalogues for a free, advertising-supported tier as well as a paid one, granting the labels equity and advance payments in return When a few suppliers control what you cannot do without, the terms of their consent become your business model.
- Stop selling boxed Creative Suite licences and move all customers to monthly or annual Creative Cloud subscriptions A business-model transition needs new measures of progress, explained before the old measures fall.
- Sell Office as a subscription while continuing to offer perpetual versions When customers depend on you, letting them move at their own pace can be worth more than moving them at yours.
- Add a cheaper plan with advertising and charge for accounts shared outside the household Once a service is a habit, the terms it began with become negotiable.
- Fund card systems through interchange fees paid by merchants’ banks to cardholders’ banks, with rules that kept merchants from charging card users more When a cost is hidden from the person whose choice creates it, expect overuse and, eventually, regulation.
- Sell the order of search results by open auction, with advertisers paying only when a user clicks Inventing the business model is not the same as owning the place where it is used.
- Host conventional client-server business software in their own data centres, one installation per customer, funded largely by debt Moving an old product to a new channel rarely captures the economics of the new channel.
- Launch commercial service with large handsets priced around $3,000 and calls costing several dollars a minute. When the product cannot be changed, the market you choose to serve first decides whether it lives.
- Run its Chinese business, EachNet, on eBay’s global platform and fee model, against a local rival that charged sellers nothing A marketplace that works in one country may need different trust mechanisms, not just translation, in another.
- Require apps selling digital goods and subscriptions to use Apple’s in-app purchase system, at its commission, and bar them from telling users about cheaper options elsewhere Rules that work only if customers do not know their options are vulnerable to anyone who tells them.
- Split Netflix in two: keep streaming under the Netflix name and move DVD-by-mail to a separate service called Qwikster, with separate websites and accounts. Do not make customers carry the cost of your internal reorganisation; two websites and two accounts were Netflix’s convenience, not theirs.
- Default many customers to an “annual, paid monthly” plan that charged a large fee for cancelling in the first year If customers stay because leaving is hard, the retention number is measuring the trap.
- Run a creator-driven video app without giving creators a way to earn In a creator product, pay the people who make the content or expect them to leave.
- Respond to a court order requiring it to let developers link to outside payments by charging a 27 percent commission on such purchases and adding warning screens When a court or regulator tells you to change, minimal compliance can cost more than the change.
- Replace its older ERP with S/4HANA and set a date for ending mainstream support of the old system, pushing customers to migrate, increasingly to SAP’s cloud When a vendor sets your deadline, plan as if it will not move, and negotiate as if it might.
- Price AI agents by the conversation or action they handle, rather than by human user When technology changes the unit of value, the pricing unit must follow it, or a competitor will.
- Test advertising in ChatGPT for free and low-priced tiers When a product that answers questions takes advertising, its credibility depends on keeping the two visibly separate.
Other kinds of decision
- Opening or closing
- Make, buy or partner
- Acquisitions and sales
- Technology bets
- Product design
- New categories and markets
- Distribution and positioning
- Focus, exit and investment
- Trust, safety and privacy
- Executing large change
- Organisation and governance
- Public rules
Shrikant Kumar. “Business model and pricing.” The Telos Decision Record, Telos, version of 2026-11-03. https://shrikantk.com/record/business-model/