Business Model - Utility

UTILITY BUSINESS MODEL

The Utility Model is one of the 9 major business models used on the internet. It gets its name from utility companies like telephone, gas and electricity. What all these utility companies have in common is that they have a user pay-as-you-go model. They are metered services. Some internet businesses use this utility model and operate a metered service.

Whilst most internet service providers (ISPs) in developed countries use the subscription model there are other ISPs in other areas of the globe who use a metered service: users pay as they go for their connection minutes (Rappa 2009). Additionally internet cafes still use this utility model: customers are charged for the minutes they are connected to the internet – often in 5 or 10 minute blocks.

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Other businesses which use the utility model include software companies. Customers are charged via the number of apps they download. Newspapers and magazines also use the utility model for their online articles. Customers are charged per article they download

The utility model may involve the use of micro-payments—online transactions of low value, ranging from a few cents to approximately ten dollars (ecommerce.hostip.info 2012). Micro-payments are commonly used to pay for downloads of newspaper articles, electronic books, music clips, or software, but could be used for virtually any low-priced item for sale on the Internet.

Some cloud based computing companies use the utility model. In fact utility computing was predicted as far back as 1961 when John McCarthy of MIT was quoted as saying “if computers of the kind I have advocated become the computers of the future, then computing may someday be organized as a public utility just as the telephone system is a public utility” (McCarthy cited by Garfinkel 1999). Multinational company IBM has spent billions of dollars since 2002 in setting up cloud based storage and computing systems which will deliver computing resources the way a power utility doles out electricity (Farber 2002).

Other companies which use utility computing are HP, Microsoft, Google, Amazon, InsynQ, Alexa and Polyserve. They charge customers for storage, computing and applications. It can also be argued that the selling of E-books could be described as using the utility model.

REFERENCE LIST

Farber, D (2002) On demand computing: what are the odds?
<http://www.zdnet.com/news/on-demand-computing-what-are-the-odds/296135>

Garfinkel, Simson (1999). Abelson, Hal. ed. Architects of the Information Society, Thirty-Five Years of the Laboratory for Computer Science at MIT. MIT Press. ISBN 978-0-262-07196-3.

Rappa, M. (2009). Managing the Digital Enterprise: Business Models
<http://digitalenterprise.org/transcripts/business_models_tr.html>

(author unknown – viewed 19 July 2012)
<http://ecommerce.hostip.info/pages/1033/Utility-Model.html>

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