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5 main models for building a business model in simple language

5 main models for building a business model in simple language

Every business needs a specific model to run. Building a pristine and fresh model from scratch not only requires a lot of effort, but because of the commonalities that exist in different businesses, it is a kind of repetition and discovery of previously discovered things. The best thing to do is to know the basic patterns of  the business model  well, compare them with our work goals, and use one or a combination of them to build the model we want.

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5 main business model models

Christopher Alexander, Father of the Model Language Movement:

Pattern in architecture is a concept that forms the basis of design ideas and can be reused as a prototype.

1- Unbundling Business Model

In this model, companies are composed of three different types of internal but very different and independent businesses. These three sections include the following:

  • Customer Relationship Businesses: Their job is to find, attract, and connect with customers.
  • Product Innovation Businesses: Their job is to develop new and exciting products and services.
  • Infrastructure businesses: Their job is to create and manage platforms to perform high-volume repetitive tasks.

The key point in the separation model is to maintain the independence of these three parts. Although in any business, customer relations, production of innovative products and management tasks play a key and important role, but the final goal of the company can be based on achieving one of these three sectors.

2- The Long Tail Business Model

The business model  follows in the footsteps of  Chris Anderson,  a tech-savvy entrepreneur and entrepreneur with a different perspective on digital commerce. Chris Anderson is the author of  Long Tail, which, for the first time in the history of the Web, explains the differences between digital and physical space in a precise and structured way, and paves the way for the future growth of businesses in space. The web predicted. He says in his book:

“The traditional business model is based on high sales of limited products that have a lot of fans. “We can not operate in the digital space with exactly the same mentality of sales and mass trade that exists in the physical space.” Anderson’s proposed model is based on the low sales of a large number of products. In fact, the follow-up business model focuses   on offering a wide variety of products that have a specific or limited audience. Contrary to many people’s beliefs, this model of business is also very profitable compared to the traditional model of selling a large number of products. Using this model, despite very low storage costs, requires a very strong platform to easily provide products to users. Businesses like  Netflix ,  eBay ,  YouTube ,  Facebook And are  based on the comet model. Netflix, for example, which specializes in renting videos online, has shifted some of its focus to renting low-profile movies, greatly increasing the variety in this area. Finally, the total revenue from renting diverse but low-selling films competed with renting high-selling but limited films. EBay chose a similar mechanism. This online auction site is based on the activities of a large number of auctioneers who buy and sell small quantities of low-selling products.

Why is the trail business model so popular?

Three economic reasons have made this model popular:

  • Production tools became universal

Using this  business model,  by reducing technology costs, gave the opportunity to certain people to easily use the tools that they eagerly wanted to use. Now, thanks to the expansion of this model, millions of novice writers can print their books, beginner composers, record their own music, and make new directing, very professional short films. In fact, this  business model paved the way for those who were ignored in a professional way.

  • The generalization of distribution

The Internet has made the distribution of digital content a common commodity, and has significantly reduced storage and delivery costs. In addition, it created new markets for new audiences.

  • Reduce search costs to link supply to demand

The key to this model is to find real and potential buyers. The services that the Internet provides to businesses – such as the use of search engines and the provision of professional tools for digital marketing – have made the process of finding these interested people much easier.

A  sequential business model  can provide services to both professional and amateur content producers, using a multidimensional platform. The platform is the key resource of this model. Therefore, the main activities that take place in this business model are limited to developing, maintaining, building or purchasing specific content points. This model uses the Internet as a powerful channel to communicate with the customer and create transactions. Its revenue streams are also varied and may come from channels such as advertising, product sales, or subscriber membership fees.

3- Multi-Sided Platforms Business Model

In the model of multifaceted platforms, or in the words of economists, “multifaceted markets”, two or more separate and at the same time interdependent groups of customers come together. These platforms will only be valuable to one group of customers if the other customer groups are present. In fact, the main role of this platform is to facilitate communication between different groups of customers. The more users are attracted to this platform, the greater its success. Businesses such  as Google ,  eBay ,  Microsoft Windows , the  Financial Times  and  Visa  use this model in their businesses. Simply put, in this model, businesses play the role of an intermediary and create value by linking different groups to each other.

Google, a model of a multifaceted platform

For example, the core of Google’s business is to do highly targeted text ads globally on the web. The key to Google’s success in playing the role of a good and efficient intermediary is to be able to attract a large number of users. Internet users are looking for the information they need in a targeted, fast and very convenient way. On the other hand, business owners want to achieve their profitability goals with the ads they do on Google. The link is Google’s extraordinary performance in providing these services. Google has divided its customers into three categories; Advertising group, web group and content producer group. This segregation of users allows Google to be more specialized in meeting their needs. For advertisers, for example, targeted ads using the Google AdWords tool For web browsers, the ability to search for free and use tools such  as Gmail ,  Google Maps  and  Picasa,  and for content creators, the ability to monetize generating useful and engaging content are examples of Google’s expertise. Google’s significant revenue from keyword auctions allows it to continuously optimize its free performance for search engine and users of its tools.

4- Free Business Model

Being a free product or service has always been an attractive option for customers. Chris Anderson, whose follow-up model we read a little while ago, has also helped develop this  business model  . He showed that the rise of new free offers is closely linked to the completely different economics of digital products and services. For example, composing and recording a song requires a lot of time and money. But the cost of digitally reproducing and distributing the same song on the Internet is close to zero! Thus, an artist can present his music to his audience via the Internet and promote it globally, provided that he can cover his expenses through other revenue streams, such as performing a concert. Simply put, in this  business model, Customers are divided into two categories. The first category is those who use the company’s free services, and the second category of customers are those who come to the company only because of the first category and are willing to receive services – which usually has nothing to do with the free product – Pay good money. Examples of such businesses can be found in “Free Newspapers”, “Open Source Software”, “Google” and “Free Apps”.

Kartan Hozanagar:

Demand at zero price is several times higher than demand at a very small price.

In this model, we can point to three different patterns of monetization:

  • Free offer based on ad-based multi-faceted platforms

We saw an example of this method in Google. We saw that Google was offering a large portion of its services – which included the use of search engines and utilities – for free, in order to attract a very large group of customers. Then he started working on the second part of his customers by launching his very smart advertising sections and was able to earn a very good income by auctioning keywords.

  • Free introductory services with optional paid supplementary services

Examples of this can be found on sites that provide some of their information or even services for free, and if users want to take full advantage of the site’s information or services, they have to pay a cost, which is usually low. For example, sites that sell different information or training implement this restriction by dividing their information into two parts, free and special, and encourage the customer to purchase a subscription and make full use of the site’s information and training. In the field of services, we can also use the “Dropbox” site  . For example, it offers free and unlimited storage space to its users by offering free and business plans. Undoubtedly, the use of unlimited storage space will require payment. Plugins used in content management systems such as WordPress or Joomla are also in this category. In this way, only part of the services of a plugin is free and active, and the user has to pay an annual fee to receive all the services of that plugin.

  • A prey and hunting pattern in which a free or very cheap offer is offered to encourage the customer to make the next purchase.

In this pattern, the company traps the user by offering a very attractive free offer. The first person to use this model to expand its customers was an American businessman named  King C. Gillette  . In order to be able to sell his razors in bulk and for a long time, he provided a handful of razors for his customers for free. The first batch also had a razor with it, but when the blades ran out, the user would return to the company to buy more razors, and this repetition of the purchase would result in a huge profit for the company.

5- Open Business Model or Open Innovation (Open Business Model)

The inventor of this model is  “Henry Chesbro”  . He introduced the model in 2006 in an article entitled  “Open Innovation: A New Necessity for Creating and Benefiting from Technology  .” The  open business model works in two ways:

  • Innovation inside out

This innovation occurs when companies move to the domestic sector and generate revenue by assigning intellectual property rights or technologies and assets that are not in use.

  • Innovation outside to inside

Occurs when a company incorporates ideas, technology, and intellectual property outside the organization into its development and commercialization processes. Let’s look at an example of this approach at  Procter & Gamble  .

Save a company by changing perspectives

In external-to-internal innovation, which operates in contrast to traditional, closed-ended models, the company does not focus solely on its own internal potentials, but seizes every opportunity to exploit its own external potentials. The best and most successful example of this model is Procter & Gamble , which, when it was on the verge of bankruptcy, was able to use this model to raise itself again and surpass its competitors. “Oh you. جی.  “We have given up the desire to do everything in the company and to pursue innovation wherever possible – including all sources inside and outside,” said Lefley, President and CEO of Procter & Gamble, who implemented the model at his company. “We started from the company and thus returned to the summit.” Procter & Gamble, by purposefully implementing this model in three directions, was able to use the potentials outside its company in an efficient way:

  • Established communication between internal specialists and academic specialists. In this way, they used the latest technology and technology news.
  • Launched a website to address the challenges the company faced. The approach of the website was to expose the company’s internal challenges and unresolved issues to scientists and experts around the world, and to reward the person who found the best and most efficient solution!
  • He set up a website for retirees to make the most of the knowledge and experience of those who are no longer with him.

Nestlé also joined the ranks of this efficient model by creating a section called “Innovative Partnerships”. ” Nestlé has clearly accepted that in order to achieve its development goals, it must expand its internal capacity to be able to make many strategic partnerships, ” said Helmut Tittler,  Head of Innovation Partnerships at Nestlé  . “The company has embraced the open innovation model and is working with its strategic partners to create significant new market and product opportunities together.”

Henry Chesbrough, an organization theorist and professor at the California School of Business:

Open innovation is about working in a world of knowledge; A world where not all smart people work for you. So you can better find them, communicate with them, and take action based on what they can do.

Ride the wave, move

In this article, we look at five  business models  , each of which has its own way of making money. These top five models have been implemented in large companies such as Google, Procter & Gamble, Gillette brand, Microsoft, etc., and it can be said that they have passed the test. But this does not mean that the whole exciting path of business is limited to these five models. As these models outperformed their traditional models, in the future there will be newer models with more traditional approaches. The best way is to always keep your flexibility high and not resist newer monetization models to stay on that unstable and fresh, strong path. A summary of what we said together:

  • Using the business model model can help young managers start their entrepreneurial path. In this way, they will save time, money and experience.
  • In the business world, there are five major business model models that all large and successful companies around the world use one or a combination of. These patterns include segregated, trailing, multi-platform, free, and open source business models.
  • The segregated business model points to the important point that companies should completely separate their three main segments and, if possible, focus on one of them. These three main areas include customer relationship, product innovation, and infrastructure activities.
  • Chris Anderson, a technology thinker and entrepreneur, has proposed a sequel business model. His proposed model is based on the low sales of a large number of products. In fact, the follow-up business model focuses on offering a wide variety of products that have a specific or limited audience.
  • Three economic reasons welcomed the comet pattern. First, the generalization of means of production; Second, the generalization of distribution, and third, the drastic reduction of search costs to link supply to demand
  • The business model of multidimensional platforms manages two or more customer segments, each of which generates a different revenue stream. In this model, free services are provided to one or more customer segments, the cost of which is offset by money received from other customer segments.
  • In the free business model, they divide the customer into two parts: free user and payer. For example, in free newspapers, the customer is the user who reads the newspaper information and the paying customer is the one who pays for the advertisement in the newspaper.
  • The open business model is divided into two parts: internal innovation and external innovation. In this model, companies move away from their closed and traditional state and begin to establish beneficial relationships with sources and potentials of revenue generation and technology outside the organization.

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