Business Models

The next dimension you should be aware of is business models. Quite simply, this answers the questions: “who pays?”, “what directly makes revenue go up?”, and (not often enough) “what must the company spend money on?”

The most common ones you should be aware of are:

Most other companies that employ software engineers have aspects of these embedded within them. I cannot do justice to them in the space I have here, but I will at least introduce them and try to give you enough to learn more.

Agencies

The agency model is the most common model for small teams. I don’t have numbers for this, but my guess is it is responsible for most tech jobs as well.

• With an agency model, you have one or more clients, and you are paid for your time.
• If you are a dev team within a bigger, non-tech company, you are basically an in-house agency with one client.
• If you are a consultant or freelancer, you are a one-person agency.
• There are a thousand small ways to tweak dev setups and payment terms, but broadly, as the amount of dev-hours grows, so does the amount of money flowing into the agency.

Ideally, you should be trying to get the most done per hour, but cynically, bad incentive systems can lead to just booking more hours. The common thread is that your income isn’t fully pinned to the success of your client’s business, which is sometimes a feature and often a bug of the Principal-Agent Problem. Despite the flaws, agencies are still so popular because of the sheer amount of work that needs to be done and the specialized talent needed for certain types of high-skill work.

Advertising

The advertising (or Media) model is next most common. Here, you make money by increasing the traffic to your site or usage of your product and then selling advertiser spots.

• Sometimes, the advertising is display ads (paying for cost per miles - aka ears and eyeballs - just to be present and build brand awareness).
• Most advertisers these days prefer _ performance-based_ marketing - paying for directly measurable user actions, e.g., cost per click.

Most social networks and news/opinion sites run this way, though there is massive assortment of marketing technology to help ad buyers find the best ad inventory. Because end users pay nothing and advertisers pay for access, the derisive view is that “users are the product.” However, this may not always be negative; the Wirecutter and the Points Guy are both well-regarded high-quality content sites that make their money from affiliate marketing, which is a variant of performance-based marketing ...