What’s so great about the add-on business model

I could provide you a hundred great reasons why the add-on business model is one of my favorites, but today I’m only going to give you one.

Building Loyalty

Ever stopped to think why Apple users are so loyal? Why almost all they use are Apple products?

Walk into any Starbucks and you will likely find a bunch of Apple laptops. Of those people you will find that many also own an iPhone or an iPad. Of the users that own two or all three you will likely find they also have an Apple TV or several other Apple products. I would bet they’re also awaiting the shipment of the Apple Watch they recently ordered.

I’ll use myself as an example. I bought my first MacBook Pro in 2013. Up until then I used only Windows machines. Every time I needed to buy a new laptop I would compare prices. I could always get much more with a Windows machine at the same price as anything Apple offered.

One day I decided to just take the plunge. I was sick of the Windows experience and wanted to try something new. After only a week or two of adjusting to the Apple way of doing things there was no going back. But here’s the thing, the MacBook Pro wasn’t my first Apple product.

My first Apple product was the iPhone. All the way back to the first generation. I love my iPhone. I’ve heard everyone say that other devices and another particular OS is better. I’ve played with those devices and I just don’t like them. I love my iPhone and it was a gateway for me into all other Apple products.

After the MacBook Pro it was a slippery slope. Now I’m that person who also has an iPhone, iPad, and Apple TV. I’m also awaiting the shipment of the Apple Watch I recently ordered.

What does this have to do with the add-on business model?

Two key challenges to the success of any business is customer acquisition and customer retention. Any sustainable business needs both of these.

One of the great things is that the add-on business model is perfectly suited for these two challenges.
I buy Apple products because they keep offering products that I want or think I need. They didn’t sell me an entire package. If they had tried, they would have never got me in the door at all. Instead they got me with one piece of a much larger product line. It didn’t take long before I wanted everything.

The add-on business model does this beautifully.

Customer Acquisition

You usually start with this great free core product. Free might be the best gateway of all, but it can have it’s challenges so tread carefully.

If your users determine they need something a little bit more, they’ll decide to see what you have to offer. They’re already using your core product. What they discover is that they don’t have to buy some huge cost prohibitive package. They can get that one thing they need.

This is a low barrier to entry which means there is generally little or no risk. Now you have to deal with the next step.

Customer Retention

Obviously your best bet at customer retention is having great products and fantastic service. There is little that can provide better results. That doesn’t mean the add-on model doesn’t have it’s benefits here as well though.

The add-on model offers buy-in. With each new installation, purchase, and new add-on your users are integrating themselves into your ecosystem and culture. It’s not just that it becomes more difficult to switch. It’s that they have familiarity and trust with all the integrations you provide. Or at least that should be the case.

Customer Value

This is one point that is often missed by other more traditional business models. If you have a single product then you generally have a single purchase. Even with retention, your growth potential is limited.

[aesop_quote type=”block” cite=”Seth Godin” quote=”“Don’t find customers for your products, find products for your customers.”” size=”1″ align=”center” height=”auto” text=”#FFFFFF” background=”#222222″ width=”100%”]

This might be the golden goose of the add-on business model. Each new customer for your current add-ons is also a potential lead for future add-ons.

This is different from launching a brand new product that might have a different user base. This is launching a new feature into a a group of people who are already engaged in your ecosystem. In short, it’s an easy sell.

One last great thing about this is that you don’t even have to come up with or vet what features to build. Your existing customers are telling you what they want to buy from you. You know how profitable an add-on will be before you even start developing.

There are many more reasons you might consider the add-on business model and perhaps I’ll write about those later but this one is my favorite.

If you’ve been on the fence about whether there is any value in the add-on business model, I hope this has helped you find clarity.

Still have questions or concerns? Let me know in the comments.