This article will cover the various types & examples of Cost Structures tailored to digital business models. 

Cost Structures is one of the sections of the popular Business Model Canvas tool.

Overview

(1) Types of Cost Structures

(2) Examples of Cost Structures

Typical Cost Structures of Digital Business Models look like the below:

• Cost of revenue:

  • Cost of goods sold

  • Cost of hosting and operating their IT technology, incl operations staff

  • Various types of depreciation expenses

  • Customer support & customer experience (for paying customers)

• Research & development / Product / Technology:

  • maintaining and

  • enhancing existing functionality

  • + adding new functionality

• Sales & marketing:

  • Personnel cost for sales, sales support, business development, marketing, brand building, media, corporate communications

  • Customer support & customer experience cost for non-paying customers/users

  • Brand and performance advertising

• General & admin:

  • Costs of overhead functions

  • Stock-based compensation for the senior executives

  • 3rd party services, e.g. audit, legal, recruiting services, etc

Of course there is more detail to each of the above but this is a far more comprehensive list than you will find elsewhere

Course

Digital Business Models

11 Verticals of Disruption

The only online course that systematically covers the major types of digital business models, revealing 200 Playbook Tactics and 70 Monetisation Tactics all presented in the Business Model Canvas

Now let’s take a look at examples of Cost Structures. The best way to do so is - as always - by looking at concrete, vertical-specific examples.

eCommerce

Examples of digital businesses in the eCommerce vertical include Amazon, Etsy, Wayfair and thousands of others.

Cost Structure example Amazon: 

• Cost of sales: inventory costs, content cost, internal transport cost

• Fulfilment cost: operating and staffing fulfilment centres, physical stores, customer service centres, payment processing costs and more

• Technology & content: employees costs involved in R&D, development, design and maintenance of their stores, curation and display of products and services made available on their websites stores and infrastructure cost

• Sales and Marketing: advertising and personnel costs

• General & admin: overhead cost, stock-based compensation (overhead areas), professional 3rd party fees

Content & Media

Examples of digital businesses in the Content & Media vertical include Netflix, YouTube, Spotify, Medium, Apple News and many more:

Cost Structure example Netflix:

• Costs of revenue:

  • Content amortisation (biggest cost in the business)

  • Payment processing fees

  • Customer service

  • Streaming delivery costs (e.g. open connect costs, payroll)

  • Operations costs (incl cloud computing)

• Marketing:

  • Advertising expenses

  • Payments made to our marketing partners, including consumer electronics manufacturers and others

• Technology and development:

  • Cost of tech staff (involved in improvements to service offerings, testing, maintaining / modifying our UI, algorithms, merch and infrastructure)

  • General use computer hardware and software

• General & admin:

  • Corporate staff, professional fees and other general corporate expenses

Sharing economy

Examples of digital businesses in the Asset & Service Sharing (=Sharing Economy) vertical include Uber, DoorDash, Airbnb among others:

Cost Structure example Airbnb: 

• Cost of revenue: payment processing costs, hosting costs, amortisation of internally developed software and acquired technology

• Operations and Support: costs of customer support, customer relations costs, refunds and credits related to customer satisfaction, cost of host protection programs; and and allocated IT & facility costs

• Product development: development of the platform, features, etc and allocated IT & facility costs

• Sales and marketing: brand and performance marketing, personnel cost, including those related to our field operations, policy and comms, etc

• General & Admin: general management, execs, admin employees (e.g. HR, finance, etc) legal fees, professional services,

Online Travel

Cost Structure example Booking.com:

You will see below that their cost structure is quite different from the above ones in that it more distinguishes by cost type rather than bundling by business model function.

• Marketing:

  • search engine keyword ads

  • referrals from meta-search and travel research websites + affiliate programs;

  • offline and online brand marketing;

  • other performance-based marketing

• Sales and other:

  • payment processing fees (merchant transactions)

  • 3rd party cost that provide call center, website content translations

  • and other including the cost of various sales risk factors

• Personnel: all staff cost and oncosts

• General and Administrative: as per above

• Information Technology:

  • software license and system maintenance fees

  • cloud computing costs and outsourced data center costs

  • payments to contractors

  • data communications and other operations expenses

• Depreciation and amortisation:

  • amortisation of intangible assets, internally-developed and purchased software; depreciation of computer equipment and ppe

Social Media & Search

Examples of digital businesses in the Social Media vertical includes Meta’s Facebook, Instagram, X. Examples of Search Platforms include Google, Bing and others.

Cost Structure example Facebook:

• Cost of revenue: 

  • operation of data centres, such as facility and server equipment depreciation, salaries, benefits, and share-based compensation

  • energy and bandwidth costs

  • partner arrangements plus traffic acquisition and content acquisition costs

  • cost of goods sold (inventory cost)

• R&D:

  • staff cost of those building new products as well as improving existing products (all costs are expensed as incurred)

• Marketing and sales:

  • staff cost of those engaged in sales, sales support, marketing, business development, and customer service functions.

  • marketing and promotional expenditures, and professional services

• General and administrative:

  • salaries, benefits, and share-based compensation for certain executives

  • legal, finance, human resources, corporate communications and policy

  • legal-related costs and professional services.

Software-as-a-Service:

Examples of digital businesses in the Software-as-a-Service vertical include Salesforce, most Adobe products and hundreds of thousands more cloud-based software products:

Cost Structure example productivity SaaS:

• Sales & marketing

• Research & development

• Cost of revenue

• General & admin