Revenue Streams

A "revenue stream" is simply another name for income, but possibly because it sounds more sophisticated than the word "sales" or "salary," was borrowed from investment talk where assets are said to have a "future revenue stream" or from government where it is less crass-sounding than "taxes"—the phrase has come into current use in business to mean sales. More specifically, the phrase is often qualified by modifiers such as "new" or "additional"; it has thus gradually taken on a distinct and specialized meaning in certain contexts to mean a new, novel, undiscovered, potentially lucrative, innovative, and creative means of generating income or exploiting a potential. The phrase also comes in handy in the new Internet age where revenues are sometimes generated in novel ways that do not resemble the old-fashioned sale across a counter. Some headlines picked at random, for instance, proclaim: "Keyhole: Another Google Revenue Stream," "Same Day Payments: A New Revenue Stream from the Online Channel," "On demand games offer new revenue stream," and "Radio Wades into Podcast Revenue Stream."

In the following discussion this narrower context of "revenue stream," as an opportunity for additional income, will be further explored as an business activity. Measuring and reporting revenues is the job of accounting departments, but generation of revenues is a top management job. It is by nature an entrepreneurial activity with just a touch of the magical implied—as a phrase common in law practices reveals: the principal in a law firm is often referred to as the "rain maker." Making it rain when drought parches the land takes a bit of luck, pluck, or both.

THE STIMULUS OF CHANGE

The quest for new streams of revenue is stimulated by change. The change can be negative or positive. The discovery of vast prairies was eventually exploited by the formation of many great cattle ranches. But when in time ranching declined, some innovator coped with the problem by creating the first dude ranch. U.S. business history is rife with the discovery of endlessly new revenue streams in response to technological development, and the buzz about new revenue streams surrounding the Internet is just the most recent example. Change creates opportunities, the ability to see a potential and then to exploit it—that's what creates new revenue streams. The change may hurt or may entice. Either way, effective innovation makes use of the stimulus.

Classical examples of positive stimulus provided by the appearance of home computers are the invention of joy-sticks to enable kids and adults to play games on the computer, the invention of a visual interface first introduced on the Apple Macintosh (although invented by Xerox, along with the mouse, which is required for it). Games, joy-sticks, and visual interfaces and pointer devices all produced massive, global revenue streams—and stimulated others.

Interesting innovations by institutions plagued by income problems show how these institutions are coping with negative change. Public Television, for example, once wholly funded by government, was forced eventually to develop skills in on-air fundraising. This new stream of revenue suggested yet another approach—so that most public television stations nowadays also hold annual auctions. And these auctions are, in turn, making more and more use of the Internet. Museums, seeking additional funding, have developed lucrative new revenue streams by developing memberships and establishing very attractive specialized retail activities selling art objects, souvenirs, books, music, toys, and much more. Some museums have then ventured beyond the museum's walls and have established retail outlets in malls. Theatrical companies are moving in this direction as well.

NODES OF INNOVATION

Certain features of the market act as nodes around which new revenue streams tend to be established in response to positive or negative stimulus. Among these are 1) location, 2) existing traffic, 3) a purchasing context, 4) an expandable cluster of skills, and, of course, 5) a technology.

Location

In the past several decades, companies have more and more exploited convenient locations to add new product categories to once sharply differentiated specializations. The best example of this has been the addition of limited but basic grocery lines to the offerings of drug stores so that consumers can pick up such staples as milk, ice cream, cereals, and toilet paper nearer to home—thus transforming themselves into convenience stores. In the early days of video rental, small grocers and drug stores also, for a while, turned this new product category into income streams for themselves until the market changed.

Traffic

Drug stores, of course, also benefit from established traffic. Another traffic-based example is the transformation that took place in gasoline stations. Beginning in the 1960s, many of these operations, once strictly confined to selling gas, changing oil, and occasionally fixing and selling tires have become drug/grocery/convenience outlets to take advantage of the visits consumers were forced to make to fill the tank. Gas stations also sometimes benefited by being closer than larger stores. The sheer command over traffic has acted, in effect, to turn many large retail operations into all-purpose bazaars in which consumers have access to products across a wide range, restaurants, banks, means of communication, even entertainment. Quite small shops by coincidence located at the entrance to malls occasionally exploit the traffic passing by them by selling specialty items not even vaguely related to their main business.

Purchasing Context

People going to the dentist have learned to expect to see displays discreetly offering the electric tooth-cleaning systems the dentist recommends. People buying shoes can expect also to purchase on-site all manner of goods associated with foot-gear, including sometimes inner soles and other more medically related goods. Well-organized computer service firms have learned that they can use the service context of their specialization to sell software services, Web-page design, computers and peripherals, and training. Sometimes the entrepreneurial energy is very high indeed—so that Martha Stewart exploited her skills in catering into a publishing, television, product promotion, and endorsement empire all based on the rather extensive purchasing context of the homemaker.

Cluster of Skills

Virtually any well-developed professional or managerial skills offer opportunities to discover and tap into new streams of revenue—even those rarely imagined to have such leverage. But Richard Muhlback and David Buntin, writing for Journal of Property Management took on the seemingly mundane function of property management and showed the opportunities for consulting, legal support, public lecturing, and writing available for the creative property manager. But in the exploitation of personal skills, the most important innovation, as Anita Campbell pointed out, writing in Small Business Trends is to discover a way of selling one's work rather than one's time. Personal time is very limited and one's expertise must be multiplied in some way and sold over and over again. Publications multiply a message; and organizations can do the job too by means of training others to deliver a unique service. It is for this reason that new revenue streams require entrepreneurial "packaging" of skills in saleable quantities.

Technology

Technology is itself a powerful multiplier of personal skill—in its exploitation alone, much less in its modification and improvement. The sculptor who exploits chain saws rapidly to create ice sculptures for weddings is doing something very similar to the skilled writer who exploits the Internet, analytical skills, and statistical data to create books that reveal modern trends of interest either to specialist audiences or the public. One of the reasons why "new revenue stream" is such a common phrase in the mid-2000s is that computer technology and the communications systems that have proliferated like a primordial jungle all around it offer an enormous variety of opportunities for exploitation, both in technological extensions and in the use of it.

THE VITAL INGREDIENT

When, however, all is said and done, the vital ingredient in the creation of new revenue streams remains something perennial and ancient. It is individual creativeness coupled with enterprise. Revenue streams are created by people who are more than simply threatened by change or fascinated by the new. They must have their eyes open to see the opportunities and the discipline and skill to turn ideas and notions into actually saleable products or services. Not surprisingly, small business has been particularly active in the creation of the digital age. Virtually every big-name corporation in the field began as one or a pair of creative people. They saw, they acted, and they have in consequence created what amounts to much more than a stream. Call it a Mississippi, a Niagara Falls of revenue.

BIBLIOGRAPHY

Berkowitz, Hank. "CPAs Building Financial Services Practices: Firms of all sizes are successfully balancing client interests and pressures for new revenue." Journal of Accountancy. July 2005.

"Building Joint Ventures that Work." Healthcare Financial Management. January 2006.

Cameron, Ben. "The Entrepreneur's Lament." American Theatre. November 2004.

Campbell, Anita. "Recurring Revenue Streams—How to Create Them." Small Business Trends. 8 November 2005.

Muhlback, Richard F., and David Buntin. "Tap Into Paired Profits: Convert your expertise to income by consulting for owners or attorneys, lecturing or writing." Journal of Property Management. September-October 2004.

                                            Darnay, ECDI