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  1. 1. Crafting Business Models models.ppt
  2. 2. Business model components 2 Cost Model 1 Revenue Model 3 Asset Model Value measures the return to investors & other stakeholders Capabilities define resources needed to turn concept Into reality Concept describes the opportunity
  3. 3. Business Model Components <ul><li>Business concept defines strategy </li></ul><ul><li>Capabilities defines resources needed to execute strategy </li></ul><ul><li>A high-performing organization returns value to all stakeholders </li></ul><ul><li>Revenue Model based on sales, fees of many kinds </li></ul><ul><li>Cost Model based on: cost to acquire people, advertising, material & supplies, R&D, infrastructure </li></ul><ul><li>Asset Model based on: financial assets, property, plant & equipment, securities, real estate, relationships, brand, knowledge & expertise, agility and responsiveness, intellectual property, goodwill </li></ul>
  4. 4. Concepts <ul><li>Market participants may assume 2 key value chain roles </li></ul><ul><ul><li>Producer </li></ul></ul><ul><ul><li>Distributor – may or may not hold inventory </li></ul></ul><ul><ul><li>If vertically integrated, they do both </li></ul></ul><ul><li>Networked business model framework distinguishes between </li></ul><ul><ul><li>Focused distributors – much like off-line counterparts (e.g., </li></ul></ul><ul><ul><li>Portals – provide gateways to broad array of content, services, products, solutions thru on-line or multi-channel distribution networks (e.g. Yahoo) </li></ul></ul>
  5. 5. Focused Distributors <ul><li>Offer products & services related to a specific market niche </li></ul><ul><li>5 types of focused distributors: </li></ul><ul><ul><li>Retailers </li></ul></ul><ul><ul><li>Marketplaces </li></ul></ul><ul><ul><li>Aggregators </li></ul></ul><ul><ul><li>Exchanges </li></ul></ul><ul><ul><li>Infomediaries </li></ul></ul>
  6. 6. Retailer Business Model <ul><li>Example: </li></ul><ul><li>Revenue model based on product/service sales </li></ul><ul><li>Cost model includes procurement, inventory management, order fulfillment, and customer service (including returns </li></ul><ul><li>Ratio of tangible to intangible assets much higher than firms that do not assume control of physical inventory. </li></ul>
  7. 7. Marketplace business model <ul><li>Example: E-Loan </li></ul><ul><li>Sell products & services </li></ul><ul><li>Do not hold inventory </li></ul><ul><li>Sell products with a non-negotiable price </li></ul><ul><li>Complete sales on line </li></ul><ul><li>Often link electronically to supplier databases & transaction systems to make sure transaction can be completed </li></ul><ul><li>Procurement & inventory costs lower </li></ul>
  8. 8. Aggregator business model <ul><li>Example: Autoweb car market </li></ul><ul><li>Provide information on products & services for sale by others in the channel </li></ul><ul><li>Buyer cannot complete final transaction inside website: </li></ul><ul><li>Revenue model based in referral fees & advertising </li></ul><ul><li>Customers often use such sites to comparison shop so aggregator cannot claim referral fee </li></ul>
  9. 9. Infomediary business model <ul><li>Example: Internet Securities </li></ul><ul><li>Unites buyers & sellers of information-based products such as news, weather, sports & financial information </li></ul><ul><li>Transactions are complete online </li></ul><ul><li>May charge individual or corporate (if B2B) subscription fee for services </li></ul><ul><li>B2C infomediaries may provide information service free to consumers & make money from advertising revenues paid by sponsors or affiliates </li></ul><ul><li>Barriers to entry are low because information is readily available & cost of packaging & delivering it is low </li></ul><ul><ul><li>Need to develop unique value-added content and analytical tools for which they charge users </li></ul></ul><ul><ul><li>Collect information about users of their systems & sell it </li></ul></ul>
  10. 10. Exchange business model <ul><li>Examples: eBay & marketplace </li></ul><ul><li>May or may not take control of inventory </li></ul><ul><li>May or may not complete final sales transaction online </li></ul><ul><li>Price is not set– key differentiating factor </li></ul><ul><li>Revenue, cost & asset models vary depending on whether online exchange assumes control of inventory & completes the transaction </li></ul>
  11. 11. Portals <ul><li>3 types of portal business models </li></ul><ul><ul><li>Horizontal </li></ul></ul><ul><ul><li>Vertical </li></ul></ul><ul><ul><li>Affinity </li></ul></ul><ul><li>Differentiated by following questions </li></ul><ul><ul><li>Gateway to full range of online & information services? </li></ul></ul><ul><ul><li>Provide access to deep content, products, & services within a vertical industry (e.g. travel) </li></ul></ul><ul><ul><li>Provide information to all users or defined group </li></ul></ul>
  12. 12. Horizontal portals <ul><li>Examples:, yahoo!.com, </li></ul><ul><li>Provide gateway access to information </li></ul><ul><li>Broad range of tools to locate information, communicate, develop online communities </li></ul><ul><li>Original business model – tv type advertising </li></ul><ul><li>Switched to charges for revenues from transaction fees </li></ul><ul><li>Often partner with ISPs </li></ul>
  13. 13. Vertical portals <ul><li>Example: & </li></ul><ul><li>Provide deep content </li></ul><ul><li>Place to conduct business, learn, shop, communication & community building tools </li></ul><ul><li>Variety of business models combined, each producing own revenue streams: </li></ul><ul><ul><li>Subscriptions </li></ul></ul><ul><ul><li>Transaction charges </li></ul></ul><ul><ul><li>advertising </li></ul></ul>
  14. 14. Affinity portals <ul><li>Example:, </li></ul><ul><li>Deep content, commerce & community features </li></ul><ul><li>Targeted toward specific market segment or specific event </li></ul><ul><li>Revenue, cost & asset models based on business models adopted by the portal </li></ul>
  15. 15. Producers <ul><li>Manufacturers – Ford Motors </li></ul><ul><li>Service providers – American Express </li></ul><ul><li>Educators – Cal Poly Pomona </li></ul><ul><li>Advisors – McKinsey </li></ul><ul><li>Information & News providers: Dow Jones </li></ul><ul><li>Producer portals support all aspects of production & distribution process via Internet </li></ul>
  16. 16. Networked Infrastructure Providers <ul><li>Infrastructure distributors enable buyers & sellers to transact business </li></ul><ul><ul><li>Infrastructure retailers – </li></ul></ul><ul><ul><li>Infrastructure marketplaces - tech data, sell computer & network products, may have to keep inventory </li></ul></ul><ul><ul><li>Infrastructure aggregators –, provides reviews of technology </li></ul></ul><ul><ul><li>Infrastructure exchanges – – auction new & used electronic equipment </li></ul></ul>
  17. 17. Infrastructure Portals <ul><li>Provide access to wide range of network, computing & application hosting services </li></ul><ul><ul><li>Horizontal infrastructure portals: ISPs </li></ul></ul><ul><ul><li>Vertical infrastructure portals: also called ASPs (Application Service Providers) </li></ul></ul><ul><ul><ul><li>IBM’s E-Business solutions </li></ul></ul></ul><ul><ul><ul><li>ASPs host & maintain software applications, enabling organizations to log in and use them on-line </li></ul></ul></ul><ul><ul><ul><li>Generate revenues from hosting & maintenance fees, consulting & system integration fees </li></ul></ul></ul>
  18. 18. Infrastructure Producers <ul><li>Design, build, market & sell technology hardware, software, solutions, services </li></ul><ul><li>May provide after-market services </li></ul><ul><li>Types </li></ul><ul><ul><li>Equipment/component manufacturers (IBM, Sony) </li></ul></ul><ul><ul><li>Software firms (SAP, Microsoft) </li></ul></ul><ul><ul><li>Customer software & integration providers (Accenture) </li></ul></ul>
  19. 19. Infrastructure Service Providers <ul><li>Example: Fedex </li></ul><ul><li>Provide online/offline services to support logistics, marketing & other shared services </li></ul><ul><li>Revenues from subscription fees, service fees, transaction fees </li></ul><ul><li>Costs based on physical infrastructure & skilled professionals </li></ul>
  20. 20. Evolving Business Models <ul><li>Example of </li></ul><ul><li>Enhance current products/services </li></ul><ul><ul><li>Added 1-click shopping & wireless device shopping </li></ul></ul><ul><li>Expand into new product/service categories </li></ul><ul><ul><li>Launched music & DVD/video in 1998 </li></ul></ul><ul><li>Extend products/services </li></ul><ul><ul><li>2 On-line auction stores (high end & low end) </li></ul></ul><ul><ul><li>Entered equity partnerships with other retailers </li></ul></ul><ul><li>Exit – sell it or spin it off </li></ul><ul><ul><li>Ended relationship with home retailer when they went bankrupt in 2000 </li></ul></ul>
  21. 21. Step-by-Step analysis of business models <ul><li>Profile current business models </li></ul><ul><li>Determine how to evolve current model and/or identify new models to pursue </li></ul><ul><li>Use business model analysis framework to prioritize new models 7 initiatives by evaluating </li></ul><ul><ul><li>the concept (opportunity) </li></ul></ul><ul><ul><li>Capabilities & resources required </li></ul></ul><ul><ul><li>Value proposition (returns to stakeholders) </li></ul></ul><ul><li>Use analysis in step 3 as benchmark to develop real-time performance monitoring system </li></ul><ul><li>Revise strategy, implementation plan, & performance measurement systems on ongoing basis. </li></ul>
  22. 22. Onward!
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