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Business Models

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Business Models: …

Business Models:
- Runthrough of Osterwalder and Pigneurs "Business Model Canvas"
- 40 examples of online business models

Lecture at ITU class "Concept Development with Industry", February 15.

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  • 1. Morten Gade ITU Concept Development with Industry, Feb 15BusinessModels
  • 2. Today, in two parts
  • 3. AgendaBefore the break>  The framework>  Based on Osterwalder & Pigneur + Zott, Amitt & Massa>  A small exerciseAfter the break>  The examples and the inspiration – a quick run through of approx. 30 different online business modelsWe end at 9.45.
  • 4. BusinessModelCanvas
  • 5. So, first… What do wemean by “business model”
  • 6. Zott, Amitt & Massa (2010*)>  Literature review of 103 articles, books etc.>  Fairly new concept (1990’s)>  No common definition>  Highly recommendable article, also for inspiration on different business models*) The Business Model: Theoretical Roots, Recent Developments and Future Research http://www.iese.edu/research/pdfs/DI-0862-E.pdf
  • 7. Magretta“stories that explain how enterprises work. A goodbusiness model answers Peter Drucker’s age oldquestions: Who is the customer? And what doesthe customer value? It also answers thefundamental questions every manager must ask:How do we make money in this business? What isthe underlying economic logic that explains how wecan deliver value to customers at an appropriatecost?”
  • 8. Timmers“an architecture of the product, service andinformation flows, including a description of thevarious business actors and their roles; adescription of the potential benefits for the variousbusiness actors; a description of the sources ofrevenues”
  • 9. Osterwalder & Pigneur“The rationale of how an organization creates,delivers and captures value.”
  • 10. Osterwalder & Pigneur> Customers> Offer> Infrastructure> Financial Viability
  • 11. 1. Customer Segments>  What customer group is the business trying to reach>  Many customers aren’t necessarily better than few: There are businesses thriving with 1, 2 or 3 customers>  However, businesses with few customers have a different risk profile than those with many customers>  Niche markets have become easier because of the internet, however still customs etc.>  For a well functioning business model, it can be a good idea to…. >  Develop segments where entry is easy, or… >  Develop segments where retention is easy
  • 12. 2. Value Propositions>  Why should the customers use your product instead of the competition?>  You want to understand and address the customer’s need better than the competition >  Price (e.g. MetroXpress) >  Perceived quality/features (e.g. Apple) >  Ease of use (e.g. Telmore) >  Accessibility/Just in time/right place (e.g. mobile (or the ITU canteen))>  Price sensitivity is very different in different markets>  You need a very strong value proposition, even if your product is free (still competing for attention, time etc.)
  • 13. 3. Channels>  You need to have a channel strategy, that reaches your customer with the right value proposition at the right time>  E.g. Heineken (indirect, direct), Dell (direct)>  Also goes for media, e.g. direct models such as Politiken, indirect such as Ritzau, combined models such as Avisen.dk (if we see the end user as the customer)>  There is less risk in scaling a model with indirect partner sales fast>  Most organizations have a business model with a mix of different channels
  • 14. 4. Customer relationships>  The relationship with the customer can be very personal (e.g. an attorney) or the opposite (e.g. Google)>  Personal service can be seen as a luxury – but so can online interaction for some: Who is your customer segment?>  Many companies only have relationships with resellers and never meet the end users>  In the last couple of years, we have seen a development towards a new kind of customer relationship online, e.g. Quirky.com, where you cocreate products or Threadless.com, where you codesign t- shirts>  If you try working with communities and co design, you need to address the incentive for the user, as well as for business
  • 15. 5. Revenue streams>  The relationship with the customer can be very automated (e.g. newspaper subscription) or one off interactions (e.g. a coffee table book)>  There is a major difference in a business model, whether you’re working on one off interactions or many interactions. >  One off interactions need to have a substantially larger profit margin (pricing) >  Long relationships need to continue adding value for customer>  One is not “better” than the other >  razor blades: Long interaction, not automated, low entry barriers, habitual >  Lock in (hard to change supplier, e.g. high entry barriers) >  Risk>  Depends on value proposition and customer segment
  • 16. 6. Key Ressources>  What do you need to deliver value to the customer?>  Virtual goods scale extremely well (1 copy and 1.000.000 copies cost virtually the same)>  Physical goods may require mass production to scale – but can still be hard – logistics, distribution, storage etc., etc.>  Intellectual ressources can be hard to protect>  Many of your concepts will probably require a lot of human capital (the right people –those are often hard to get, and may be expensive, esp. if you lose them)>  Financial capital – “Why didn’t anyone invent a decent digital bank?”
  • 17. 7. Key Activities>  What is it actually, that the people employed in your business do?>  They might produce something (goods, information, knowledge…), facilitate something (processes) or keep something afloat (a platform)>  E.g.: Key activities at Facebook is to keep servers buzzing, develop new functionality, sell ads>  At a supermarket: Define goods and market, run logistics, keep store open and filled with goods, marketing>  At a consultancy: Help customers define what they need, deliver processes or products by specification, keep knowledge up to date
  • 18. 8. Key Partnerships>  No business is an island.>  Many of your activities can be performed cheaper by other organizations or in cooperation with other organizations>  E.g.: >  Organizations with shared activities (e.g. competition) >  Organizations with complimentary activities (e.g. joint ventures) >  Organizations in other customer segments >  Organizations with different pricing >  Organizations willing to partner to reduce risk for all involved
  • 19. 9. Cost Structure (or economic theory 101)>  You can define your pricing based on your costs>  Or you can define your costs based on your pricing>  In all business models, you will have fixed costs and variable costs >  Fixed costs: Costs that you will have with 1 or 1000 customers >  Variable costs: Costs that you have “per customer”>  Economies of scale = Low variable costs, or variable costs deteriorating with more customers à reductions in average cost (Lars Larsen: Making 1 kr on 1.000 customers or 1.000 kr on 1 customer)>  Economies of scope = If your organization produces more than one good, you might share activities, e.g. marketing, sales - product diversification is efficient if it is based on the common and recurrent use of knowhow or on an indivisible physical asset
  • 20. A small exercise>  Use the time until the break to talk to the person next to you about a case>  Try to apply the 9 factors of the business model canvas to the case>  (Beware, they have many business models in one business)
  • 21. Try to apply the 9 factors of thebusiness model canvas to AmazonKey ActivitiesKey ResourcesPartner NetworkValue PropositionCustomer SegmentsChannelsCustomer RelationshipCost StructureRevenue Streams
  • 22. Time for a break!10 minutes.
  • 23. Examples,examples,examples,
  • 24. Try to apply the 9 factors of thebusiness model canvas to AmazonKey ActivitiesKey ResourcesPartner NetworkValue PropositionCustomer SegmentsChannelsCustomer RelationshipCost StructureRevenue Streams
  • 25. OK,In the first part, we (mostly) talked business models in general. Now,we will focus exclusively on online business models.In the remainder of the class, I will give you a number of examples ondifferent online business models.
  • 26. SalesFinding new customer segments or value propositions online.
  • 27. Direct saleA clear value proposition is needed.
  • 28. Combined ModelBoth online sale and marketing of traditional stores.
  • 29. Re-sellingBeing the middle man for other agents, who handle logistics.
  • 30. Sales of servicesSelling memberships, subscriptions and other services online.
  • 31. BrokerWhere the platform is the key activity of the business.
  • 32. AuctionOne of the most common examples.
  • 33. Used goodsAs old as time itself, but now with larger customer segments.
  • 34. Virtual marketplacesNiche oriented platforms with both buyer and seller as customer
  • 35. Price comparisonBoth buyer and seller as customer, price is value proposition.
  • 36. Contact broker/mass marketConnecting the world and taking your share of the profit.
  • 37. Contact broker/specialistsConnecting specialist users and acting as platform.
  • 38. Groups buying/brokerageClear value proposition to both end user and business.
  • 39. App StoreReducing transaction costs for the developer and the end user.
  • 40. AdvertisingDisplay advertising and other models.
  • 41. Content rich, heavy trafficLow pricing, huge supply.
  • 42. Niche-sitesRelatively high pricing, lower supply.
  • 43. Heavy on page viewsFocused purely on display advertising.
  • 44. Online toolsSoftware as a service – fulfilling a need with huge economies of scale.
  • 45. Subscription basedSubscriptions make for a long term revenue stream.
  • 46. FreemiumLetting the user become the marketer – to themselves and others.
  • 47. AdbasedProduct as medium for advertising.
  • 48. Consumption basedPay as you go , usage fee revenue stream.
  • 49. Reselling dataServicing one group in order to generate a product to another.
  • 50. SubscriptionSubscriptions for information, services or entertainment.
  • 51. Community-sites & datingSubscribing for other people.
  • 52. GamesSubscribing for entertainment and immersion.
  • 53. Niche-oriented specialist knowledgeSubscribing for low transaction costs, making your job easier
  • 54. AffiliateYet another way making money making people meet.
  • 55. Revenue sharingTight economical connection to the producer of content.
  • 56. Pay per clickGreat economies of scale, where business is platform.
  • 57. Stakeholder managementAddressing other stakeholder needs.
  • 58. E.g. employer brandingAttracting key resources online
  • 59. Or investor relationsAttracting key resources online
  • 60. Knowledge sharingMaking internal and external processes easier.
  • 61. E.g. intranet, wiki, e-learning, EDRMS…Supporting key processes in the organization
  • 62. Digital processesOptimizing processes with customers, partners and other stakeholders.
  • 63. UpsellingMaking lifetime value of customer higher.
  • 64. Better serviceMaking customer acquisition and retention easier
  • 65. Reduced costMaking key processes easier, creating economies of scale
  • 66. Co-creationDevelopment of ideas, products or businesses
  • 67. Of ideasCreating new value propositions,strengthening relationship to customers and partners.
  • 68. Of productsCreating new value propositions,strengthening relationship to customers and partners.
  • 69. Of relationshipsCreating new value propositions, as well as creating a new kind ofopen partner strategy enabling easier handling of many partners.
  • 70. Or even businessesBeing the platform for key processes of other businesses.
  • 71. mortengade.dk twitter.com/mortengade delicious.com/mortenMORTEN GADE flickr.com/photos/mortengadewww.mortengade.dk linkedin.com/in/mortengadem@mortengade.dk kommunikationsforum.dk/morten-gadetlf. 30 91 92 18 mitkbh.dk/profile.php?user=2 Fotos: flickr.com mm. Credits på den enkelte slide. Udgivet under Creative Commons-licens: http://creativecommons.org/licenses/by-sa/3.0/deed.da