You’re holding a handbook for visionaries, game changers,and challengers striving to defy outmoded business modelsand design tomorrow’s enterprises. It’s a book for the…written byAlexander Osterwalder & Yves Pigneurco-created byAn amazing crowd of 470 practitioners from 45 countriesdesigned byAlan Smith, The Movement
Written byAlexander Osterwalder and Yves PigneurDesignAlan Smith, The MovementEditor and Contributing Co-AuthorTim ClarkProductionPatrick van der PijlCo-created by an amazing crowd of470 practitioners from 45 countriesBusinessModelGenerationA Handbook for Visionaries, Game Changers, and Challengers
Ellen Di RestaMichael Anton DilaRemko VochtelooVictor LombardiMatthew MilanRalf BeukerSander SmitNorbert HermanKaren HembroughRonald PilotYves Claude AubertWim SalyFrank Camille LagerveldAndres AlcaldeAlvaro Villalobos MBernard RacinePeter FrobergLino PianiEric JacksonIndrajit Datta ChaudhuriJeroen de JongGertjan VerstoepSteven DevijverJana ThielJeremy HayesAlf RehnJeff De CagnaAndrea MasonJan OndrusSimon EvenblijChris WaltersCaspar van RijnbachbenmlihRodrigo MirandaSaul KaplanLars GeiselSimon ScottDimitri LévitaJohan √ñrnebladCraig SadlerPraveen SinghLivia LabateKristian SalvesenDaniel EggerDiogo CarmoMarcel OttAtanas ZaprianovLinus MalmbergDeborah Mills-ScofieldPeter KnolJess McMullinMarianela LedezmaRay GuyotMartin Andres GiorgettiGeert van VlijmenRasmus RønholtTim ClarkRichard BellErwin BlomFrédéric SidlerJohn LM KiggunduRobert ElmZiv BaidaAndra Larin-van der PijlEirik V JohnsenBoris FritscherMike LachapelleAlbert MeigeWoutergortFanco Ivan Santos NegrelliAmee ShahLars MårtenssonKevin DonaldsonJD SteinRalf de GraafLars NorrmanSergey TrikhachevThomasAlfred HermanBert SpangenbergRobert van KootenHans SuterWolf SchumacherBill WelterMichele LeidiAsim J. RanjhaPeter TroxlerOla DagbergWouter van der BurgArtur SchmidtPekka MatilainenBas van OosterhoutGillian HuntBart BooneMichael MoriartyMikeDesign for InnovationTom CorcoranAri WurmannAntonio RobertWibe van der Polpaola valeriMichael SommersNicolas FleuryGert SteensJose Sebastian PalazuelosLopezjorge zavalaHarry HeijligersArmand DickeyJason KingKjartan MjoesundMartin FanghanelMichael SandfærNiall CaseyJohn McGuireVivian VendeirinhoMartèl Bakker SchutStefano MastrogiacooMark HickmanDibrovReinhold KönigMarcel JaeggiJohn OConnellJavier IbarraLytton HeMarije SluisDavid EdwardsMartin Kuplens-EwartJay GoldmanIsckiaNabil HarfoushYannickRaoef HussainaliWalter BrandStephan ZiegenhornFrank MeeuwsenColin HendersonDanilo TicMarco RaaijmakersMarc SniukasKhaled AlgasemJan PelttariYves SinnerMichael KinderVince KuraitisTeofilo Asuan Santiago IVRay LaiBrainstorm WeeklyHuub RaemakersPeter SalmonPhilippeKhawaja M.Jille SolRenninger, WolfgangDaniel PandzaGuilhem BertholetThibault EstierStephane ReyChris PeasnerJonathan LinCesar PicosFlorianArmando MaldonadoEduardo MíguezAnouar HamidoucheFrancisco PerezNicky SmythBob DunnCarlo ArioliPablo M. RamírezJean-LoupColin PonsVacherandGuillermo Jose AguilarAdriel HaeniLukas ProchazkaKim KornAbdullah NadeemRory OConnorHubert de CandéFrans WittenbergJonas LindelöfGordon GraySlabberPeter JonesSebastian UllrichAndrew PopeFredrik EliassonBruce MacVarishGöran HagertMarkus GanderMarc CastricumNicholas K. NiemannChristian LabezinClaudio DIpolittoAurel HosennenAdrian ZauggLouis RosenfeldIvo GeorgievDonald ChapinAnnie ShumValentin CrettazDave CrowtherChris J DavisFrank Della RosaChristian SchüllerLuis Eduardo de CarvalhoPatrik EkströmGreg KrauskaGiorgio CasoniStef Silvisronald van den hoffMelbert VisscherManfred FischerJoe ChaoCarlos MecaMario MoralesPaul JohannessonRob GriffittsMarc-Antoine GarrigueWassili BertoenBart PieperBruce E. TerryMichael N. WilkensHimikel -TrebeARobin UchidaPius BienzIvan TorreblancaBerry VetjensDavid CrowHelge HannisdalMaria DroujkovaLeonard BelangerFernando Saenz-MarreroSusan FoleyVesela KolevaMartijnEugen RodelEdward GiesenCo-created by:
Marc FaltheimNicolas De SantisAntoine PerruchoudBernd NurnbergerPatrick van AbbemaTerje SandLeandro JesusKaren DavisTim TurmelleAnders SundelinRenata PhillippiMartin KaczynskiFrankRicardo DoradoJohn SmithRodEddieJeffrey HuangTerrance Moorense_55Leif-Arne BakkerEdler HerbertBjörn KijlChris FinlayPhilippe RousselotRob SchokkerStephan LinnenbankLilianaJose Fernando QuintanaReinhard PrüglBrian MooreGabiMarko SeppänenErwin FieltOlivier GlasseyFrancisco Conde FernándezValérie ChanalAnne McCrossanJose Alfonso LopezEric SchreursDonielle BuieAdilson ChicóriaAsanka WarusevitaneJacob RavnHampus JakobssonAdriaan KikJulián Domínguez LaperalMarco W J DerksenDr. Karsten WillrodtPatrick FeinerDave CutherellEdwin BeumerDax DenneboomMohammed MushtaqGaurav BhallaSilvia AdelhelmHeather McGowanPhil Sang YimMoel BarryVishwanath EdavayyanamathRob MansonRafael FigueiredoJeroen MulderManuel ToscanoJohn SutherlandRemo KnopsJuan MarquezChris HopfMarc FaehUrquhart WoodLise TormodCurtis L. SippelAbdul Razak ManafGeorge B. SteltmanKarl BurrowMark McKeeverBala VaddiAndrew JenkinsDariush GhatanMarcus AmbroschJens HoffmannSteve ThomsonEduardo M MorgadoRafal DudkowskiAntónio Lucena de FariaKnut Petter NorVentenat VincentPeter EckrichShridhar LollaWouter VerwerJan SchmiedgenUgo MerkliJelleDave GrayRick le RoyRavila WhiteDavid G Luna ArellanoJoyce HostynThorwald WestmaasJason TheodorSandra PickeringTrond M FflòvstegaardLarsenFred CollopyJana GörsPatrick ForanEdward OsbornGreger HagströmAlberto SaavedraRemco de KramerLillian ThompsonHoward BrownEmil AnsarovFrank ElbersHoracio Alvaro Viana Di PriscoDarlene GoetzmanMohan NadarajahFabrice DelayeSunil MalhotraJasper BouwsmaOuke ArtsAlexander TroitzschBrett PatchingClifford ThompsonJorgen DahlbergChristoph MühlethalerErnest BuiseEmilio De GiacomoFranco GasperoniMichael WeissFrancisco AndradeArturo Herrera SapunarVincent de JongKees GroeneveldHenk BohlanderSushil ChatterjiTim ParseyGeorg E. A. StampflMarkus KreutzerIwan SchneiderLinda BryantJeroen HinfelaarDan KeldsenDamienRoger A. ShepherdMorten PovlsenLars ZahlElin Mørch LangloXuemei TianHarry VerwayenRiccardo BonazziAndré JohansenColin BushJens LarssonDavid SibbetMihail KrikunovEdwin KruisRoberto OrtelliShana Ferrigan BourcierJeffrey MurphyLonnie Sanders IIIArnold WytenburgDavid HughesPaul FergusonFrontier Service Design, LLCPeter NoteboomJeaninne Horowitz GassolLukas FeuersteinNathalie MagniezGiorgio PaulettoMartijn PaterGerardo Pagalday ErañaHaider RazaAjay AilawadhiAdriana IeraciDaniël GiesenErik DejongheTom WinstanleyHeiner P. KaufmannEdwin Lee Ming JinMarkus SchrollHylke ZeijlstraCheenu SrinivasanCyril DurandJamil AslamOliver BueckenJohn Wesner PriceAxel FrieseGudmundur KristjanssonRita ShorJesus VillarEspen Figenschou- SkotterudJames ClarkAlfonso MirelesRichard ZandinkFraunhofer IAOTor Rolfsen GrønsundDavid M. WeissKim Peiter JørgensenStephanie DiamondStefan OlssonAnders StølanEdward KoopsPrasert Thawat- chokethaweePablo AzarMelissa WithersMichael SchusterIngrid BeckAntti ÄkräsEHJ PeetRonald PoultonRalf WeidenhammerCraig RispinNella van HeuvenRavi SodhiDick RemptRolf MehnertLuis StabileEnterprise ConsultingAline FrankfortAlexander KorbeeJ BartelsSteven RitcheyClark GolestaniLeslie CohenAmanda SmithBenjamin De PauwAndre MacieiraWiebe de JagerRaym CrowMark Evans DMSusan Schaper
Are you an entrepreneurial spirit?yes _______ no _______Are you constantly thinking about how tocreate value and build new businesses, or howto improve or transform your organization?yes _______ no _______Are you trying to find innovativeways of doing business to replaceold, outdated ones?yes _______ no _______
If you’ve answered“yes” to any of thesequestions, welcometo our group!You’re holding a handbook for visionaries, gamechangers, and challengers striving to defy outmodedbusiness models and design tomorrow’s enterprises.It’s a book for the business model generation.
Seven Faces ofBusiness ModelInnovationThe Senior ExecutiveJean-Pierre Cuoni,Chairman / EFG InternationalFocus: Establish a new business modelin an old industryJean-Pierre Cuoni is chairman ofEFG International, a private bankwith what may be the industry’s mostinnovative business model. WithEFG he is profoundly transformingthe traditional relationships betweenbank, clients, and client relationshipmanagers. Envisioning, crafting, andexecuting an innovative businessmodel in a conservative industry withestablished players is an art, andone that has placed EFG Internationalamong the fastest growing banksin its sector.The IntrapreneurDagfinn Myhre,Head of R&I Business Models / TelenorFocus: Help exploit the latest techno-logical developments with the rightbusiness modelsDagfinn leads a business model unitat Telenor, one of the world’s ten larg-est mobile telephone operators. Thetelecom sector demands continuousinnovation, and Dagfinn’s initiativeshelp Telenor identify and understandsustainable models that exploit thepotential of the latest technologicaldevelopments. Through deep analysisof key industry trends, and by develop-ing and using leading-edge analyticaltools, Dagfinn’s team explores newbusiness concepts and opportunities.The EntrepreneurMariëlle Sijgers,Entrepreneur / CDEF Holding BVFocus: Address unsatisfied customerneeds and build new business modelsaround themMarielle Sijgers is a full-fledgedentrepreneur. Together with herbusiness partner, Ronald van denHoff, she’s shaking up the meeting,congress, and hospitality industrywith innovative business models.Led by unsatisfied customer needs,the pair has invented new conceptssuch as Seats2meet.com, which allowson-the-fly booking of meetings inuntraditional locations. Together,Sijgers and van den Hoff constantlyplay with new business model ideasand launch the most promisingconcepts as new ventures.
The InvestorGert Steens, President & InvestmentAnalyst / Oblonski BVFocus: Invest in companies with themost competitive business modelsGert makes a living by identifying thebest business models. Investing in thewrong company with the wrong modelcould cost his clients millions of eurosand him his reputation. Understandingnew and innovative business modelshas become a crucial part of his work.He goes far beyond the usual financialanalytics and compares businessmodels to spot strategic differencesthat may impart a competitive edge.Gert is constantly seeking businessmodel innovations.The ConsultantBas van Oosterhout, SeniorConsultant / Capgemini ConsultingFocus: Help clients question theirbusiness models, and envision andbuild new onesBas is part of Capgemini’s BusinessInnovation Team. Together withhis clients, he is passionate aboutboosting performance and renewingcompetitiveness through innovation.Business Model Innovation is now acore component of his work becauseof its high relevance to client projects.His aim is to inspire and assist clientswith new business models, fromideation to implementation. To achievethis, Bas draws on his understandingof the most powerful business models,regardless of industry.The DesignerTrish Papadakos,Sole Proprietor / The Institute of YouFocus: Find the right business modelto launch an innovative productTrish is a talented young designerwho is particularly skilled at grasp-ing an idea’s essence and weaving itinto client communications. Currentlyshe’s working on one of her own ideas,a service that helps people who aretransitioning between careers. Afterweeks of in-depth research, she’s nowtackling the design. Trish knows she’llhave to figure out the right businessmodel to bring her service to market.She understands the client-facingpart — that’s what she works on dailyas a designer. But, since she lacks for-mal business education, she needs thevocabulary and tools to take on thebig picture.The Conscientious EntrepreneurIqbal Quadir, Social Entrepreneur /Founder of Grameen PhoneFocus: Bring about positive social andeconomic change through innovativebusiness modelsIqbal is constantly on the lookoutfor innovative business models withthe potential for profound socialimpact. His transformative modelbrought telephone service to over100 million Bangladeshis, utilizingGrameen Bank’s microcredit network.He is now searching for a new modelfor bringing affordable electricity to thepoor. As the head of MIT’s LegatumCenter, he promotes technologicalempowerment through innovativebusinesses as a path to economic andsocial development.
Table of ContentsCanvasoutlookAfterwordProcessDesignPatternsStrategyThe book is divided into five sections: 1 The Busi-ness Model Canvas, a tool for describing, analyzing,and designing business models, 2 Business ModelPatterns, based on concepts from leading businessthinkers, 3 techniques to help you design businessmodels, 4 re-interpreting strategy through thebusiness model lens, and 5 a generic process tohelp you design innovative business models, tyingtogether all the concepts, techniques, and tools inBusiness Model Generation. }The last section offersan outlook on five business model topics for futureexploration. Finally, the afterword provides a peekinto “the making of” Business Model Generation.
1 Canvas14 Definition of a BusinessModel16 9 Building Blocks44 The Business ModelCanvas2 Patterns56 Unbundling BusinessModels66 The Long Tail76 Multi-Sided Platforms88 FREE as a Business Model108 Open Business Models3 Design126 Customer Insights134 Ideation146 Visual Thinking160 Prototyping170 Storytelling180 Scenarios4 Strategy200 Business ModelEnvironment212 Evaluating BusinessModels226 Business ModelPerspective on BlueOcean Strategy232 Managing MultipleBusiness Models5 Process244 Business ModelDesign Process} Outlook262 OutlookAfterword274 Where did this bookcome from?276 References
}14A business model describesthe rationale of how anorganization creates, delivers,and captures valueDef_Business Model
}15The starting point for any good discussion, meeting,or workshop on business model innovation shouldbe a shared understanding of what a business modelactually is. We need a business model concept thateverybody understands: one that facilitates descrip-tion and discussion. We need to start from the samepoint and talk about the same thing. The challenge isthat the concept must be simple, relevant, and intui-tively understandable, while not oversimplifying thecomplexities of how enterprises function.In the following pages we oΩer a concept that allowsyou to describe and think through the business modelof your organization, your competitors, or any otherenterprise. This concept has been applied and testedaround the world and is already used in organizationssuch as IBM, Ericsson, Deloitte, the Public Works andGovernment Services of Canada, and many more.This concept can become a shared language thatallows you to easily describe and manipulate businessmodels to create new strategic alternatives. Withoutsuch a shared language it is diΩicult to systematicallychallenge assumptions about one’s business modeland innovate successfully.We believe a business model can best be describedthrough nine basic building blocks that show thelogic of how a company intends to make money. Thenine blocks cover the four main areas of a business:customers, oΩer, infrastructure, and financial viability.The business model is like a blueprint for a strategyto be implemented through organizational structures,processes, and systems.
CustomerSegmentsAn organization servesone or several CustomerSegments.ValuePropositionsIt seeks to solve customerproblems and satisfycustomer needs withvalue propositions.ChannelsValue propositionsare delivered to customersthrough communication,distribution, and salesChannels.CustomerRelationshipsCustomer relationshipsare established andmaintained with eachCustomer Segment.[ The 9 Building BlocksCS VP CH CR1 2 3 4
}17RevenueStreamsRevenue streams resultfrom value propositionssuccessfully oΩered tocustomers.KeyResourcesKey resources are theassets required to oΩerand deliver the previouslydescribed elements…KeyActivities…by performing a numberof Key Activities.KeyPartnershipsSome activities areoutsourced and someresources are acquiredoutside the enterprise.CostStructureThe business modelelements result in thecost structure.R$ KR KA KP C$5 6 7 8 9
}20The Customer Segments Building Block definesthe diΩerent groups of people or organizations anenterprise aims to reach and serveCustomers comprise the heart of any business model. Without(profitable) customers, no company can survive for long. In orderto better satisfy customers, a company may group them intodistinct segments with common needs, common behaviors,or other attributes. A business model may define one or severallarge or small Customer Segments. An organization must makea conscious decision about which segments to serve and whichsegments to ignore. Once this decision is made, a business modelcan be carefully designed around a strong understanding ofspecific customer needs.Customer groups represent separate segments if:• Their needs require and justify a distinct oΩer• They are reached through diΩerent Distribution Channels• They require diΩerent types of relationships• They have substantially diΩerent profitabilities• They are willing to pay for diΩerent aspects of the oΩerCustomer SegmentsCS1
}21There are diΩerent types of Customer Segments.Here are some examples:Mass marketBusiness models focused on mass markets don’tdistinguish between diΩerent Customer Segments.The Value Propositions, Distribution Channels, andCustomer Relationships all focus on one large groupof customers with broadly similar needs and problems.This type of business model is often found in theconsumer electronics sector.Niche marketBusiness models targeting niche markets cater tospecific, specialized Customer Segments. The ValuePropositions, Distribution Channels, and CustomerRelationships are all tailored to the specific require-ments of a niche market. Such business modelsare often found in supplier-buyer relationships. Forexample, many car part manufacturers depend heavilyon purchases from major automobile manufacturers.SegmentedSome business models distinguish between marketsegments with slightly diΩerent needs and problems.The retail arm of a bank like Credit Suisse, for example,may distinguish between a large group of customers,each possessing assets of up to U.S. $100,000, anda smaller group of aΩluent clients, each of whose networth exceeds U.S. $500,000. Both segments havesimilar but varying needs and problems. This hasimplications for the other building blocks of CreditSuisse’s business model, such as the Value Proposi-tion, Distribution Channels, Customer Relationships,and Revenue streams. Consider Micro PrecisionSystems, which specializes in providing outsourcedmicromechanical design and manufacturing solutions.It serves three diΩerent Customer Segments — thewatch industry, the medical industry, and the industrialautomation sector — and oΩers each slightly diΩerentValue Propositions.DiversifiedAn organization with a diversified customer businessmodel serves two unrelated Customer Segmentswith very diΩerent needs and problems. For example,in 2006 Amazon.com decided to diversify its retailbusiness by selling “cloud computing” services: onlinestorage space and on-demand server usage. Thusit started catering to a totally diΩerent CustomerSegment — Web companies — with a totally diΩerentValue Proposition. The strategic rationale behind thisdiversification can be found in Amazon.com’s powerfulIT infrastructure, which can be shared by its retail salesoperations and the new cloud computing service unit.Multi-sided platforms (or multi-sided markets)Some organizations serve two or more interdepen-dent Customer Segments. A credit card company, forexample, needs a large base of credit card holdersand a large base of merchants who accept those creditcards. Similarly, an enterprise oΩering a free news-paper needs a large reader base to attract advertisers.On the other hand, it also needs advertisers to financeproduction and distribution. Both segments arerequired to make the business model work (readmore about multi-sided platforms on p. 76).For whom are we creating value?Who are our most important customers?
}22The Value Propositions Building Block describesthe bundle of products and services that createvalue for a specific Customer SegmentThe Value Proposition is the reason why customers turn to onecompany over another. It solves a customer problem or satisfiesa customer need. Each Value Proposition consists of a selectedbundle of products and/or services that caters to the requirementsof a specific Customer Segment. In this sense, the Value Proposi-tion is an aggregation, or bundle, of benefits that a companyoΩers customers. Some Value Propositions may be innovative and represent anew or disruptive oΩer. Others may be similar to existing marketoΩers, but with added features and attributes.Value Propositions2VP
}23A Value Proposition creates value for a CustomerSegment through a distinct mix of elements cater-ing to that segment’s needs. Values may be quan-titative (e.g. price, speed of service) or qualitative(e.g. design, customer experience). Elements from the following non-exhaustive listcan contribute to customer value creation.NewnessSome Value Propositions satisfy an entirely new setof needs that customers previously didn’t perceivebecause there was no similar oΩering. This is often,but not always, technology related. Cell phones,for instance, created a whole new industry aroundmobile telecommunication. On the other hand,products such as ethical investment funds havelittle to do with new technology.PerformanceImproving product or service performance hastraditionally been a common way to create value.The PC sector has traditionally relied on this factorby bringing more powerful machines to market.But improved performance has its limits. In recentyears, for example, faster PCs, more disk storagespace, and better graphics have failed to producecorresponding growth in customer demand.What value do we deliver to the customer?Which one of our customer’s problems are we helpingto solve? Which customer needs are we satisfying?What bundles of products and services are we oΩeringto each Customer Segment?CustomizationTailoring products and services to the specificneeds of individual customers or CustomerSegments creates value. In recent years, theconcepts of mass customization and customerco-creation have gained importance. This approachallows for customized products and services,while still taking advantage of economies of scale.
}24“Getting the job done”Value can be created simply by helping a customerget certain jobs done. Rolls-Royce understands thisvery well: its airline customers rely entirely on Rolls-Royce to manufacture and service their jet engines.This arrangement allows customers to focus onrunning their airlines. In return, the airlines payRolls- Royce a fee for every hour an engine runs.DesignDesign is an important but diΩicult element to mea-sure. A product may stand out because of superiordesign. In the fashion and consumer electronicsindustries, design can be a particularly importantpart of the Value Proposition.Brand/statusCustomers may find value in the simple act of usingand displaying a specific brand. Wearing a Rolexwatch signifies wealth, for example. On the other endof the spectrum, skateboarders may wear the latest“underground” brands to show that they are “in.”PriceOΩering similar value at a lower price is a commonway to satisfy the needs of price-sensitive Cus-tomer Segments. But low-price Value Propositionshave important implications for the rest of a busi-ness model. No frills airlines, such as Southwest,easyJet, and Ryanair have designed entire businessmodels specifically to enable low cost air travel.Another example of a price-based Value Proposi-tion can be seen in the Nano, a new car designedand manufactured by the Indian conglomerate Tata.Its surprisingly low price makes the automobileaΩordable to a whole new segment of the Indianpopulation. Increasingly, free oΩers are starting topermeate various industries. Free oΩers range fromfree newspapers to free e-mail, free mobile phoneservices, and more (see p. 88 for more on FREE).2
}25Cost reductionHelping customers reduce costs is an importantway to create value. Salesforce.com, for example,sells a hosted Customer Relationship management(CRM) application. This relieves buyers from theexpense and trouble of having to buy, install, andmanage CRM software themselves.Risk reductionCustomers value reducing the risks they incurwhen purchasing products or services. For a usedcar buyer, a one-year service guarantee reducesthe risk of post-purchase breakdowns and repairs.A service-level guarantee partially reduces therisk undertaken by a purchaser of outsourced ITservices.AccessibilityMaking products and services available to custom-ers who previously lacked access to them is anotherway to create value. This can result from businessmodel innovation, new technologies, or a combina-tion of both. NetJets, for instance, popularized theconcept of fractional private jet ownership. Using aninnovative business model, NetJets oΩers individu-als and corporations access to private jets, a servicepreviously unaΩordable to most customers. Mutualfunds provide another example of value creationthrough increased accessibility. This innovativefinancial product made it possible even for thosewith modest wealth to build diversified investmentportfolios.Convenience/usabilityMaking things more convenient or easier to usecan create substantial value. With iPod and iTunes,Apple oΩered customers unprecedented conve-nience searching, buying, downloading, and listen-ing to digital music. It now dominates the market.
}26The Channels Building Block describes how acompany communicates with and reaches itsCustomer Segments to deliver a Value PropositionCommunication, distribution, and sales Channels comprise acompanys interface with customers. Channels are customer touchpoints that play an important role in the customer experience.Channels serve several functions, including:• Raising awareness among customers about a company’s products and services• Helping customers evaluate a company’s Value Proposition• Allowing customers to purchase specific products and services• Delivering a Value Proposition to customers• Providing post-purchase customer supportChannels3CH
}27Through which Channels do our Customer Segmentswant to be reached? How are we reaching them now?How are our Channels integrated? Which ones work best?Which ones are most cost-eΩicient? How are weintegrating them with customer routines?Channels have five distinct phases. Each channel cancover some or all of these phases. We can distinguishbetween direct Channels and indirect ones, as well asbetween owned Channels and partner Channels.Finding the right mix of Channels to satisfy howcustomers want to be reached is crucial in bringinga Value Proposition to market. An organization canchoose between reaching its customers through itsown Channels, through partner Channels, or througha mix of both. Owned Channels can be direct, such asan in-house sales force or a Web site, or they can beindirect, such as retail stores owned or operated by theorganization. Partner Channels are indirect and span awhole range of options, such as wholesale distribution,retail, or partner-owned Web sites. Partner Channels lead to lower margins, but theyallow an organization to expand its reach and benefitfrom partner strengths. Owned Channels and particu-larly direct ones have higher margins, but can be costlyto put in place and to operate. The trick is to find theright balance between the diΩerent types of Channels,to integrate them in a way to create a great customerexperience, and to maximize revenues.Channel Types Channel Phases Sales force1. AwarenessHow do we raise aware-ness about our company’sproducts and services?2. EvaluationHow do we help custom-ers evaluate our organiza-tion’s Value Proposition?3. PurchaseHow do we allow custom-ers to purchase specificproducts and services?4. DeliveryHow do we deliver a ValueProposition to customers?5. After salesHow do we providepost-purchase customersupport? Web sales Own stores Partnerstores WholesalerIndirectDirectOwnPartner
}28The Customer Relationships Building Blockdescribes the types of relationships a companyestablishes with specific Customer SegmentsA company should clarify the type of relationship it wants toestablish with each Customer Segment. Relationships can rangefrom personal to automated. Customer relationships may bedriven by the following motivations:• Customer acquisition• Customer retention• Boosting sales (upselling)Customer Relationships4In the early days, for example, mobile network operator CustomerRelationships were driven by aggressive acquisition strategiesinvolving free mobile phones. When the market became saturated,operators switched to focusing on customer retention and increas-ing average revenue per customer. The Customer Relationships called for by a company’s businessmodel deeply influence the overall customer experience.CR
}29We can distinguish between several categories ofCustomer Relationships, which may co-exist in acompany’s relationship with a particularCustomer Segment:Personal assistanceThis relationship is based on human interaction.The customer can communicate with a real customerrepresentative to get help during the sales process orafter the purchase is complete. This may happen on-site at the point of sale, through call centers, by e-mail,or through other means.Dedicated personal assistanceThis relationship involves dedicating a customerrepresentative specifically to an individual client. Itrepresents the deepest and most intimate type ofrelationship and normally develops over a long periodof time. In private banking services, for example, dedi-cated bankers serve high net worth individuals. Similarrelationships can be found in other businesses in theform of key account managers who maintain personalrelationships with important customers.Self-serviceIn this type of relationship, a company maintains nodirect relationship with customers. It provides all thenecessary means for customers to help themselves.Automated servicesThis type of relationship mixes a more sophisti-cated form of customer self-service with automatedprocesses. For example, personal online profiles givecustomers access to customized services. Automatedservices can recognize individual customers and theircharacteristics, and oΩer information related to ordersor transactions. At their best, automated services canstimulate a personal relationship (e.g. oΩering book ormovie recommendations).CommunitiesIncreasingly, companies are utilizing user communitiesto become more involved with customers/prospectsand to facilitate connections between communitymembers. Many companies maintain online com-munities that allow users to exchange knowledge andsolve each other’s problems. Communities can alsohelp companies better understand their customers.Pharmaceutical giant GlaxoSmithKline launched aprivate online community when it introduced alli, anew prescription-free weight-loss product. GlaxoSmithKline wanted to increase its under-standing of the challenges faced by overweightadults, and thereby learn to better manage customerexpectations.Co-creationMore companies are going beyond the traditionalcustomer-vendor relationship to co-create value withcustomers. Amazon.com invites customers to writereviews and thus create value for other book lovers.Some companies engage customers to assist with thedesign of new and innovative products. Others, suchas YouTube.com, solicit customers to create contentfor public consumption.What type of relationship does each of our CustomerSegments expect us to establish and maintain with them?Which ones have we established? How costly are they?How are they integrated with the rest of our business model?
}30The Revenue Streams Building Block representsthe cash a company generates from each CustomerSegment (costs must be subtracted from revenues tocreate earnings)If customers comprise the heart of a business model, RevenueStreams are its arteries. A company must ask itself, For what valueis each Customer Segment truly willing to pay? Successfullyanswering that question allows the firm to generate one or moreRevenue Streams from each Customer Segment. Each RevenueStream may have diΩerent pricing mechanisms, such as fixed listprices, bargaining, auctioning, market dependent, volume depen-dent, or yield management.Revenue Streams5A business model can involve two diΩerent types of Revenue Streams:• Transaction revenues resulting from one-time customer payments• Recurring revenues resulting from ongoing payments to either deliver a Value Proposition to customers or provide post-purchase customer supportR$
}31There are several ways to generate Revenue Streams:Asset saleThe most widely understood Revenue Stream derivesfrom selling ownership rights to a physical product.Amazon.com sells books, music, consumer electron-ics, and more online. Fiat sells automobiles, whichbuyers are free to drive, resell, or even destroy.Usage feeThis Revenue Stream is generated by the use of aparticular service. The more a service is used, themore the customer pays. A telecom operator maycharge customers for the number of minutes spent onthe phone. A hotel charges customers for the numberof nights rooms are used. A package delivery servicecharges customers for the delivery of a parcel fromone location to another.Subscription feesThis Revenue Stream is generated by selling continu-ous access to a service. A gym sells its membersmonthly or yearly subscriptions in exchange foraccess to its exercise facilities. World of WarcraftOnline, a Web-based computer game, allows users toplay its online game in exchange for a monthly sub-scription fee. Nokia’s Comes with Music service givesusers access to a music library for a subscription fee.Lending/Renting/LeasingThis Revenue Stream is created by temporar-ily granting someone the exclusive right to use aparticular asset for a fixed period in return for afee. For the lender this provides the advantage ofrecurring revenues. Renters or lessees, on the otherhand, enjoy the benefits of incurring expenses foronly a limited time rather than bearing the full costsFor what value are our customers really willing to pay?For what do they currently pay? How are they currentlypaying? How would they prefer to pay? How much doeseach Revenue Stream contribute to overall revenues?of ownership. Zipcar.com provides a good illustration.The company allows customers to rent cars by thehour in North American cities. Zipcar.com’s servicehas led many people to decide to rent rather thanpurchase automobiles.LicensingThis Revenue Stream is generated by giving customerspermission to use protected intellectual property inexchange for licensing fees. Licensing allows rights-holders to generate revenues from their property with-out having to manufacture a product or commercializea service. Licensing is common in the media industry,where content owners retain copyright while sellingusage licenses to third parties. Similarly, in technologysectors patentholders grant other companies the rightto use a patented technology in return for a license fee.
}32Brokerage feesThis Revenue Stream derives from intermediationservices performed on behalf of two or more parties.Credit card providers, for example, earn revenuesby taking a percentage of the value of each salestransaction executed between credit card merchantsand customers. Brokers and real estate agents earna commission each time they successfully match abuyer and seller.AdvertisingThis Revenue Stream results from fees for advertisinga particular product, service, or brand. Traditionally,the media industry and event organizers relied heavilyon revenues from advertising. In recent years othersectors, including software and services, have startedrelying more heavily on advertising revenues.5Each Revenue Stream might have diΩerent pricingmechanisms. The type of pricing mechanism chosencan make a big diΩerence in terms of revenues gener-ated. There are two main types of pricing mechanism:fixed and dynamic pricing.
}33Fixed “Menu” PricingPredefined prices are based on static variablesDynamic PricingPrices change based on market conditionsList price Fixed prices for individual products, services,or other Value PropositionsNegotiation(bargaining)Price negotiated between two or more partnersdepending on negotiation power and/or negotiation skillsProduct featuredependentPrice depends on the number or quality ofValue Proposition featuresYield management Price depends on inventory and time of purchase(normally used for perishable resources such as hotelrooms or airline seats)Customer segmentdependentPrice depends on the type and characteristicof a Customer SegmentReal-time-market Price is established dynamically based on supplyand demandVolume dependent Price as a function of the quantity purchased Auctions Price determined by outcome of competitive biddingPricing Mechanisms
}34The Key Resources Building Block describesthe most important assets required to make abusiness model workEvery business model requires Key Resources. These resourcesallow an enterprise to create and oΩer a Value Proposition, reachmarkets, maintain relationships with Customer Segments, andearn revenues. DiΩerent Key Resources are needed depending onthe type of business model. A microchip manufacturer requirescapital-intensive production facilities, whereas a microchip designerfocuses more on human resources. Key resources can be physical, financial, intellectual, or human.Key resources can be owned or leased by the company or acquiredfrom key partners.Key Resources6KR
}35Key Resources can be categorized as follows:PhysicalThis category includes physical assets such asmanufacturing facilities, buildings, vehicles, machines,systems, point-of-sales systems, and distributionnetworks. Retailers like Wal-Mart and Amazon.comrely heavily on physical resources, which are oftencapital-intensive. The former has an enormous globalnetwork of stores and related logistics infrastructure.The latter has an extensive IT, warehouse, and logisticsinfrastructure.IntellectualIntellectual resources such as brands, proprietaryknowledge, patents and copyrights, partnerships,and customer databases are increasingly importantcomponents of a strong business model. Intellectualresources are diΩicult to develop but when success-fully created may oΩer substantial value. Consumergoods companies such as Nike and Sony rely heavilyon brand as a Key Resource. Microsoft and SAPdepend on software and related intellectual propertydeveloped over many years. Qualcomm, a designerand supplier of chipsets for broadband mobiledevices, built its business model around patentedmicrochip designs that earn the company substantiallicensing fees.HumanEvery enterprise requires human resources, butpeople are particularly prominent in certain businessmodels. For example, human resources are crucial inknowledge-intensive and creative industries. A phar-maceutical company such as Novartis, for example,relies heavily on human resources: its business modelis predicated on an army of experienced scientistsand a large and skilled sales force.FinancialSome business models call for financial resourcesand/or financial guarantees, such as cash, lines ofcredit, or a stock option pool for hiring key employ-ees. Ericsson, the telecom manufacturer, providesan example of financial resource leverage within abusiness model. Ericsson may opt to borrow fundsfrom banks and capital markets, then use a portion ofthe proceeds to provide vendor financing to equipmentcustomers, thus ensuring that orders are placed withEricsson rather than competitors.What Key Resources do our Value Propositions require?Our Distribution Channels? Customer Relationships?Revenue Streams?
}36The Key Activities Building Block describesthe most important things a company must doto make its business model workEvery business model calls for a number of Key Activities. Theseare the most important actions a company must take to operatesuccessfully. Like Key Resources, they are required to create andoΩer a Value Proposition, reach markets, maintain CustomerRelationships, and earn revenues. And like Key Resources, KeyActivities diΩer depending on business model type. For softwaremaker Microsoft, Key Activities include software development. For PC manufacturer Dell, Key Activities include supply chainmanagement. For consultancy McKinsey, Key Activities includeproblem solving.Key Activities7KA
}37Key Activities can be categorized as follows:ProductionThese activities relate to designing, making, anddelivering a product in substantial quantities and/orof superior quality. Production activity dominates thebusiness models of manufacturing firms.Problem solvingKey Activities of this type relate to coming up withnew solutions to individual customer problems.The operations of consultancies, hospitals, and otherservice organizations are typically dominated byproblem solving activities. Their business models callfor activities such as knowledge management andcontinuous training.Platform/networkBusiness models designed with a platform as a KeyResource are dominated by platform or network-related Key Activities. Networks, matchmakingplatforms, software, and even brands can function asa platform. eBay’s business model requires that thecompany continually develop and maintain its plat-form: the Web site at eBay.com. Visa’s business modelrequires activities related to its Visa® credit cardtransaction platform for merchants, customers, andbanks. Microsoft’s business model requires managingthe interface between other vendors’ software and itsWindows® operating system platform. Key Activi-ties in this category relate to platform management,service provisioning, and platform promotion.What Key Activities do our Value Propositions require?Our Distribution Channels? Customer Relationships?Revenue streams?
}38The Key Partnerships Building Block describesthe network of suppliers and partners that makethe business model workCompanies forge partnerships for many reasons, and partnershipsare becoming a cornerstone of many business models. Companiescreate alliances to optimize their business models, reduce risk, oracquire resources.We can distinguish between four diΩerent types of partnerships:• Strategic alliances between non-competitors• Coopetition: strategic partnerships between competitors• Joint ventures to develop new businesses• Buyer-supplier relationships to assure reliable suppliesKey Partnerships8KP
}39It can be useful to distinguish between threemotivations for creating partnerships:Optimization and economy of scaleThe most basic form of partnership or buyer-supplierrelationship is designed to optimize the allocation ofresources and activities. It is illogical for a company toown all resources or perform every activity by itself.Optimization and economy of scale partnerships areusually formed to reduce costs, and often involveoutsourcing or sharing infrastructure.Reduction of risk and uncertaintyPartnerships can help reduce risk in a competitiveenvironment characterized by uncertainty. It is notunusual for competitors to form a strategic alliancein one area while competing in another. Blu-ray, forexample, is an optical disc format jointly developedby a group of the world’s leading consumer electron-ics, personal computer, and media manufacturers.The group cooperated to bring Blu-ray technology tomarket, yet individual members compete in sellingtheir own Blu-ray products.Acquisition of particular resources and activitiesFew companies own all the resources or perform allthe activities described by their business models.Rather, they extend their own capabilities by relyingon other firms to furnish particular resources orperform certain activities. Such partnerships can bemotivated by needs to acquire knowledge, licenses, oraccess to customers. A mobile phone manufacturer,for example, may license an operating system for itshandsets rather than developing one in-house. Aninsurer may choose to rely on independent brokers tosell its policies rather than develop its own sales force.Who are our Key Partners? Who are our key suppliers?Which Key Resources are we acquiring from partners?Which Key Activities do partners perform?
The Cost Structure describes all costs incurred tooperate a business modelThis building block describes the most important costs incurredwhile operating under a particular business model. Creating and de-livering value, maintaining Customer Relationships, and generatingrevenue all incur costs. Such costs can be calculated relatively easilyafter defining Key Resources, Key Activities, and Key Partnerships.Some business models, though, are more cost-driven than others.So-called “no frills” airlines, for instance, have built business modelsentirely around low Cost Structures.Cost Structure9CS
}41Naturally enough, costs should be minimized in everybusiness model. But low Cost Structures are moreimportant to some business models than to others.Therefore it can be useful to distinguish between twobroad classes of business model Cost Structures:cost-driven and value-driven (many business modelsfall in between these two extremes):Cost-drivenCost-driven business models focus on minimizingcosts wherever possible. This approach aims atcreating and maintaining the leanest possibleCost Structure, using low price Value Propositions,maximum automation, and extensive outsourcing.No frills airlines, such as Southwest, easyJet, andRyanair typify cost-driven business models.Value-drivenSome companies are less concerned with the costimplications of a particular business model design,and instead focus on value creation. Premium ValuePropositions and a high degree of personalized serviceusually characterize value-driven business models.Luxury hotels, with their lavish facilities and exclusiveservices, fall into this category.Cost Structures can have the following characteristics:Fixed costsCosts that remain the same despite the volume ofgoods or services produced. Examples include salaries,rents, and physical manufacturing facilities. Somebusinesses, such as manufacturing companies, arecharacterized by a high proportion of fixed costs.Variable costsCosts that vary proportionally with the volume ofgoods or services produced. Some businesses, such asmusic festivals, are characterized by a high proportionof variable costs.Economies of scaleCost advantages that a business enjoys as its outputexpands. Larger companies, for instance, benefit fromlower bulk purchase rates. This and other factorscause average cost per unit to fall as output rises.Economies of scopeCost advantages that a business enjoys due to a largerscope of operations. In a large enterprise, for example,the same marketing activities or Distribution Channelsmay support multiple products.What are the most important costs inherent in our businessmodel? Which Key Resources are most expensive? WhichKey Activities are most expensive?
VP CRCHCSKP KAKRR$C$The nine business model Building Blocks formthe basis for a handy tool, which we call theBusiness Model Canvas.This tool resembles a painter’s canvas — preformat-ted with the nine blocks — which allows you to paintpictures of new or existing business models.The Business Model Canvas works best when printedout on a large surface so groups of people can jointlystart sketching and discussing business modelelements with Post-it® notes or board markers.It is a hands-on tool that fosters understanding,discussion, creativity, and analysis.}The Business Model Canvas
}47In 2001 Apple launched its iconic iPod brand of por-table media player. The device works in conjunctionwith iTunes software that enables users to transfermusic and other content from the iPod to a computer.The software also provides a seamless connectionto Apple’s online store so users can purchase anddownload content.This potent combination of device, software, andonline store quickly disrupted the music industry andgave Apple a dominant market position. Yet Apple wasnot the first company to bring a portable media playerto market. Competitors such as Diamond Multimedia,with its Rio brand of portable media players, were suc-cessful until they were outpaced by Apple.Example: Apple iPod/iTunes Business ModelHow did Apple achieve such dominance? Because itcompeted with a better business model. On the onehand it oΩered users a seamless music experience bycombining its distinctively designed iPod devices withiTunes software and the iTunes online store. Apple’sValue Proposition is to allow customers to easilysearch, buy, and enjoy digital music. On the other hand,to make this Value Proposition possible, Apple had tonegotiate deals with all the major record companies tocreate the world’s largest online music library.The twist? Apple earns most of its music-relatedrevenues from selling iPods, while using integrationwith the online music store to protect itself fromcompetitors.
The public sector is often challengedto implement private sector principles.I have used the Canvas to help adepartment view itself as a service-oriented business,establishingexternalized as-isand to-be businessmodels.It has created a whole new conversa-tion around describing and innovatingthe business.Mike Lachapelle, CanadaI consult with small companies on usingthe freemium business model. Thismodel involves giving core productsaway for free, which is very counterin-tuitive to most businesspeople. Thanksto the Business Model Canvas, I caneasily illustratehow it makesfinancial sense.Peter Froberg, DenmarkI help business owners plan their transi-tion and exit from their companies.Success depends on sustaining long-term company viability and growth. Keyto this is a business model innovationprogram. The Canvas helps us identifyand innovate their business models.Nicholas K. Niemann, U.S.I’m using the Business Model Canvas inBrazil to help artists, cultural producers,and game designers to envision innova-tive business models for the Culturaland Creative Industries. I apply it in theCultural Production MBA at FGV and inthe Innovation Games Lab at COPPE/UFRJ Business Incubator.Claudio DIpolitto, BrazilWhen you typically think of a businessmodel, the conclusion is that it is a forprofit business. However, I found thatthe Canvas is also very effective in thenon-profit sector. We used it toDESIGN+ ALIGNmembers of the leadership team duringthe formation of a new non-profitprogram. The Canvas was flexibleenough to take into account the goalsof this social entrepreneurial venture,and bring clarity to the true ValueProposition of the business and howto make it sustainable.Kevin Donaldson, U.S.I wish I had known the Canvas yearsago! With a particular tough andcomplicated print-to-digital projectwithin the publishing industry it wouldhave been so helpful toshow all projectmembers in thisvisual way boththe big picture,their (important)own roles in itand the inter-dependencies.Hours of explaining, arguing, and mis-understanding could have been saved.Jille Sol, NetherlandsA close friend was looking for a newjob. I used the Business ModelCanvas in order to assess herpersonal business model.Her core competences and ValueProposition were outstanding butshe failed to leverage her strategicpartners and develop appropriateCustomer Relationships. This adjustedfocus opened new opportunities.Daniel Pandza, Mexicohowdo youuse thecanvas?50
Imagine 60 1st year students, knowingnothing about entrepreneurship. In lessthan five days, thanks to the BusinessModel Canvas, they were able to pitcha viable idea with conviction and clarity.They used it as a tool to cover all thestartup-building dimensions.Guilhem Bertholet, FranceI use the Business Model Canvas toteach early stage entrepreneursacross a wide range of industries asa much better way totranslatetheir businessplansinto the businessprocessesthat they (will) need to operate theirbusinesses and to insure that they arefocused properly on being customer-centric in a way that makes the businessas highly profitable as can be.Bob Dunn, U.S.I have used the Canvas with aco-founder to design a business planfor a national level contest held byThe Economic Times, India. The Canvasenabled me to think through all theaspects of the startup and put togethera plan that VCs might find well thoughtout and attractive to fund.Praveen Singh, IndiaWe were asked to redesign the languageservice of an international NGO. TheBusiness Model Canvas was especiallyhelpful to show the links betweenthe needs of people’s day-to-daywork and a service that was felttoo specialized, considered only as anafterthought, and far away from theirpriorities.Paola Valeri, SpainAs a startup coach I support teams tocreate new products and design theirbusinesses. The Business Model Canvasdoes a great job assisting me toremind theteams to thinkholistically abouttheir businessand preventsthem fromgetting stuckon details.This helps tomake their new venture a success.Christian Schüller, GermanyThe Business ModelCanvas has allowedme to establish acommon languageand framework withcolleagues.Ive used the Canvas to explore newgrowth opportunities, assess usesof new business models by competitors,and to communicate across theorganization how we couldaccelerate technology, market, andbusiness model innovations.Bruce MacVarish, U.S.The Business Model Canvas has helpedseveral health care organizations in theNetherlands to make the move froma budget driven governmentalinstitution to an entrepreneurialvalue-adding organization.Huub Raemakers, NetherlandsI used the Canvas with senior managersof a public company to help themrestructure their value chain due tochanges in sector regulation. The keysuccess factor was to understand whichnew Value Propositions could be offeredto their clients and then translated intointernal operations.Leandro Jesus, BrazilWe used 15,000post-its andmore than100 meters ofbrown paperto design a future organizational struc-ture in a global manufacturing company.The key of all activities was, however,the Business Model Canvas. It con-vinced us by its practical applicability,simplicity, and logical cause-and-effectrelationships.Daniel Egger, BrazilI used the Canvas to do arealitycheckfor my new startup Mupps, a platformwhere artists can make their own musicapps for iPhone and Android phonesin minutes. You know what? The Canvasmade me even surer of the possiblesuccess! So I gotta go, work to do!Erwin Blom, NetherlandsThe Business Model Canvas has provento be a very useful tool for capturingideas and solutions for e-commerceprojects. Most of my clients are SMEsand the Canvas helps them toclarify their currentbusiness models andunderstand and focus on the impactof e-commerce on their organizations.Marc Castricum, NetherlandsI applied the Canvas to help a companyalign key staff in order to determineshared goals and strategic priorities,which were used during the planningprocess and incorporated with the BSC.It also ensured that the chosen initia-tives were clearly driven by the newstrategic priorities.Martin Fanghanel, Bolivia51
“Pattern in architectureis the idea of capturingarchitectural design ideasas archetypal and reusabledescriptions.” Christopher Alexander, Architect
This section describes business models with similar characteristics,similar arrangements of business model Building Blocks, or similarbehaviors. We call these similarities business model patterns. Thepatterns described in the following pages should help you understandbusiness model dynamics and serve as a source of inspiration foryour own work with business models.We’ve sketched out five business model patterns built on importantconcepts in the business literature. We’ve “translated” these intothe language of the Business Model Canvas to make the conceptscomparable, easy to understand, and applicable. A single businessmodel can incorporate several of these patterns.Concepts upon which our patterns are based include Unbundling,the Long Tail, Multi-Sided Platforms, FREE, and Open Business Models.New patterns based on other business concepts will certainly emergeover time.Our goal in defining and describing these business model patterns isto recast well-known business concepts in a standardized format — theBusiness Model Canvas — so that they are immediately useful in yourown work around business model design or invention.Patterns56 Unbundling BusinessModels66 The Long Tail76 Multi-Sided Platforms88 FREE as a Business Model108 Open Business Models
“Businesspeople don’tjust need to understanddesigners better; theyneed to become designers.” Roger Martin, Dean, Rotman School of Management
This section describes a number of techniques and tools from the worldof design that can help you design better and more innovative businessmodels. A designer’s business involves relentless inquiry into the best pos-sible way to create the new, discover the unexplored, or achieve the func-tional. A designer’s job is to extend the boundaries of thought, to generatenew options, and, ultimately, to create value for users. This requires theability to imagine “that which does not exist.” We are convinced that thetools and attitude of the design profession are prerequisites for success inthe business model generation.Businesspeople unknowingly practice design every day. We design orga-nizations, strategies, business models, processes, and projects. To do this,we must take into account a complex web of factors, such as competitors,technology, the legal environment, and more. Increasingly, we must do so inunfamiliar, uncharted territory. This is precisely what design is about. Whatbusinesspeople lack are design tools that complement their business skills.The following pages explore six business model design techniques:Customer Insights, Ideation, Visual Thinking, Prototyping, Storytelling, andScenarios. We introduce each technique with a story, then demonstratehow the technique applies to business model design. Here and there weveadded exercises and suggestions for workshop activities that show youspecifically how the design technique can be applied. Book references areprovided at the end for those interested in exploring each technique inmore depth.Design126 Customer Insights134 Ideation146 Visual Thinking160 Prototyping170 Storytelling180 Scenarios
“There’s not a singlebusiness model…There are really a lot ofopportunities and a lot ofoptions and we just haveto discover all of them.” Tim O’Reilly, CEO, O’Reilly
In previous sections we taught you a language for describing, discussing,and designing business models, described business model patterns,and explained techniques that facilitate the design and invention of newbusiness models. This next section is about re-interpreting strategythrough the lens of the Business Model Canvas. This will help youconstructively question established business models and strategicallyexamine the environment in which your own business model functions.The following pages explore four strategic areas: the Business ModelEnvironment, Evaluating Business Models, a Business Model Perspectiveon Blue Ocean Strategies, and how to Manage Multiple Business Modelswithin an enterprise.Strategy200 Business ModelEnvironment212 Evaluating BusinessModels226 Business modelPerspective on BlueOcean Strategy232 Managing MultipleBusiness Models
We hope we’ve shown you how visionaries, game changers, andchallengers can tackle the vital issue of business models. We hopewe’ve provided you with the language, the tools and techniques, andthe dynamic approach needed to design innovative and competitivenew models. But much remains to be said. So here we touch on fivetopics, each of which might well merit its own book.The first examines business models beyond profit: how the Canvas candrive business model innovation in the public and non-profit sectors.The second suggests how computer-aided business model design mightleverage the paper-based approach and allow for complex manipulationof business model elements. The third discusses the relationship betweenbusiness models and business plans. The fourth addresses issues thatarise when implementing business models in either new or existingorganizations. The final topic examines how to better achieve businessmodel and IT alignment.
274Context:2004: Alexander Osterwalder com-pletes a Ph.D. dissertation on the topicof business model innovation withProfessor Yves Pigneur at HEC Lausanne,Switzerland. Fast forward. 2006: Theapproach outlined in the dissertationstarts being applied around the worldbased on Alexander’s business modelblog, notably in companies such as 3M,Ericsson, Deloitte, and Telenor. Duringa workshop in the Netherlands Patrickvan der Pijl asks “why is there nobook accompanying the method?”Alexander and Yves take up the chal-lenge. But how does one standout in a market where countlessstrategy and management booksare published every year?INNOVATINGthe modelAlexander and Yves decide they can’tcredibly write a book aboutbusiness model innovation with-out an innovative business mod-el. They ditch publishers and launchthe Hub, an online platform to sharetheir writings from day one. Anybodywith an interest in the topic can jointhe platform for a fee (initially U.S. $24,which is gradually raised to U.S. $243to keep the platform exclusive). Thisand other innovative Revenue Streamsfinance the book production in advanceitself is an innovation as well. It breaksthe format of conventional strategy andmanagement books in order to createmore value for readers: it is co-createdhighly visual, and complemented byexercises and workshop tips.key audiencevisionary andgame changing…entrepreneurs /consultants /executiveswheredid thisbookcomefrom?
275processThe core team, consisting of Alexander, Yves, and Patrick start the projectwith a number of meetings to sketch out the business model of the book.The Hub is launched to co-create the book with business model innovationpractitioners throughout the world. Creative Director Alan Smith of TheMovement hears about the project and put his company behind it. Finally,Hub member Tim Clark joins the core team after recognizing the need for aneditor. The group is completed by JAM, a company that uses visual thinkingto solve business problems. An engagement cycle is started to pump fresh“chunks” of content out to the Hub community for feedback and contribu-tions. The writing of the book becomes completely transparent. Content,design, illustrations, and structure are constantly shared and thoroughly com-mented upon by Hub members worldwide. The core team responds to everycomment and integrates the feedback back into the book and design. A“softlaunch” of the book is organized in Amsterdam, Netherlands, so members ofthe Hub can meet in person and share their experiences with business modelinnovation. Sketching out participant business models with JAM becomes thecore exercise of the day. Two hundred special limited edition prototypes of the(unfinished) book go to print and a video of the writing process is producedby Fisheye Media. After several more iterations the first print run is produced.tools usedstrategy:• Environmental Scanning• Business Model Canvas• Customer Empathy Mapcontent and r&d:• Customer Insights• Case Studiesopen process:• Online Platform• Co-Creation• AccesstoUnfinishedWork• Commenting & Feedbackdesign:• Open Design Process• Moodboards• Paper Mockups• Visualization• Illustration• Photographythe numbers9years ofresearchand practice470co-authors19book chunks8prototypes200copies of amessedup test print77forumdiscussions287Skype Calls1,360comments45countries137,757views of methodonline beforebook publishing13.18GB of content28,456Post-it™ notes used4,000+hours of work521photosMADE IN…Written: Lausanne, CHDesigned: London, UKEdited: Portland, USAPhotographed: Toronto, CAProduced: Amsterdam, NLEvents: Amsterdam & Toronto
280the movement (design)ning platformamazon.com3rd party logisticscompanypublisherscontentproductionhub managementguerilla marketing andword-of-mouthlogistics andshippingvisual, practical, andbeautiful handbookfor business modelinnovatorsco-creation of apotential bestsellerpersonalized books forcompanies and theircustomersbusinessmodelhub.combusiness model event,amsterdamvisionaries, gamechangers, andchallengersentrepreneurs,executives,consultants,academicscompaniesblog and visibility onthe webbusiness model hubpowerful methodologyhub membersword-of-mouth1) businessmodel-generation.com2) amazon.com3) book storesintermediationthroughpublishersdesigncontent productionprintingdistributionhub membership feesadvance & post-publication salesFREE give away canvas sectionfees for customized versionsroyalties from publishersVP CRCHCSKAKRR$KPC$DifferentiationAn entirely different format, businessmodel, and story for the book makes itstand out in a crowded market.RevenuesThe book was financed through advancedsales and fees paid by co-creators.Additional revenues come from custom-ized versions for companies and theirclients.Production and LogisticsAnything beyond content creationis outsourced to readily availableservice providers.BuyersPaying customers are not only readers,but co-creators and companies that wantcustomized books for their employeesand clients.ReachA mix of direct and indirect Channels anda phased approach optimizes reach andmargins. The story of the book lends itselfwell to viral marketing and word-of-mouth promotion.CommunityThe book is co-created with practitionersfrom around the world who feel owner-ship thanks to attribution as contributingco-authors.the Canvas ofbusiness modelgeneration
281Alex Osterwalder, AuthorDr. Osterwalder is an author, speaker, and adviser on the topic of business modelinnovation. His practical approach to designing innovative business models, devel-oped together with Dr. Yves Pigneur, is practiced in multiple industries throughout theworld by companies including 3M, Ericsson, Capgemini, Deloitte, Telenor, and manyothers. Previously he helped build and sell a strategic consulting firm, participated inthe development of a Thailand-based global nonprofit organization combating HIV/AIDS and malaria, and did research at the University of Lausanne, Switzerland.Yves Pigneur, Co-AuthorDr. Pigneur has been a Professor of Management Information Systems at theUniversity of Lausanne since 1984, and has held visiting professorships at GeorgiaState University in Atlanta and at the University of British Columbia in Vancouver. Hehas served as the principal investigator for many research projects involving informa-tion system design, requirements engineering, information technology management,innovation, and e-business.Alan Smith, Creative DirectorAlan is a big scale thinker who loves the details just as much. Hes a co-founder at theaptly named change agency: The Movement. There he works with inspired clientsto blend community knowledge, business logic, and design thinking. The resultingstrategy, communications, and interactive projects feel like artifacts from the futurebut always connect to the people of today. Why? Because he designs like he gives adamn — every project, every day.Tim Clark, Editor & Contributing Co-AuthorAteacher,writer,andspeakerinthefieldofentrepreneurship,Tim’sperspectiveisinformedbyhisexperiencefoundingandsellingamarketingresearchconsultancythatservedfirmssuchasAmazon.com,Bertelsmann,GeneralMotors,LVMH,andPeopleSoft.BusinessmodelthinkingiskeytohisEntrepreneurship for Everyoneapproachtopersonalandprofessionallearning,andcentraltohisdoctoralworkoninternationalbusinessmodelportability.Business Model Generationishisfourthbook.Patrick van der Pijl, ProducerPatrick van der Pijl is the founder of Business Models, Inc., an international businessmodel consultancy. Patrick helps organizations, entrepreneurs, and managementteams discover new ways of doing business by envisioning, evaluating, andimplementing new business models. Patrick helps clients succeed through intensiveworkshops, training courses, and coaching.
Disruptive new business models areemblematic of our generation.Yet they remain poorly understood,even as they transform competitivelandscapes across industries.Business Model Generation offersyou powerful, simple, tested tools forunderstanding, designing, reworking,and implementing business models.Business Model Generation is a practical,inspiring handbook for anyone striving to improvea business model — or craft a new one.change the way you think about business modelsBusiness Model Generation will teach you powerful andpractical innovation techniques used today by leadingcompanies worldwide. You will learn how to systemati-cally understand, design, and implement a new businessmodel — or analyze and renovate an old one.co-created by 470 strategy practitionersBusiness Model Generation practices what it preaches.Co-authored by 470 Business Model Canvas practi-tioners from 45 countries, the book was financed andproduced independently of the traditional publishingindustry. It features a tightly-integrated, visual, lie-flatdesign that enables immediate hands-on use.designed for doersBusiness Model Generation is for those ready to aban-don outmoded thinking and embrace new, innovativemodels of value creation: executives, consultants, entre-preneurs — and leaders of all organizations.business and designBusinessModelGeneration.comisbn: 978-2-8399-0580-0