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E business 3


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Third lecture in series on business models for e-business, presented to students at department of Business Informatics, HSE, Moscow

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E business 3

  1. 1. Higher School of Economics , Moscow 2011 Ian Miles Research Laboratory for the Economics of Innovation, HSE (and Manchester Institute of Innovation Research) June 2011 e - Business and e - Business Models – Part 3 [ « Business and business models in the Internet »]
  2. 2. The Story so far… <ul><li>In the first two lectures we have looked at early efforts to create new e-businesses, and seen that ideas like “design paradigms” and “complementary assets” help us understand the limited success of many of these ventures. </li></ul><ul><li>We also considered the dot com bubble, which had the beneficial side-effect of making people think seriously about Business Models. </li></ul><ul><li>We explored differences between Business Models and Business Plans, and considered some elements of Business Models. </li></ul>
  3. 3. Agenda for Today <ul><li>Some different sorts of e-Business Model </li></ul><ul><li>Understanding the elements of Business Models </li></ul><ul><li>Different Business Models related to these elements. </li></ul>
  4. 4. Many lists of different types of e-Business Model – example from Rappa
  5. 5. This view of the key elements is by Liting Liang 2011 (DPhil thesis) , studying low-cost airlines as innovative business models. But the emergence of the Web (and web2.0) and new media platforms means new approaches possible in all the hexagons. “ Building blocks” need to be aligned, though tension can be creative Higher School of Economics, June 2011 Value Proposition Economic Formula Organisational Vision Position in Value Network Target Market Value Chain Structure Resources and Capabilities Elements of a Business Model
  6. 6. Organisational Vision Definition : Strategic intent - what the desired future of the firm will be, what opportunities are to be seized (the business model should flow from this). Example : To be the leading source of news/gossip/reviews... Innovation : To be the leading online portal for news/gossip/reviews... A new vision of what the rules of the game could be. This helps define what business model is adopted. Now let us explore some basic elements. Higher School of Economics, June 2011 Organisational Vision We have already explored Organisational Vision
  7. 7. Value Proposition Definition : What services offered to the consumer, at what price and conditions. Example: Books; sold at shop; can examine there; can keep and share them. Innovation : e-books; copying/sharing restricted; available online anywhere; need a reader. New services, new delivery mechanisms, new prices, new service/price combinations (e.g. “no fills”). [scope for “blue ocean strategy”?] Higher School of Economics, June 2011 Higher School of Economics, June 2011 Economic Formula Organisational Vision Position in Value Network Target Market Value Chain Structure Resources and Capabilities Value Proposition 1 – Value Proposition
  8. 8. What Value Proposition? <ul><li>To whom? (target market) </li></ul><ul><li>What are you offering? </li></ul><ul><li>What experience will they get? </li></ul><ul><li>What is special about this? </li></ul><ul><li>How does it differ from competitors? </li></ul>How will you establish this? How will you communicate this to customers? Here focus on CUSTOMER VALUE PROPOSITION. Also Employee Value Proposition BETTER QUALITY BETTER PRICE Quality has many dimensions. Novelty may be valued. However, too much learning may be deterrent. Exceed expectations -> Delight Major Business Model issue
  9. 9. Unlike other elements of Business Model, Value Proposition needs to be clear to your clients <ul><li>LANDING PAGE: where people are most likely to start. </li></ul><ul><li>How easy is it to explain? Do you need examples, specific cases? Can you avoid detail until necessary? </li></ul><ul><li>Everything needs to convey message of competence and professionalism </li></ul><ul><li>Standard messages about web page design: clarity, avoid clutter, intrusive pop-ups, jargon, privacy concerns, etc. </li></ul><ul><li>Appearance; Content; Navigation; Gifts. </li></ul><ul><li>Visitor needs to know: why am I here? Why is staying with this offering superior than looking for, or going back to, alternatives? </li></ul>
  10. 10. Price/Quality Choice BETTER QUALITY Differentiation strategy (Michael Porter) BETTER PRICE (for customers) Cost leadership strategy (Michael Porter) “ Rip off”: overcharging shouldn’t work in competitive, informed markets Fantastic value: may require mastery of a disruptive innovation Premium services: may work well with demanding/ status-oriented / money rich time poor consumers Budget services: often where disruptive innovation begins, but may also be aimed at low-income niches What space for intermediate value offerings? Whose choice: yours or consumers? Note that the customers’ perceptions of price and quality may differ from yours! Their perceptions are the ones that count. You may have a range of price/quality offerings – and you may have dynamic pricing of some sort.
  11. 11. In the first lecture, we noted three types of “Telematic Service” associated with the very first e-businesses INFORMATION TRANSACTION COMMUNICATION Online Databases News, Weather, Timetables “Home and office” banking Shopping, ticketing Electronic mail Bulletin boards, chatlines Earliest services were access to remote computers for data processing, but as prices and sizes declines, more interactive services developed.
  12. 12. The three types help to illustrate different Value Propositions INFORMATION TRANSACTION COMMUNICATION e-Publications of all kinds: Text, graphic, audio, video Real-time, transitory and long-term material Static vs.Dynamic (mash-ups etc.) Retail and wholesale services 1-2-1,1-2-many, many-2-many Email, VoIP Many sorts of service have proliferated: here are some of the varieties Processing of uploaded data, etc.: Software as a Service (SaaS) Pay for content, software, data processing Brokering virtual market places Blogs, podcasts, P2P content delivery systems
  13. 13. Value Proposition: Information Service Funding Information resources, navigable in several ways Trustworthy Aesthetics
  14. 14. News and Entertainment
  15. 15. Internet Radio <ul><li>RINSE FM:this is the landing page </li></ul><ul><li> </li></ul><ul><li>“ new British street sounds” from pirate radio to global following (but retains flavour) </li></ul><ul><li>Much listener input </li></ul><ul><li>Good case study </li></ul>
  16. 16. Information Services <ul><li>Classically one-to-many. </li></ul><ul><li>What mix of what sorts of information? </li></ul><ul><li>For whom, monetised how? </li></ul><ul><li>Issues such as Intellectual Property, content ethics and quality, storage policies </li></ul><ul><li>Use of consumers and partners in P2P and other settings. </li></ul>
  17. 17. Communication Services: Value Proposition <ul><li>Classically one-to-one, few-to few. </li></ul><ul><li>Familiar physical parallels like post, telecommunication parallels like telephony, telecomms+physical -> fax </li></ul><ul><li>Now well-established services in email, VoIP, so need to find ways of making USP particular features very clear in value proposition. </li></ul>
  18. 18. Value Proposition: Communication services <ul><li>Many services seek to provide VoiP and video calling alternatives to Skype </li></ul>
  19. 19. Even email <ul><li>Easy to understand the basic service – so how do you differentiate yourself? Very hard with such multifunction services as Gmail. How to present features like storage, spam filtering? Here the community and ethics are stressed, rather than the basic functionality. </li></ul>
  20. 20. Communication Services <ul><li>What sort(s) of communication are being offered? </li></ul><ul><li>Who is talking to whom, how do they make contact, how are they connected (what types of information are exchanged)? </li></ul><ul><li>How is the value proposition made distinctive? Is the USP functionality, or other dimensions? </li></ul>
  21. 21. Transactional Services: Value Proposition <ul><li>Some firms offer a wide range of services, some are specialised – </li></ul><ul><li>Payment systems for transaction: e.g. PayPal. </li></ul><ul><li>Marketplace (including auctions) </li></ul><ul><li>Retailer/wholesaler of physical or virtual goods and services </li></ul><ul><li>Related information services such as price comparison </li></ul>
  22. 22. Transactional Services: Value Proposition Special offers, news Membership and established customers Key service is upfront. Simple booking and payment (Expedia get commi-sssions) Note effort to differ-entiate
  23. 23. Transactional Services: Value Proposition Very basic presentation: Deliberate strategy? Key service is upfront. Link to areas where classified ads are located “ little interest in maximizing profit” (? Conflicts with eBay part-owners?) “ Funding from paid job and apartment advertisements. Content controversies!
  24. 24. Transactional Services: Value Proposition <ul><li>Easy in one respect: most models are virtual versions of familiar physical services (bricks and mortar) </li></ul><ul><li>Scope for building on existing services (e.g. Amazon offers third-party sales) </li></ul><ul><li>Delivery issues arise where physical products involved: scope for outsourcing </li></ul><ul><li>Issues of trust high </li></ul><ul><li>Security and continuity of service </li></ul>
  25. 25. Target Market Definition : Who services are being aimed at, for whom value is created. Example : Travel planning and ticket purchasing system . Innovation : Reach people on the move, with services targeted to mobile phones. New target market, often by expanding existing market and reaching people who were excluded, and/or by increasing amount of consumption in existing markets. Higher School of Economics, June 2011 Value Proposition Economic Formula Organisational Vision Position in Value Network Value Chain Structure Resources and Capabilities Target Market 2 – Target Market Value Chain Structure Position in Value Network
  26. 26. Target Market <ul><li>“ The customer you have in mind”: a member of that market segment (profession, location, language, platform, etc.) you are trying to reach. </li></ul><ul><li>Markets may be B2B, B2C, P2P… (not to mention G) </li></ul><ul><li>Mass, multiple niches, single niche </li></ul><ul><ul><li>Big firms aim at big markets; small firms can easily be outspent on budget if they try to enter directly </li></ul></ul><ul><li>What does the market want? General purpose, mass customised, very specialised (this is actually as much to do with Value Proposition) How well do you know them? How can you find out more? </li></ul><ul><li>No.1 finding in innovation research: successful innovators have good understanding of, links with, user base. </li></ul><ul><li>Different users: different benefits from the service. </li></ul>
  27. 27. As they say in business… Story about trying to appeal to too many demanding customers
  28. 28. Ning Case <ul><li>Launched 2005 by co-creator of Mosaic, co-founder of Netscape </li></ul><ul><li>Social newtworking site, competing social sites like MySpace, Facebook, Bebo, etc.: easy-to-use services for creating and hosting social networks around particular interests – photos, videos, business reviews… </li></ul><ul><li>April 2010 – abandoned effort to compete with free sites and aim at business service with three levels of paid service. More predictable revenues than advertising. </li></ul><ul><li>Permits valuable business applications with their own visual design, choice of features and member such as analytic data, integration with other company services. </li></ul><ul><li>Much narrower target market: switch outraged manyearlier users. </li></ul>
  29. 29. From roll-out to roll-up Meanwhile…
  30. 30. Example
  31. 31. Market Questions <ul><li>Who? Descriptives </li></ul><ul><ul><li>B2C or B2B differ: personal data versus sector/size data </li></ul></ul><ul><ul><li>Location, language, skills, spend </li></ul></ul><ul><li>Why? What major benefits? </li></ul><ul><li>Why you? What USP? </li></ul><ul><li>How? To reach them? To communicate effectively? </li></ul><ul><li>Should you do market and competition research? </li></ul>
  32. 32. Market Research <ul><li>Talk to the users… </li></ul><ul><li>Some other methods mentioned at </li></ul><ul><li>Keyword Research – e.g. Google adwords </li></ul><ul><li>Discussion groups – and blog searches </li></ul><ul><li>User magazines </li></ul><ul><li>Competitor and other websites </li></ul><ul><li>If no competition: why not? </li></ul>Perhaps it is impossible to provide your service at a price that users consider it worth making the switch for – case of women-only taxis
  33. 33. Resources and Capabilities Definition : the buildings, tools, knowledge, skills, routines, relationships used to create value. Example ; design services using paper-based graphics. Innovation : online CAD service (in future, 3-D printing) Better/new use of existing capabilities, application of new capabilities Higher School of Economics, June 2011 Value Proposition Economic Formula Organisational Vision Position in Value Network Target Market Value Chain Structure Resources and Capabilities 3- Resources and Capabilities Value Chain Structure Position in Value Network
  34. 34. Resources and Capabilities <ul><li>HUMAN RESOURCES: skill sets PLUS motivation. “Scripts” for routines, insight for events. </li></ul><ul><li>Skills include social and managerial skills, and in e-business typically have to manage across different professions and knowledge bases. Requires “translation” capabilities, and ability to forge common visions. Training, incentives. </li></ul><ul><li>You may have (or need to deal with) Intellectual Property resources. Content is subject to copyright regulations. In the USA it is possible to patent e-business processes, e.g.’s 1999 patent for &quot;one click&quot; purchasing technology (legal battle with Barnes and Noble; currently hot issue in Canada where it is trying to extend). </li></ul><ul><li>Technology: hardware, software, infrastructure. What is under your control? Can you upgrade if demand increases? Can you “degrade gracefully”? </li></ul><ul><li>Trial and prototype before launching! </li></ul><ul><li>Do not forget CAPACITY: managing flows. Idle resources = waste (can you apply them? Dispose of them?). Overstretched resources = risk (can you strengthen them? Reduce the risk?) </li></ul><ul><li>Resources and Capabilities are, of course, applied into ACTIVITIES that comprise your business processes involved in executing your Business Model. </li></ul>Higher School of Economics, June 2011 Resources and Capabilities
  35. 35. Higher School of Economics, June 2011 © New Yorker, 9 March 2009 The most important resource is having leaders with optimistic vision they can communicate, transforming challenges to opportunities [The second major result of innovation studies: successful innovations have a “product champion”.] Resources and Capabilities
  36. 36. <ul><li>Next lecture: the final three Elements of Business Models </li></ul><ul><li>Can you design an eBusiness Model? </li></ul>Business Model Structure
  37. 37. 20, Myasnitskaya str., Moscow, Russia, 101000 Tel.: +7 (495) 621-2873 , Fax: +7 (495) 625-0367 Higher School of Economics, June 2011